US embassy cable - 05TEGUCIGALPA2185

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 002185 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, WHA/PC, EB/OIA/IFD, COMMERCE 
FOR MSEIGELMAN, TREASURY FOR DDOUGLASS, STATE PASS AID 
(LAC/CAM), STATE PASS USTR FOR ANDREA MALITO, GUATEMALA FOR 
COMMAT: MLARSEN. 
 
E.O. 12958: DECL: 10/26/2015 
TAGS: EINV, ETRD, SENV, ECON, PGOV, HO 
SUBJECT: OPIC-BACKED U.S. INVESTOR'S USD 11 MILLION HOUSIN 
PROJECT STONEWALLED BY HONDURAN MINISTER OF ENVIRONMENT 
 
 
Classified By: ECONCHIEF PDUNN FOR REASONS 1.5(B,D) 
 
 1.  (C) Summary:  The OPIC-supported Altos de Zambrano 
housing project has been stalled for nearly six months in 
SERNA.  Post does not find Ministry of Environment and 
Natural Resources' (SERNA) justifications for the delay 
credible, and fears that political pressures and/or personal 
interests of senior GOH officials are to blame.  Despite the 
professed GOH expectation that CAFTA will encourage increased 
U.S. investment into Honduras, SERNA continues to make many 
such investments difficult or impossible.  End Summary. 
 
2.  (C) On September 2, 2005, Charg, EconChief, and EconOff 
met with Minister of Environment Patricia Panting and 
Director of the Department of Environmental Evaluation and 
Control (DECA) Jose Heliodoro Zamora to discuss multiple U.S. 
investment projects held up within the Ministry of 
Environment (SERNA).  During the course of the meeting, the 
Minister alternately blamed the delays and failures of her 
Ministry to review and issue expeditious decisions on U.S. 
investor solicitations on her own technical experts, the 
legal advice U.S. investors receive from their Honduran 
attorneys, and the actions of other Honduran government 
institutions.  Charg expressed his concern that the slow 
processing of environmental permits within SERNA for energy 
and housing projects could dissuade potential investors from 
coming to Honduras.  He emphasized that these delays conveyed 
a negative image of Honduras to potential investors, even as 
CAFTA and the Millennium Challenge Corporation bring 
increased investor consideration of Honduras as a possible 
destination for foreign investment.  Charg and EconChief 
then took the opportunity to discuss the Altos de Zambrano 
case in more depth. 
 
------------------------------------- 
GHP/Altos de Zambrano 
------------------------------------- 
 
3. (SBU) The Project:  GHP is an American company building an 
$11 million housing project in Zambrano, just north of 
Tegucigalpa.  The USG, through the Overseas Private 
Investment Corporation (OPIC), has committed USD 1.5 million 
to the project, and has disbursed the first USD 250,000.  The 
project will consist of approximately 521 housing units 
designed for the Honduran middle/lower middle class market. 
Currently, GHP has built one model home on the site and has 
negotiated sales contracts for approximately 160 of the 
homes.  Before the next OPIC disbursement will be made and 
the company can continue construction, Minister Panting must 
sign the final environmental permit.  Post met with Panting 
to learn why the project remains stalled. 
 
4.  (C) Panting began the meeting by praising GHP,s 
OPIC-sponsored housing project, Altos de Zambrano, as a good 
one and later stated it was environmentally viable.  However, 
she said, two overarching issues prevent her from signing the 
permit.  First, she claimed that the project might be located 
in an environmentally protected area.  Second, she stated 
that there is no watershed management proposal in place for 
this area, which, since it requires review from the Forestry 
Service (Cohdefor), is outside of her control. 
 
5. (C) Referring to six ongoing lawsuits against her over 
another recent housing project located in La Tigra National 
Park just outside of Tegucigalpa, the Minister said that she 
feared additional legal problems if she signed a permit for 
the GHP project if it is in a protected area. EconChief noted 
that, according to GHP lawyers, there is no protected area at 
the proposed project site.  While at one time in the 1970s 
there had been a GOH proposal to declare these lands a 
protected area, according to GHP the proposal was never 
approved by the Honduran Congress, thereby leaving the lands 
free for development.  In fact, since then, sites all around 
the proposed GHP sites have been developed, and a firm 
reportedly owned by the Vice President is currently operating 
a gravel pit on the GHP site itself.  Finally, the entire 
area is crossed by highway CA-5, the most important (and 
busiest) north-south route in Honduras. 
 
6. (C) Panting stated that GHP's contention -- that because 
the site was never declared a nature preserve, it is 
therefore not a nature preserve -- was an interesting 
 theory, but that there are other theories as well (about 
which she did not elaborate).  She indicated that she has 
asked the Honduran Solicitor General (Procurador de la 
Republica) to render a judgment on the status of these lands, 
and instructed DECA Director Zamora to arrange a meeting with 
the Procurador to obtain a readout on this issue.  The 
watershed management plan is only required in such a 
protected area.  (Note: GHP Honduras has since obtained an 
opinion issued by the Forestry Commission within the National 
Congress, which indicated that their property is not a 
protected area.  This information was forwarded to the 
attention of Minister Panting on September 29, under a cover 
letter from Charg. End note.) 
 
