Honduras - Petroleum supply management

a S:: *... , [, ,111wz~~~~.. | i g,:~E..  HONDURAS PETROLEUM SUPPLY MANAGEMENT March 1991 ESMAP Strategy and Programs Division Industry and Energy Department The World Bank Washington, D.C. 20433  FOREWORD Tbis report b the ret of a study conducted in July 1989 by the Joint UNDP/WorId Bak Eergy Sctor Magement Assistance Progrme (ESMAP). The sudy was conducted by a working group under the supervision of and with the msace of Mr. Salvador Rivera, Task Mnaga (ESMAP), Ken Hornby (consultant, ESMAP), A. Rios (consltant, ESMAP) and Rodrigo Leiva (consultant, ESMAP). The working group benefited from discussig and received the collaboration of Mr. Adalberto Chavez Pett, Norma Rauda, Jesus Orellana at the Comision Admi del Petroleo (CAP), Mr. Rafael Ochoa at the Infrastructure Department in SECPMAN, Ms. Graciela Santos at the Central Bank, Texaco Management and, at the initiating stage, Mr. Zia MN from the World Bank. Ms. Susna Zurbaran and Mr. Ahmed Basbarat provided secretarial assistance.  CUIRENCY UQIVALT Cmemy Uni - Lavin (L) 1 USS-L.2 a 1 USS = L.S.3 h/ Raoo prvlig in July 1989 at the time of the mission's visit. hi Ae as of anuary 1991. F isa Januay 1 to December 31  B or Bbis. Barrel (42 U.S. gallons) BCF 24 Bolivar Coastal Fidds crude (240 API Gavity) CIF Cot, Insurance and Freight D Day DWT Dead Weight Ton ETA Esdmated Time of Arrival PO Fuel Oil FOB Free on Board ft. Feet gal. U.S. Gallon GP Gneral Pupe K One Tbousand L Lempira LOC Letter of Credt LPG Liquified Petroleum Gas LR-l Large Range (Class 1) LT Long Ton MR Medium Range MT Metric Ton NCE Net Capital Employed 87R 87 Research Octe Motor Gasoline 95R 95 Research Octane Motor Gasoline S & T Supply and Tramportation USS U.S. Dollar yr. Year ACROSM AFRA Average Freight Rate Assessment CAP Petroleum Admnisave Commission MARAVEN A Venezuelan Petroleum Company (A subsidiary of PDVSA) PDVSA Petroleos de Venezuda, S.A. (he national Oil Company of Venemela) PEMEX Mexican Oil Company REFTEXSA Texaco Refinery at Puerto Cortes TEX-TRADER Teaco International Trader, Inc.  TABLE OF CONTENTS EXECUTIVESUMMARY AND RECOMMENDATIONS .... ............. i-vi CURRENT PETROLEUM SUPPLY ARRANGEMFNTS ................... 2 MheEconomy .......................................... 2 BackgroundandProspet .................................. 2 Petroleum and the Economy .. ............................... 3 Currn Petroleum Supply Arrangements ............................ 6 RefiieryOperation ............................... 6 Backgronmd and CurrentSituation .............................. 6 Overview ........................................... 7 Product Demand and Foreast ................................ 8 Refinery Takage ....................................... 10 Refinery Operaion ............... .1......... 11 Cost Comparsons: Crude Refining vis-a-vis Product Imports ......................................... 12 Options to ncrese Efficiency ............ .. ....... 15 Crude Procuremen . ....................................... 17 Supply Contracts ........................... ............ 17 Crude Tnker Sizs ....................................... 18 AfSa ad WorldseWeSyste ...................................... 18 Crude Freight Arrangement .............. . .. ............ 18 Flexibility and Opdmization of Crude Procurement ......................................... 20 Summary of Recommendations, Constrai and Timing .......................................... 21 Finisied Products Procurement ..... ............................ 21 Supply Conact ........................................ 21 Finised Products Freight . ................................. 22 Other bsues bwolving Products .............................. 22 Summary of Recmmendations: Constain and Timing ........................ . ................ 25 11. ALTERNATE CRUDE AND PRODUCT SUPPLY POSSIBILIES.... ........ 26 E3imination of Certain Supply and Transporta- tion Possiblities ... .................................... 26 PrcsisgCru de atThrdParty Reftnery ........................ 28 Term Arrangement for Pd Pcurdses ........................ 