ALLEGATIONS OF CORRUPTION SURROUND DAM MANAGEMENT
CONCESSION
Classified By: Ambassador Hugo Llorens for reasons 1.4 (b & d)

1. (SBU) Summary: A last minute concession granted to a Honduran-Italian consortium by the Micheletti regime has erupted into a scandal. Critics allege that the deal was approved by outgoing Congressional leadership without a vote and hastily signed into law by the outgoing administration.
The deal was published in a rump volume of the government’s official register, leading to a belief that the Micheletti administration was attempting to cover it up. While the alleged cover-up has dominated headlines, the concession itself is a more serious issue. President Lobo’s Council of Ministers decided in its first meeting (before the issue of the rump register surfaced) to appoint a commission to look into the issuance of the concession, along with other decisions made by the Micheletti regime. The Supreme Accounting Tribunal is also investigating. While de facto regime leader Roberto Micheletti and his colleagues portrayed themselves as practitioners of efficient and honest government, they appear to have cut a significant number of back-room deals, which were egregious even by local standards. The dam concession is the prime example.

2. (C) Summary continued: Credible Embassy sources have directly implicated Micheletti and some of his closest business partners in this deal. End summary.

3. (U) On February 11, Honduran newspapers reported that two versions of the official publication “La Gaceta”, the equivalent of the U.S. Federal Register, had been published on the same date and with the same serial number on January 22. The difference was that the first version contained a decree granting a concession contract for the improvement, operation, and exploitation of the Jose Cecilio del Valle dam and hydroelectric plant near Nacaome to a Honduran-Italian consortium. About 20 copies of this version were printed.
In the remaining copies, with the same date and serial number, this entire 24-page section was missing. (The dam section was also dropped from the table of contents.)

4. (U) Suspicions abound that this is part of a cover-up involving the concession, although it is not exactly clear what aspect of the double Gaceta publication purportedly constitutes a cover-up. Since a law in Honduras cannot go into effect until it is published in the “Gaceta”, several sources quoted in the newspapers said this was an attempt by the Italian consortium to get the final seal of approval on the deal, even though there may be outstanding doubts or questions. Whether through covert schemes or procedural error, government leaders have promised an investigation. In the meantime, the new manager of the government printing office, Martha Alicia Garcia, who started her job on February 1, announced on February 12 that both editions of the “Gaceta” in question were nullified. Far from solving the situation, this announcement further obfuscated it, with several parties questioning her authority to nullify a publication of the law.

5. (U) Even before the issue of the “Gacetas” arose, the government had decided to review the dam concession as well as a number of other decisions taken by the de facto regime.
While the question of the “cloned” Gaceta is dominating the headlines, the dam concession itself is a more important issue. On January 13, near the end of its term, the congress approved the concession to a consortium which included the Italian companies Italian Industrial Agency S.R.L. and B&P Altolumie SNS, and the Honduran firms Hidrocontrol S.A. and Desarrollo y Construcciones y Equipos S.A. The consortium, known as Electrica de Nacaome S.A. (ENASA), was granted the concession to manage the dam, which was built in the 1990’s, in exchange for promises to make improvements and to pay the Honduran government 1 million Lempiras (approximately USD 53,000) per year. The de facto regime leader, Roberto Micheletti, signed the law on January 20. Congresswoman Ana Julia Garcia, along with others, raised objections afterwards that the law was rushed through the system, without enough time to give thorough consideration to all the implications of the decree such as costs to the GOH and loss of other benefits. For example, a plan by the Italian government to grant 25 million Euros (USD 34 million) for expansion of power generation capabilities would not proceed if the management of the facility were in private hands. Also, recent reports indicate a concession to manage part of the dam operations had already been granted to a Spanish firm.
The press reports also indicated that the concession was granted without the normal bidding process.

6. (U) Jose Alfredo Saavedra, who assumed the presidency of congress when Roberto Micheletti took power as head of the de facto regime, was presiding over congress at the time the bill was passed and has downplayed suggestions of impropriety. However, citizen and congressional concern, especially from the region of the country where the dam is located, has stopped the implementation of the concession and brought about investigations in Congress, the Attorney General’s office, and other agencies charged with combating corruption.

7. (C) According to Embassy sources, Micheletti was one of the Honduran partners in the consortium granted the concession. The chief actors included Saavedra, Micheletti Minister of Public Works Saro Bonanno, and Micheletti intimates Johnny Kafati and Roberto Turcios. It is inconceivable that this deal could have been put together without Micheletti’s knowledge.

8. (SBU) Comment: While Micheletti and his colleagues portrayed themselves as practitioners of efficient and honest government in contrast to President Manuel Zelaya’s chaotic administration, they appear to have cut a significant number of back-room deals, which were egregious even by local standards. The approval of a huge hydroelectric deal, with such little benefit to the state, just a week before the regime left office is the prime example. Members of congress and others who in normal times would have exercised scrutiny were distracted by the political crisis and the elections.

The Lobo administration’s decision to review these deals is wise given the president’s assurance that he will take on corruption. End comment.
LLORENS