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Cablegate: Nicaragua: Propane for the People

VZCZCXRO6355
RR RUEHLMC
DE RUEHMU #1214/01 2751732
ZNR UUUUU ZZH
R 011732Z OCT 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3217
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1322
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 02 MANAGUA 001214

SIPDIS
SENSITIVE

STATE PASS USTR
STATE FOR WHA/ESPC AND WHA/CEN
STATE ALSO FOR EEB/BTA
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN

E.O. 12958: N/A
TAGS: EINV ENRG ECON PGOV NU
SUBJECT: NICARAGUA: PROPANE FOR THE PEOPLE

REF: MANAGUA 706

Summary
-------

1. (SBU) On September 24, President Ortega declared a state of
emergency and announced that the Nicaraguan Government would name an
"Intervention Board" to manage propane distributor Tropigas for six
months "to address a potential propane shortage." A Tropigas
official claimed there is no propane shortage, but he acknowledged
privately having delayed the importation of new supply to leverage
the government into raising propane prices, which are regulated.
Petronic President and FSLN Treasurer Francisco Lopez had suggested
the day before the intervention that Venezuela could supply propane
through ALBANISA or that Petronic could rent Tropigas' facilities to
distribute Venezuelan gas. In the near term, the FSLN could
tolerate neither a price increase for, nor a shortage of, the
predominant cooking fuel. In the long term, Petronic could use
Tropigas' infrastructure to establish itself as a propane
distributor.

Ortega Orders Tropigas Takeover
-------------------------------

2. (U) On September 24, President Ortega signed Decree 53-2008,
invoking constitutional powers to declare a state of emergency and
authorize the Nicaraguan Energy Institute (INE) to intervene in
propane distributor Tropigas for six months "to address a potential
propane shortage." Ortega justified the measure on FSLN-controlled
Radio Ya, explaining that it was the role of government to
"guarantee propane supply at fair prices." Ortega said he had no
choice but to intervene because Tropigas, which supplies 70% of the
propane in Nicaragua, had threatened to cut off supply if INE, the
government regulator, did not increase prices by 100%. The decree
also stated that "this intervention does not affect the property
rights of Tropigas."

3. (U) On September 29, the Executive Committee of the National
Assembly returned the decree to the executive branch for
clarification and technical corrections. Legislators requested more
information regarding the justification for declaring a state of
emergency and suspending constitutional protections to allow INE to
make financial and operational decisions on behalf of Tropigas.
They also complained that First Lady Roasario Murillo, who is not a
member of the Council of Ministers, was among the ministers who
signed the decree. When the decree is corrected and resubmitted,
the National Assembly will meet in a plenary session and approve it
as is, approve it with amendments, or reject it outright.
Meanwhile, the measure remains in effect.

4. (U) INE President David Castillo, a Liberal Constitutional Party
(PLC) politician who often cooperates with FSLN officials in
compliance with the power-sharing arrangement between Ortega and
Aleman (reftel), told reporters that Tropigas "was in a weak
financial position" and INE would "work with the company to supply
propane at current prices." Castillo asserted that Tropigas had
reserves in Nicaragua for only three days, far below the ten-day
cushion required under the 1998 Hydrocarbons Supply Law.

5. (U) Castillo claimed that in a meeting on September 23, Tropigas
rejected a number of INE options that would help the company improve
its financial position and increase supply. He said Petronic --
represented at the meeting by President Francisco Lopez, who also
serves as FSLN Treasurer -- was available to provide financing to
Tropigas. Castillo said Venezuela could supply propane through
ALBANISA for Tropigas to bottle and distribute. He further
suggested that Petronic could rent Tropigas' facilities for the
distribution of Venezuelan propane.

Tropigas Denies Supply Problems
-------------------------------

6. (SBU) Tropigas is a family-owned company based in Panama with
operations in El Salvador as well. A U.S.-citizen family member
holds a minority share. Tropigas General Manager Walter Calderon
told Econoff on September 26 that Ortega's decree was unnecessary.
He explained that the company had delayed purchasing additional
supply as leverage for a price increase in its negotiations with
INE. The company never intended to completely cut off supply, he
explained. In fact, propane was in transit from Puerto Cortez in
Honduras.

7. (SBU) Calderon said that on September 19, Tropigas wrote INE
complaining that the "situation had become untenable" and that
without a price increase, the company could not import additional
supplies and continue distribution at least in the form of 10- and
25-pound tanks. That letter, Calderon believes, triggered the
government intervention. He explained that INE establishes propane
prices according to a formula that reflects changes in the market
price of propane. Since 1995, this formula has not factored
increases in wages, transportation, and environmental compliance
costs. Calderon said Tropigas loses money on all 10- and 25-pound
tanks for household use but sells 100-pound and larger tanks for a
profit. He said Tropigas is a wholesale distributor only and thus
does not collect retail margins (regulated by INE) on which its
competitors rely to make a profit.

INE Establishes Intervention Board
----------------------------------

8. (SBU) Since Ortega's September 24 decree, INE has established an
"Intervention Board" that includes technical, administrative, and
financial staff to oversee Tropigas' day-to-day operations. Board
Director Onasis Delgado ordered Tropigas to purchase 70,000 gallons
of propane from competitor Zeta Gas on September 25. Calderon has
sought to block the delivery on safety concerns and as of September
29 claims that his company has a ten-day supply. In addition,
Delgado has ordered Tropigas to allow him to sign for the company on
all financial dealings.

Propane for the People?
-----------------------

9. (SBU) At the September 23 meeting, Calderon told Econoff that
Petronic President Francisco Lopez outlined a plan for the
government to use ALBANISA funds to provide 25,000 stoves and 50,000
propane tanks to the public during the next two months. Calderon
speculated that the government intervention may be motivated by the
desire to use Tropigas' storage facilities and distribution
capabilities to get these stoves and propane tanks into the kitchens
of potential voters before the November municipal elections.

Comment
-------

10. (SBU) It is plausible that Ortega would want Petronic to take
over Tropigas operations. In August 2007, he seized ESSO storage
tanks for a similar purpose. That led to the flow of funding from
Venezuelan oil company PDVSA to FSLN-controlled entities and,
likely, to the ruling party itself. With municipal elections just
six weeks away, Tropigas' gamble that creating a propane shortage
would force INE to raise prices seems to have backfired. In the
near term, the FSLN could tolerate neither a price increase for, nor
a shortage of, the predominant cooking fuel. In the long term,
Petronic could use Tropigas' infrastructure to establish itself as a
propane distributor.

CALLAHAN

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