30 Voyage/Term Arrangemen for Crude Transportation ..... .......... 31 VoyageTerm Arrangemen for Products Tranisportation .............. 32 Liberaitdon of Petroleum Impors ........ 32  niprmoe Fret Rt for Fuel 0R EBqos . ...................... 33 SummaryofRe nse0l,CbonstraiUtandTlmnlg .......... ..... 33 IDL CURRENT FINANaALNFORMATON SYSFTE ... ..................... 3S Fborast of Foren Excdanp Needs ............................. . 3S Badround ...........................................*.* 3S PropbdePses ...........................w r 36 Implement_ion and TminWg of Recb grem de ...................... .................... 36 Letters ofCrdit EforFrigh it adIrne onhd Ltte lmnoxCrat .................................. .... 37 Pwle Wd, di Ld Of Crf Proess ........u.e.............. .................. 37 nnda ............................................. 47 ZI mI A I.D and Timing of_/ AgialrecoclitonoeEcde ..... .. .. . .. .. .. .. ... . .. . .. ......... 40 Smmaiof PovernmentReenuw .........................fP 41 Vo. rEIHcC"Eforh CnDe ...D...NS S E ........................ 42 ProposemedS Puc edFeature of SisedmP.ctB ......... ..................... 43 LettenofCreditfor FnWgk ad h =e on Cnue ShrarIfmt ..................................... 45 OdurblpmS ............... ................ 4S TSstodPames*ntfrCnde ................................. 45 Suppol1n I s a mnFlland T1 ...g of R. ..n. . 5 S p bi' ................... ...... . 46 Mm AEdes ..................................... ... 47 Eeennn3kand Uw of the Esdom Exc^ed ........................... 47 n~~of de Acou Exoedef t be Pid ............................ 47 ALAW u R nFibof Exbednte ................................ 48 Advoe an Excdeft Reedve by CA W .............................. 48 Sumay of Gmm R_8em fiom do Pauex bIkdsay ......................... 49 Sumnmay Of R P c n II-IIP0 iomandlmingu .......................... 49 IV. ENHANCEFDINFORMA7AlON SYSTEW ................................... 50 PfroposodSystom . .................................... SO h"90-^Sind Iimng OfRxJdba Ptpose Structlm anld Featme of Sytm ................................. 53 Go"SIbnfomaion ....................................... S3 Sy"m Codes ................ ........... 53 Spodg Systm Ffes ..................................... S3 P~~~fot _ ........................ 54  ANNEXES 1 Program for the Liberalization of Downstream Peoleum Market 2 Cost Comparison of Running Crude at Texaco 3 Texaco Refinery & Retur on net Capital Employed Year 1988 4 1988 ARA and Worldscale Rates 5 Comparative Costs of Pewoleuna Supply Cases 6 Job Description of CAP's Supply & Transportation Coordinator 7 Monthly Program Form for Imported Crude and Products 8 Monthly Program Form for Imported Crude and Products 9 Form for Request to Central Bank for Crude LOC 10 Form for Request to Central Bank for Refined Prducts LOC 11 Form for Request to Cental Bank for Crude Transport. & Ins. LOC 12 Form for Liquidation of Crude LOC 13 Form for Liquidation of Refined Products LOC 14 Form for Liquidation of LOC for Crude Freight and 15 Calculo del Valor CIF de las Importaciones a Recibir por la Refineria Texaco de Honduras, CA 16 Present Crude Information Flow Chart 17 Pre Refined Products Information Flow Chart 18 Chronology of Texaco Payment for Crude 19 Example of the Development of the Excedene for Crude Cargo that Loaded March 2, 1989 20 Factura ComercWau 20 Calcudo de Excedente Estimado (Anualizado) 21 Resumen Compra-Vena de Petrol Cndo yRon do 22 Facura Comerca 23 Factura Comercia 24 Poposed Framework for Crude Inormation Flow Chart TABLES I Rcon dt for Immediate ementation ........................ iv 2 Rtemndion stbeImplemented afterAgreement. v 3 Reonmmendaios wh CAP has S. & T. Expetise . .. ........ vi 1.1 Ho sGovernment Reveue from PeroleumIndustry ........ 4 1.2 Petroleum Price Stmcture - January 1991.......... S 1.3 Fuel Oil Expots from Teao Reflney (1983-1988). ..... 7 1.4 Refinery Yields and Product Demand, 1988 ........ ...... 9 1.5 EnAd Product Demand Ir per Anw, % .. ........ . . . ... 