US embassy cable - 05TEGUCIGALPA2131

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 002131 
 
SIPDIS 
 
STATE FOR EB/IFD, WHA/EPSC, INR/IAA, DRL/IL, AND WHA/CEN 
STATE FOR CA/OCS/ACS/WHA AND DS 
TREASURY FOR DDOUGLASS 
STATE PASS AID FOR LAC/CAM 
DOL FOR ILAB 
 
E.O. 12958: DECL: 10/18/2015 
TAGS: ECON, EFIN, ELAB, EPET, ENRG, PGOV, CASC, ASEC, HO 
SUBJECT: HONDURAN GASOLINE PRICE FREEZE EXTENDED UNTIL 
AFTER ELECTIONS; FUNDING MECHANISM REMAINS UNCLEAR 
 
REF: A. TEGUCIGALPA 2044 
 
     B. TEGUCIGALPA 1851 
     C. TEGUCIGALPA 1991 
     D. TEGUCIGALPA 1970 
 
Classified By: Classified by EconChief PDunn for reasons 1.5 (B,D) 
 
1. (C) Summary:  The Honduran &Notables8 committee has 
recommended extending the gasoline price freeze in effect 
since September 7 until November 30, just after the November 
27 presidential elections.  The IMF has given tacit approval 
to the plan, but will most likely honor the GOH request to 
postpone until after November 30 its scheduled October board 
meeting, at which the Fund was to decide whether to disburse 
new funds.  Meanwhile, gasoline importers continue to pay for 
the actual subsidy, now estimated at 380 million Lempira (USD 
$20.2 million) for the entire three-month period.  It remains 
unclear how the importers are to be reimbursed for these 
shortfalls.  A U.S. consultant is analyzing the Honduran 
price setting formula, but gasoline importers fear he might 
be biased.  End Summary. 
 
2. (U) Honduran Notables committee chairman Catholic Church 
Cardinal Oscar Rodriguez announced October 7 the committee,s 
recommendation to continue the current gasoline price freeze 
(reftel A and previous) until November 30, just after the 
November 27 presidential elections.  This is the third time 
the committee has recommended a price freeze since September 
8, when the price was rolled back to 68 Lempiras (USD $3.60) 
for a gallon of regular non-leaded gasoline after a series of 
transportation strikes (reftel B) paralyzed the capital, 
Tegucigalpa. 
 
3. (C) IMF officials joined Cardinal Rodriguez and President 
Ricardo Maduro in giving the October 7 press conference.  The 
officials, part of team sent to re-evaluate the fiscal 
situation after the GOH declared an energy state of emergency 
September 22 (reftel C), tacitly supported the price freeze. 
Team leader Louis Breuer said that how the GOH allocates 
their budget is their own business, &as long as they comply 
with the fiscal deficit we agreed to, and don,t cut social 
programs that help combat poverty.8  An IMF official 
calculated to EconOff that the 380 million Lempira (USD $20.2 
million) required to pay the price freeze subsidy would equal 
approximately 0.2 percent of GDP, roughly equal to unexpected 
revenue over-performance realized this year by the GOH.  The 
IMF official also indicated that a scheduled October board 
meeting required to disburse IMF funds has been postponed 
until after the price freeze expires, at the request of the 
GOH. 
 
4. (C) While the gasoline price freeze has remained in effect 
since September 8, only the initial ten day period (to 
September 18) has been officially sanctioned by Honduran 
government decree (reftel D).  The major gasoline importers 
received a letter from the GOH outlining a tax credit 
approach to reimbursement for the ten days, but the GOH never 
clarified how this would work.  The second price freeze, from 
September 19 to October 2, has the GOH verbal commitment to 
pay but no supporting legislation.  This does not bode well 
for gasoline importers, who have now been asked to pay an 
estimated 80 million Lempira (USD $4.3 million) in additional 
subsidies, from October 3 to October 16.  &We have been 
bargaining in good faith with the government, but unless they 
have an official decree to cover this period we are not going 
to pay,8 said one representative from Exxon Mobil.  &We 
need to have this clarified before the elections or we will 
never see the money.8 
 
5. (C) The GOH continues to rely on the counsel of a U.S. 
citizen oil consultant associated with Trafigura Beheer SV, a 
global trading company that has a strong presence in Latin 
American through subsidiaries Puma Energy and COPENSA.  IMF 
officials expressed concern at the consultant,s interest in 
creating a GOH &Tender8, or a government-led effort to 
centralize gasoline purchases for the country (Puma Energy is 
focused on oil products storage and distribution).  Gasoline 
importers are also concerned, and questioning whether the 
consultant,s association with a global oil trader will lead 
to recommendations that are biased against them. 
 
6. (C) COMMENT:  The latest in the series of price freezes 
will greatly reduce the impact of the gasoline price issue on 
the presidential elections while passing the repercussions to 
the incoming administration.  However, the Liberal Party will 
continue to criticize the GOH for the high cost of living, 
including gas prices, an issue of great concern to the 
electorate in polls.  How the new administration (National or 
Liberal) will &unfreeze8 the prices remains to be seen, 
particularly if current prices remain high going into the 
U.S. winter heating season.  A rescheduled IMF board meeting 
after November 30 may become an effective deterrent to future 
price freezes and promote a more orderly return to GOH 
formula based pricing.  Both Post and the IMF officials we 
spoke with support a move toward a market based price, but 
neither we nor they see that as likely in the near-term. 
Without a clear regulatory framework around the price 
freezes, however, the importers may end up footing more of 
the bill than they expected.  Post will continue to monitor 
the situation, paying particular attention to the 
recommendations of the Notables Commission and their fiscal 
impacts. END COMMENT. 
Williard