7. (C) EconChief noted that in December 2004, SERNA officials 
had issued a letter authorizing the company to begin 
preliminary construction.  The Minister responded that, as 
the Minister, only she had the power to authorize such 
permission.  This was the first of several occasions on which 
Panting said, in effect, that just because a SERNA official 
grants a permission does not necessarily mean that SERNA 
stands by that permission. 
 
8. (C) Panting then said that the project could not be 
approved because parastatal water authority SANAA was 
considering building a reservoir on the site, though they 
have never issued any plans to that effect.  EconChief 
protested that investors lack the necessary predictable and 
transparent investment regime if SERNA authorizations are not 
considered official and if other agencies can come along 
later and cancel permits because they are considering 
possibly building their own projects.  Panting agreed with 
EconChief on this point, but offered little more than a shrug 
in reply.  (Note: GHP Honduras has since supplied post with 
letters from SANAA and COHDEFOR, indicating that there were 
no further water studies underway by these agencies and that 
they do not manage this water basin in exclusivity.  These 
letters were also forwarded to the Minister on September 29 
under cover from the Charg. End note.) 
 
9. (C) Director Zamora turned the discussion to the potential 
environmental effects of the project.  He stated that there 
have been several housing projects within this watershed put 
on hold, and that GHP was not an exceptional case.  This is 
in direct conflict with information provided to us by GHP, 
who claims that in the last 2 months, Serna has issued 20 
permits for other housing projects near their project, 
including some projects actually located within protected 
areas. 
 
10.  (C) When EconChief asked about a recent letter from 
SERNA lodging a legal complaint against GHP and threatening a 
fine of 600,000 lempiras (about USD 35,000), Zamora denied 
any knowledge of it. (Note:  Director Zamora signed the 
letter.  End Note.)  The alleged fine, according to GHP is 
entirely without merit.  The fine -- the maximum allowable 
under the Honduran environmental code -- is being levied for 
"soil contamination," even though the specific charge is that 
there was trash on the site.  The law, intended to cover 
chemical spills and similar ecological disasters, was clearly 
not intended to cover trash.  Nevertheless, the company 
immediately dispatched a crew to clean the site.  The crew 
reportedly collected six trash bags full of trash (plastic 
Coca-Cola bottles and similar) from a site of more than 120 
acres.  Furthermore, GHP claims that the trash is not even 
from GHP workers, since the firm has barely begun work on the 
site and many of the bottles seemed to have been on the site 
for months or years.  In any case, the company told Post, a 
few Coca-Cola bottles hardly constitutes soil contamination. 
The firm alleges that the fine is intended either to signal 
that the project is not welcome, or is intended to elicit a 
bribe in exchange for a reduction of the fine. 
 
11.  (SBU):  On October 19, Embassy Legal Advisor attended a 
meeting with Minister Panting and principals of GHP.  In this 
meeting, the Minister expressed her opinion that the letter 
from COHDEFOR was insufficient, as it was not signed by the 
head of that agency.  GHP supplied Embassy with a copy of a 
letter from COHDEFOR, signed by the head of the agency and 
delivered to Minister Panting early this week, reiterating 
that the agency had no objections to the project.  GHP has to 
date received no response, nor acknowledgment of receipt of 
this letter by Serna. 
 
12.  (C) Comment:  While Minister Panting and Zamora both 
judged the project to be environmentally sustainable and 
generally praised the project, they stated that the two cited 
issues must be resolved before the final environmental permit 
will be issued.  The alleged violations and consequent fines 
mentioned in the SERNA letter to GHP were not mentioned, and 
instead these new obstacles were introduced.  This was the 
first time these concerns were raised either with the Embassy 
or with the company.  Post does not find the alleged reasons 
for the non-issuance of the permit to be credible:  (1) the 
alleged nature preserve does not exist under Honduran law, 
and (2) the plans for the reservoir have never been announced 
and, based on the recent SANAA statement, likely also do not 
exist.  The site of the GHP project is on a hilltop, only a 
few hundred meters from other homes and from the CA-5 
highway.  Post doubts that the GOH would plan to flood the 
principal highway connecting Tegucigalpa with Puerto Cortes 
(the same highway the Interamerican Development Bank and the 
Millennium Challenge Corporation are spending hundreds of 
millions of dollars to expand).   Post also finds it suspect 
that the fine levied against the company was not mentioned by 
either Zamora or the Minister, nor were the allegations upon 
which the fine was levied the basis of non-issuance of the 
permit.  At best, the Minister is stalling the issuance of 
this permit for fear of risking any criticism heading into 
the November 27 presidential elections.  At worst, government 
officials are seeking fines for personal gain, and some 
question whether the Vice-President is in some way 
obstructing this project to maintain his company,s access to 
this land for gravel mining. 
 
Williard 
Williard