9 1.6 Petroleum ProductDemandandForecastto199S . .................. 9 1.7 Teuo Rdfinery Product Tankage Analysis .. . .. . . . . . . 10 1.8 Texaco Refinery Opaating Cost ex Fuel .......................11 1.9 Cost Comparison of Running Crude or Importng Products and Adjusig Results to Reflect Imrovemwens in each cm ........................ se1  1.10 Recommendations Associated with Refinery Opeations .................... 17 1.11 Toaner Sizes and ypical Drafs .......................................... 18 1.12 Recommendations and Timng Summary ............................. 21 1.13 Takage Utilization at the Proposed Petela ...... .................... 24 1.14 Tankage Capacity for Selected Petroleum Products ................. ...... 24 1.15 RecommendationsandTimingSummary ..... ........................ 25 2.1 Crude and Product Supply and Transportation Alternatives .. . ............... 26 2.2 Summary of Comparative Costs of Petroleum Supply Cases.. ...............29 2.3 Possible Improvementso Alternate Supply Cases . . . .30 2.4 Recomme dationsand Timing Summary .......33 3.1 RecommendaionslAgreementsandTimingSummary . . . .36 3.2 Recommendations/Agreeents and rming Summary . . . .41 3.3 Recommendations/Agreements and Timing Sumary . . . .46 3.4 Summary of Recommendations and ring .....49 4.1 Recommendations/Agreementsnd Timing Summary . . ................... 52  EXECUTIVE SUMMARY AND RECOMMENDATIONS 1. This projeat is a follow-up to the Honduras Energy Assessment report of 1986. In July 1989, and October, 1990, ESMAP missions visited Honduras to: i) evaluate current petroleum supply arrangements, identify main issues and options to enhance the efficiency of the system; (ii) review the mechanisms in place to monitor financial revenues derived from import and internal distribution of petroleum products; and iii) implement a seminar for Government officials on downstream pJetroleum industry operations. 2. This report is divided in two parts: Supply Management and Financial Management. Part one comprises Chapter I and JI and reviews current supply arrangements and options to enhance the current system. Part two includes Chapters m and IV, reviews current mehanisms to monitor financial revenues and proposes changes to enhance this system. The mission has designed and implemented an information system at the Petroleum Administrative Commission (CAP) to enhance the monitoring of procurement operations and the scheduling of petroleum supplies vis-a-vis foreign exchange availability. A four-day seminar on petroleum industry operations took place on October 1990 and was attended by participants from the six Central American Countries. Petroleum Setor anization 3. Petroleum consumption in Honduras is about 16,000 Bbl/d (US$130 million in 1989). Petroleum demand has been growing at about 7.2% per year during the last four years. The Texaco- owned refinery in Honduras reflnes about 60% of petroleum products consumption; the remaining 40% is also imported by Texaco. 4. The Petroleum Adminstrative Commission (CAP) has, under decree 94 of 1983, the exclusive right to purchase and resell crude and petroleum products. Tbe CAP is responsible for the purchasing of crude oil and reselling it to the Texaco Refinery, and the setting of product prices at each point in the supply chain up to the retail level. In practice, Texaco is in charge of all the logistical aspects related to the supply transportation, and distribution of both crude and petroleum products. 5. For finished products, the Texaco Refinery has a finished products CIF purchase agreement with Tex-Trader that covers the supply and transportation ef refined petroleum products delivered to the Texaco refinery in Puerto Cortes. 6. Domestic distribution is carried out by private companies: Texaco, Esso, Shell, Dippsa, Copena, Pehon and Tropigas. These companies, as well as the Texaco refinery, operate within the boundaries of the cost and pricing structure set by the Government; this has led to demnwds by the distributos to increase the margins to keep pace with inflation and required new investments.  