VZCZCXYZ0022
PP RUEHWEB

DE RUEHDG #0515/01 1201724
ZNR UUUUU ZZH
P 301724Z APR 09
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 2696
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHBO/AMEMBASSY BOGOTA PRIORITY 1725
RUEHCV/AMEMBASSY CARACAS PRIORITY 0992
RUEHLP/AMEMBASSY LA PAZ APR 0556
RUEHPU/AMEMBASSY PORT AU PRINCE PRIORITY 4987

UNCLAS SANTO DOMINGO 000515 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CAR 
LA PAZ FOR A/DCM C LAMBERT 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV DR
SUBJECT: DARK DOMINICAN NIGHTS LOOM AS DEBT TO POWER 
GENERATORS GROWS 
 
REF: A. SANTO DOMINGO 205 
     ¶B. SECRETARY 1 
 
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Summary 
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¶1. (U) Despite optimism earlier this year that the government 
would be able to settle its debt to the private electricity 
generators, the government's failure to pay 2009 invoices has 
instead compounded last year's deficit and led to increased 
blackouts in recent weeks.  A corruption scandal in the 
Blackout Reduction Program (PRA), meanwhile, led the 
Dominican Corporation of State-Owned Electricity Companies 
(CDEEE) to suspend the program director without pay while it 
investigates the charges of nepotism and graft.  Responding 
to the increased instability owing to the growing debt as 
well as the corruption scandal, business leaders called for 
the dismissal of powerful CDEEE Executive Vice President 
Radhames Segura. End Summary. 
 
--------------------------------------------- 
GoDR debt to sector surpasses USD 500 million 
--------------------------------------------- 
 
¶2. (U) Despite signs at the beginning of this year that low 
fuel prices would enable the Dominican government to settle 
its debt with the privately owned electricity generation 
companies in the country, the government has failed to make 
full payments on regular monthly invoices and has fallen even 
further in debt with the generators.  The GoDR now owes over 
USD 500 million, between overdue payments and the "frozen" 
debt from prior to 2005, to the private generators.  Payments 
on the frozen debt were scheduled to begin this year. 
 
¶3. (SBU) U.S.-owned AES Dominicana, the country's largest 
producer, is owed USD 329 million, the company's president 
told Charge Bullen April 27, equivalent to 11 months of 
revenue.  He said that while last year, the sector financed 
the government's shortfall, that will not be the case in 
¶2009.  While he said his company had no intention of breaking 
its contractual obligation to generate electricity whenever 
fuel was available, he may have to cancel the June natural 
gas deliveries ) as he did last year ) if the government 
fails to pay the invoices.  With shorter fuel reserves, AES 
would cut back production at its power plants.  Presently, 
the 300 MW AES Andres plant is offline for regularly 
scheduled maintenance and will remain inoperable until May 
¶21.  The company's 240 MW Itabo plant, which runs on coal, 
continues to provide the grid.  Nonetheless, electricity 
supply has been dramatically constrained in recent days.  On 
April 26, De La Rosa said that just more than 60 percent of 
the true electricity demand was supplied.  The official 
figures, however, show that number closer to 80 percent. 
More importantly, though, blackouts are growing in both their 
frequency and duration and unless the GoDR begins catching up 
on back payments, this trend will become severe.  In Los 
Mameyes, just East of Santo Domingo, residents burned tires 
near an Ede Este distribution company office on April 22 to 
protest that they receive only two hours of electricity per 
day. 
 
¶4. (U) The government has recognized the problem but says it 
lacks the funds to pay the generators.  While lower fuel 
prices reduce costs for the government, they also result in 
substantially lower financing from the Petrocaribe agreement 
with Venezuela.  The CDEEE touted an agreement with 
generators in early February to pay down USD 250 million of 
its debt through a government bond issue (reftel A).  But the 
generators conditioned their acceptance of the instruments to 
Congress passing an amendment to allow bondholders to use 
matured bonds to pay government obligations such as taxes. 
With Congress focused on a constitutional reform, however, 
they have taken no action regarding the bond amendment. 
Segura and Finance Minister Vicente Bengoa also announced 
plans to lead a delegation to Washington to seek USD 300 
million in loans from multilateral lending organizations, 
primarily the Inter-American Development Bank and the World 
Bank. 
 
¶5. (SBU) De La Rosa told the Charge that he doubted a 
multilateral institution could act quickly enough to provide 
financing to the sector in time to prevent a serious 
electricity crisis.  He also expressed frustration with the 
 
lack of real reform in the sector.  He said that while he 
hopes the loan is granted, he is worried about the sector's 
long-term sustainability.  While Segura has described the 
decision to turn to the multilateral institutions for 
assistance as a possible solution to the crisis, he and the 
rest of the Fernandez administration's energy team have done 
next to nothing to prevent this situation from reoccurring. 
A push by private-sector participants in the sector to float 
the consumer tariff for electricity, replacing the subsidized 
tariff with a focalized subsidy for poor consumers, appears 
to lack political support.  The highly publicized February 20 
implementation of the law criminalizing electricity theft has 
yet to show results ) even though Ede Este reported five 
large-scale alleged thieves to the Electricity Superintendent 
in late February. 
 