ll- 'be ImII 7. 'Me main Petroleum Supply issues facing Honduras are at both macro and subsectoral loves. 8. Macro, At the macro level, lack of foreign exchange has created petroleum shortages, forcing the Goverment into arreas with Texaco. Additonally, inadequate planning in petroleum procurement by CAP has led to p emn ifficiencies, reflected in additional coss to the Governume. Just in 1988, the Govenmm nurrd unnecessary fancW charges of about US$1.5 million, cawd boti by delays in the process of opening Leters of Credit and lack of forecasts of fbrehk=n exchange needs at the Central Bank; this problem has ben compounded by the lack of transparency or acountability by the istiuions involved in the procurement system, paricularly in CAP's operations. 9. 'he permanet solution to this problem is linked to the process of required economic adjustment and economic gowth. The failure to take corretive action and continue operating in a crisis siion will inae_ the cost of petroleum supplies while reducing the fiscal contibution of revenes deived from the Imt of crude/product and of sales at the retail level; in addition, there will be asociated costs to the economy caused by the shoages. Under current circsances, the only oretive masure that the Gov fmen can tak I to coordinte an acceptable level of peroleum supply in relation to availability of harurrenc and encourage the efficient use of Petroleum, i.e. a lower ene/GDP ratio. 10. Subal. At the sub-actoral level, the issue is of an insituonal nature. nstionally, under the cuaret system: I there is a lack of tanp ency and accountability in the ulatory system, which, fuirther, does not provide incentives to reward efficient operions ad penalize uneoonomic operaons i.e. cntly, the reinery operates on the basis of an unwritten agreement to receive a gudar 10 million L.mpiras-wlthout assurance of profit ce, thus creatng uneranty on hture invs -while the dinuo must work witin the lim of an imposed priing structue; ii) the Govermet has both a policy aW operational role in the proement of crude and petroleum product, thus craing a conflict of intr i.e. the Govmen's exclusive right to import petroleum crude/products and price cool polices have prevented any competition In the sub-sctor; and ii) conequety, there an absn of economic criteria to set petoleum prices, subsidies and taxes. 11. As a conequn of tbb institutional issue, the downstem petroleum industry opets unter a cost-plus system. As a ret, in 1988, the cost t the ecnomy of the Governmen's decsion to runa crude veus im products was In the US$812 million range; for the fuue, this oppornity ost wi change accding to the crudepice differtils in aional markets. Domestic petroleum prices, which have bhtorically been above their import parity cost, were, as of January 1991, under a crss-subsdy system (Table 1.2).  * ill - 12. To address this issue, the mission has evaluated alterative arngem which would allow more competition, transparency and the consequent reducion of premet costs while mantaining security of supply and quality control of petroleum products. 13. Ibis report concludes that a fst opdon for Honduras is to move towards the phased liberalization of the petroleum Import system. (Annex I gives a description of phases involved in liberalization of the market). A first phase would include the liberalization of petroleum Imports and a second phae would tackle domestic distibution and libalization of petroleum prices. 'Me Govemment would: (0) play a coordinating role to achieve economies of scale; (ii) regulate and dictate norms for safety of depots and quality control of products; (iii) ensure that CIF prices reflect least-cost options; and iv) ensure a competiive market for supply and distrlbution of petroleum products. 14. This option would eliminate any Government interventon regarding the operaions of the Texaco refinery, since the refinery would choose, according to the market, to: (a) condtue to operate at ex-refinery prices equal to import parity prices, (b) shut down an convert the ankage to a products terlmnal, or (iii) to de-botdeneck and reduce opeting costs. Ibis option would not proeude the Govenment from continuing implementing the San JosE Accord. IS. Tle constraints to liberaize in a single step are of a leslative and logistical naue, i.e. lack of streamlined legislation to allow the cotuction of petroleum fastructure i.e. storage faciltles, lk of tained indiviuals in the Government to monitor a compedtive petroleum industry operation, and the unprdictability of access to foreign ecshange. The phased deregulation of the petroleum supply and distribution system will have w be done shorly, otherwise ontiouing inflation and devaluation will require Goverment determied price adjustments that under the curnt system are likely to lag behind requirments and lead to breowns in the economic adjustent process. 18. Ibe many recomm at included throughout ths report are sumarized bere In more ner terms and ar by their constraints and by the tming of their implemeaon. Ibe sic cb...modatios dhat can be implemented immediaely ar listed in Table 1.  - iv - Tible Is RRCOtUENDATIONS F IMMDIATE INPLEHENTATION R eooendations Remarks laow Refinery Oeration * Start negotiations between Goverreent * Needed to provide Refinery incentives nd Texaco on new format operating to operat efficiently and to aLlow tong agreement linked to parity co8t of range planning. Refinery operations woutd imported products. be optimized. - Continue with San Jose Accord crucd and To be done by Texaco Refinery's optimize- evaluate economics of other crudes. tion model. - Sond LOC requsts to CAP for iported * Avoids delays In the LOC process. products, with adeqate anticipation. * Run crude optimization analysis to determine Refinery has agreed to do this and advise most economicl composition after each CAP accordingly. crude or product price change. - Provide CAP with annual forea st of crude, - Should use latest prices and data broken product ports and F0 ewhorts. down by quarters. Rofinery agreed to use new form to dothis as well as a new format for the monthly forecast. 2. at * Strengthen technical and economic knowlede - Nay take time to find qualified of staff through In house training program, eandidate. to be provided by Supply and Transport specialist (S9T). - Advise refinery iWan Central Sank opens LOC and - CAP has agreed to this. nWn corepdent Sank pays the LOC. - Retain Refinery's LOC request nmber throught - CAP has agreed to this. LOC pocess including liquidation of LOC. - Insur that Central ank has monthly and annual - CAP agreed to trnsmit to the Central forecast of foreign exchWne needs for crude and Dank the new form being used by the products. Refinery. Traresit LOC rquests to Central lank as son as - CAP agreed to do this. they ar received. = Un d new forms for LOC requests wa - CAP sareed to do this. Forms will be liquidations, sent as soon as comploted. - Prepre Action Plan for liberalzaution of petro - Detailed staes are shown in Annex 1. tia iwports and dereulation of retalt prices. C. Ban * Imlqement use of Refinery forecasts of US - Ncessary to provide proper plenning of needs for crude and prdcts In order to wvitabtle funds. Possibly will mvoid prioritfae USS needs vwrSUS availability of penalties and other costs associated with funds. d.datl In openinr LOC's. - Promptly handlo LOC requests for full con- Open LOC's par contract stipulations. Avoid tractual complianco ond acknowledge their penalties and extra costs. Central ank has recofpt. agreed to acknowlede LOC requests.  Table 12 (Cont'd) RECOIMNSATIOhS FOR IUDIATE INPLEUNTATION Recauendations R kerks * Use only correspondent buns approved by - Avofd costly delay. The foreign exchaw Sellers. Wdvise W when correspondent situation sAt first be normlized. Central bank poys the LOC. aM agreed to notify CAP Wm LOC Is paid. - Advise CAP more pretly on total costs of a LOC. * Wllft ailow total liquidetion sonr. - use the new LOC request form proposed by mission * Central Bank has agreed to it. * Retain Refinery LOC reut rumber as pert - Central Sank ha agreed to do this. of the LOC sabor assigned by Central Bank. Source: Nission developed. 