--------------------------------------------- - 
CDEEE suspends program director for corruption 
--------------------------------------------- - 
 
¶6. (U) A corruption scandal revealed in an in depth 
television report by journalist Nuria Piera showed 
significant evidence that PRA Director General Marcos Lara 
had utilized his position to reward his family, friends and 
followers.  According to the report, Lara misused government 
construction funds intended for a PRA facility to renovate 
the headquarters of his religiously motivated political 
movement.  Furthermore, Piera identified on the PRA payroll 
some 15 members of Lara's family and another 30 parishioners 
of the evangelical church of which Lara is the pastor.  When 
Piera attempted to contact one of these employees, the 
receptionist told her that "nobody who works here knows him". 
 Within 48 hours of Piera's report, Segura made a public 
announcement suspending Lara and eight of his subordinates 
without pay.  The PRA is a government agency under the 
purview of the CDEEE. 
 
¶7. (U) The report featured an in-depth interview with Lara 
during which the GoDR official acknowledged the material 
facts behind the charges of nepotism but denied that he had 
misappropriated government materials or employees for use at 
the headquarters of his political movement, the Christian 
Renovation Movement (MCR).  He recognized that he has hired 
many friends and relatives, saying he hired them so that he 
would have people he trusted at his side.  He also said that 
it was his right (and even his pious responsibility) to curry 
favor to his close associates.  "Anyone in an administrative 
position should use that position to help his family," Lara 
said.  He vehemently denied that he used PRA funds and 
materials to renovate the MCR headquarters.  He told Piera 
that while he used the same contractor for both the MCR and 
PRA projects, the accounts were paid separately.  Piera 
interviewed some of the workers at the MCR project, however, 
and they reported receiving their paychecks solely from the 
PRA.  She also showed invoices indicating that materials paid 
for by the PRA were delivered to the MCR headquarters. 
 
------------------------------------------ 
Industrialists call for Segura's dismissal 
------------------------------------------ 
 
¶8. (U) On April 26, the directors of the Herrera Association 
Industrial Companies (AEIH) and the Federal of Industrial 
Associations (FAI) sent an open letter to President Fernandez 
calling for the dismissal of CDEEE Executive Vice President 
Segura and other members of the so-called Energy Cabinet. 
Noting the PRA corruption scandal and the general management 
failures in the crisis-prone sector, the industrialists 
complained that the politicization and profiteering in the 
sector have prevented it from stabilizing. "We are convinced 
that the problems detected in the PRA are just a sampling of 
what may be occurring in the higher offices" of the CDEEE, 
the letter stated.  A few days prior, Celso Marranzini, the 
president of the National Private Business Council called for 
a top-to-bottom review of CDEEE operations in the wake of the 
PRA scandal. 
 
--------------------------------------------- ---- 
Government looks to become full owner of Ede Este 
--------------------------------------------- ---- 
 
¶9. (SBU) After years of disputes and three separate 
international arbitration filings, the tumultuous 
relationship between the U.S.-based Trust Company of the West 
 
and the Dominican Government, co-owners of Ede Este, may be 
coming to an end.  On April 17, President Fernandez told 
Secretary Clinton that Ede Este would eventually become 
state-owned (Reftel B).  Rumors have also grown in the 
Dominican electricity sector that the GoDR has entered 
negotiations with TCW to acquire its stake in the company. 
Officials at Ede Este said they were unable to officially 
confirm these accounts and that TCW had not told Ede Este 
management about the apparent negotiations. 
 
------- 
Comment 
------- 
 
¶10. (SBU) The GoDR continues to handle its burgeoning debt to 
the electricity generators with much rhetoric and only 
half-filled promises.  Despite the CDEEE's press outreach 
efforts to announce the bonds with plenty of fanfare, the 
government has not pushed Congress to consider the amendment 
that would make the bonds acceptable.  Likewise, the 
much-touted implementation of the electricity theft law is 
unconvincing without any arrests.  In the meantime, months of 
heavy blackouts seem imminent as a cash-strapped sector is 
unwilling to finance the government's overstretched and 
poorly guided subsidy.  While the possibility of 
international loans offer medium-term relief for the 
situation, they do little to resolve the immediate problems 
or the long-term reforms that this dysfunctional sector 
requires. End Comment. 
BULLEN