19. After a new formal operating agreement including profit formula and remittance rights has been negotiated, between the Government and the Texaco Refinery, the rerommendations below can be implemented. TAble 2: RECOSMENDAT IONS TO U INPLEMENTED AFTER AI;EEINYT R_c ations Remrks TexKg of RsIn= 1. Install equipment to steady voltage and *ill mI fnimze refinery shutdowis. automatically start standby generators. 2. laplement profit/operational iprovements: * Such items would be contifmally O Inrease Salable product yiel,. worked on with constant pfroVe- O * Install new product tenkage. ments. No incentive to do anything O - Reduce operating costs. with present arra.oment. O - Undertake de-bottleneckfng and off iiency projects. Source: Nfssion developed. 20. Several items could be impoved in the very short term (negotiate fuel oil outlet, imprve FO backhaul freight, establish new pricing basis for imported products, etc.) but, to do so, CAP should have a refinery and petroleum supply and transportation specialist available to assist in the negotiatons. When such expertise is available, the recommendations shown in Table 3 can be implemented. For longer tem benefits associated with possible advantages of term product agreemens, term crude and product transportation agreements, possible offshore procesing arrangements, and the advent of other North and South Coast product teminals, it is essential that CAP have a full time Supply and Transportation Coordinator. Table 3 also includes recommendatons associated with the full time S. & T. Coordinator, and hence, are for the longer term.  -vi - jjg: *EC_1aUh USW CAP UAS *. & T. EPTIN eicom Rmar 111th Short Tm AdvIoa tS mnhs 1. intitiate oilmntatimn of libwratlution * Ma. of petroleA mrket. 2. REwis p ste for rn mai terminaLs Coordination reqired to avoid refiery to better tlest epoeted opeatlone. n I*le production probltms w product run-outs. the required coordiation role for offtakes ad iqwort qontities. Monitor product Altity. S. Talks with PVA on choice of crues that * To obtain the eomicat heavier might be available uwer San Jose Accord crudes more suited to caemuion for third party processing. avaltable In Curwcao. 1ura: Nission developed. 21. One of the overall objectives of this project is to imrove efficiency and control by streamlng the main financial paper flow and other docmeion dealing with fimds paid and coUected. Ihe Mission reviewed the proposed compuerized system with CAP and diussed with the Texaco Refinery and the Cental Bank the involvement expected ffom them. Report format changes, new reports and foms were presented to each, some to be implemented mamully as soon as they were in place. 'no Mission recved a positive respowne from everyone and a totl agreement. Technical support wa discussed and agred to with the data processing personnel of the Mistry of Economy and Commerce, SECPLAN and the Central Bank. lhe following progms will make up the overall proposed system tha wfll be implemend at that time: (a) Anual and Monthly Forcas of Volume and Value of Crude and Refined Product Imports and Fuel Oil Exports. (b) Request for LOC. (c) Invoicing. (d) Liquidation of LOC.  v -l PART ONE SUPPLY MANAGEM Part One evaluates currlet petoleum supply arang . AlternAtle supply arrangements wbich would generse a leat cost supply ar explaie and recommended. Ways and means for recruitment of supply and quality control ar ituced.  -2 - I. CURRENT PETROLEUM SUPPLY ARPANGEMENTS 1.1 Tbis chapter provides: (i) an overview of the links between the economy and downstream petroleum operations; and (ii) an overview of current petroleum supply arrangements and room for improvement. The Economy 1.2 The Honduran economy is going through a period of crisis characterized by a chronic balance of payment disequilibrium, a large fiscal deficit, and an inability to fully service external debt obligations of about US$3.3 billion. 1.3 The Governments' fiscal deficit has been increasingly financed through the domestic financial system-as external financing sources have dried up-and through the accumulation of external arrears. As of 1987, the external public debt of Honduras represented about 66% of GDP, and debt service payments were equivalent to 23% of exports of goods and services. Backeround and Prsects 1.4 Extensive Government intervention, the world recession, deteriorating terms of trade, and the adverse political climate in Central America all contributed to an economic slowdown in the early 1980s, particularly affecting private investment. Exports grew only at a rate of about 3.7% and a balance of payments crisis was avoided as big capital inflows took place, linked mainy to the construction of the hydropower project El Cajon. 1.5 In 1987, the combination of a drop of international coffee prices, Honduras' main export, and a decline of voluntary external financing to the public sector( from US$227 million in 1985 to IUS$23 million in 1987) precipitated a balance of payment crisis. In response, the Government allowed an accumulation in arrears, increased the money supply to finance the public sector deficit and permitted the expansion of the spread between the official and parallel exchange rates( from 25% to 100% in 1989). 1.6 For the future, the Government has defined, in cooperation with the Bank, an adjustment program to taclde both short-term macroeconomic issues and medium-term structural issues. This program has close links to the improved efficiency of public sector institutions. Along those lines, this report evaluates in detail the petroleum procurement operations carried out by the Government through the CAP and recommends short and medium term measures to improve the effciency of those operations.  -3 - Petroleum and the Economy 1.7 During the 80s, the petroleum sub-sector was a fiscal revenue generator, mainly in the form of the excedente, taxes and duties; prices were, overall, at a level well above their import parity cost. Still, distortions were maintained into the pricing structure, distortionsthat have become more acute since March 1990. Overall, petroleum pricing policy is not formulated under economic principles, but under financial or fiscal targets, which will become harder to control under a highly inflationary environment. 1.8 Fincial Exceden Until March 1990, the Government of Honduras had maintained the ex-refinery product prices at the same levels they were during the era of high crude/product prices of several years ago. Since crude/product prices were relatively low and the Government allowed the refinery a fixed profit while covering all the costs of the refining operation, there was a significant surplus of income left in the refinery that went to the Central Treasury; this surplus grew from equivalent US$5.5 million in 1985 to US$71 million in 1988. This amount was called the 'Excedente' or the surplus remaining after all the costs and fixed profit were covered. An amount of Excedente was paid with each crude cargo by the Refinery to CAP, the administrator. This payment represented the actual surplus shown at the month's closing of the Refinery books after covering all the costs and allowing Lempiras 833,333 per month gross profit. This was divided equally to the number of crude cargoes that were paid until the following month's closing. This surplus or Excedente was paid together with the actual FOB cost of the crude plus any fimancing costs. Under today's high prices, there is not anymore excedente. 1.9 By contract between CAP and the Texaco Refinery, CAP is entitled to 1.5% of the value of all the crude purchases by the Refinery. This is known as 'Comision Manejo de Gobierno and is intended to cover the cost of administration of the crude contract including the cost associated with LOC's. The 1.5% is calculated on the FOB of the crude to the Refinery which includes the FOB value to CAP, any finance charges and the Excedente on each crude cargo. 1.10 Fiscal Revenue. In 1988 the Government had fiscal revenues of US$40.76 million on duties and taxes related to petroleum product imports and distribution.  -4 - Iable 1 O Nls R1 G0WEIRT IUNE MM 1 IIWRY (Us $ Niltiom) 1. Ct11n aid 'r1x # 1985 1986 1967 1988 a) Iud Ol o Iqao*ts 8.05 6.53 6.47 k/ 8.41 &/ b) Produet lIports 18.00 18.46 20.39 18.31 c) Consuqption Tax 8.59 9.01 10.08 11.74 d) ef tinery Incow Tax 2.30 2.30 2.30 2.30 Sub-total 36.94 36.30 39.24 40.76 2. Other a Excedente 5.50 45.04 53.48 77.9 TOTAL 42.44 81.34 92.72 118.69 / Incom tax from the petroleun distribution and retailer coqanies are not available. kY Includes Ianejo (uS$1.47 million). I/ Includes IaneJo CS2.04 million). jouM: CP, Central Bnk of Nondurcs and Mission estiates. 1.11 Pricing of Petroleum Prducts While the scope of this report does not include a detailed analysis of petoleum pricing policy, its results, issues and options; this section gives an overview of the isues surrounding petroleum pricing. There is, undoubtedly, a need to carry out an in depth energy pricing study. 1.12 The most important signal for the efficient supply, distribution, and consumption of petroleum products is the pricing oliy and the inatiniional structre to carried it out. In Honduras, this pricing policy ppearsJt to have been based mostly on financial or fiscal grounds rather dn under economic principles regarding efficiency, in nation to consumers, and allocation and mobilization of resources. 1.13 The 1981-89 period did not see any adjustment of petroleum prices for inflation; unti March 1990, retail prices remained unchanged in nominal terms, thus, declining in real terms by about 30%. Regarding their levels, by and large prices remained above their import parity cost. 1.14 For the 90s the sitation is completely different, Honduras is now living in a higher inflationary environment, currency movements of the Lempira are a new element, and intrational prices of petroleum products are more volatile. Recent volatility in international petroleum prices has aggravated this situation and, as of October 1990, both the strucure and levels of prices were distorted: the levels on some of the fuels were below their economic cost. Further, the pricing strucatre has differenials between fuels i.e. Kerosene vis. Diesel and Gasolines, which have acted as an incentive to l/ kt Is t dear dtere is a "p$dng po*cyi o such, h objeedsv, a srateV for its # ad -$85.  Zs mit or dilute Kerosene with other fues, as a consequence, subsidized keosene Is reaching the industrW sector ad automobile owners, but not those poor secto which were suppose to beneft fom the subsidy. TAILE 1.2 PETROLEW PRICE STWCURE -JAIIARY 15, 191 zone 5-Teguigaps TUN UNITS NOS " AV-JET CO KR DIESEL F.O. FOB USSA/S 0.8753 0.9737 0.93 0.9147 0.50S Freigth & IntwanU e USt10 0.0389 0.042 0.042 0.044 0.042 Firncial Chargs US$mS1 0.008 0 0.008 0.008 0.008 In-transit Losses USS/S 0.0025 0.0025 0.0025 0 0 Dawrage US$/1S6 0.0011 0.0011 0.0011 0.0011 0.0011 CIF US$/US1 0.9258 1.0193 1.0273 0.96O 2 0.5668 CIF In Lerpiras Lps/AS0 4.9067 5.4023 5.444 5.131S 3.0040 Central Bt Charges Lps/USG 0.0687 0.0756 0.0762 0.0718 0.0421 Duty- 15 CIF Lps/USG 0.7360 0.8103 0.8167 0.7697 0.406 DECItEE 85-5X CIf Lps/USG 0.2453 0.2701 0.2722 0.2566 0.1502 Terminal Losses Lps/USe 0.0236 0.0157 0.0157 0.0049 0 I:MT PARITY e Lps/USG 5.9804 6.5741 6.6256 6.2345 3.6469 Refinery Costs Lps/USG 0.1838 0.1838 0.1838 0.1U38 0.1838 Refinery Margin Lps/USG 0.078M 0.0787 0.0787 0.0787 0.0787 Ref inery-Incom Tax Lps/USG 0.0527 0.0527 0.052 0.0527 0.0527 X-REFINERY COST Lps/JSG 6.2956 6.88 6.9408 6.5497 3.9621 OTHE SUBSIDIES Direct Goverment Sbsidy To Refinery Lps/USG -2 0 0 0 .0.5 Cross Subsidy * Lps/USA 3.8615 4.1231 -4.7035 0.8602 -1.504 other Lps/US6 -0.1109 .0.1109 -0.1109 *0.1109 -0.1109 EX-RACK PRICE Lps/USG 8.042 10.9015 2.1264 5.558 1.6472 Cmnsiaption Tax-7X LpsAUSG O.5632 0.7631 0.1488 0.3891 0.1M StbfIlization Fud Lps/USG 0.1S 0.15 0.15 0.15 0.15 Price to Distrfbutor LpA/USG 8.753 11.8907 2.3161 6.088 1.9657 Distributor's Margin LpsAl; 0.105 0.12 0.0812 0.105 0.045 Transport Cost Lps/USG 0.3932 0.3693 0.3181 0.3688 0.266 Retaler's Nargin Lps/USG 0.5368 0 0.2546 0.382 0 Consuwr Price LpsIUSG 9.794 12.3039 3.0791 6.9497 2.4401