VZCZCXRO1181
PP RUEHGR
DE RUEHPO #0141/01 0661916
ZNR UUUUU ZZH
P 071916Z MAR 06
FM AMEMBASSY PARAMARIBO
TO RUEHC/SECSTATE WASHDC PRIORITY 8138
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHAO/AMCONSUL CURACAO 0981
RUEHCV/AMEMBASSY CARACAS 1528
RHEBAAA/DOE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 PARAMARIBO 000141 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR: LLUFTIG, EB/ESC/IEC 
 
E.O. 12958: N/A 
TAGS: ENRG ECON TRGY KTDB NS
SUBJECT: SURINAME'S STATE-OWNED ELECTRICITY COMPANY NEARING 
BANKRUPTCY 
 
REF: 05 PARAMARIBO 213 
 
PARAMARIBO 00000141  001.2 OF 003 
 
 
-------- 
Summary 
-------- 
 
¶1.  News that Suriname's state-owned electric utility 
company, EBS, will need to file for bankruptcy unless the 
Government of Suriname (GOS) quickly intervenes to prevent 
a shutdown has jostled Surinamers. The Minister of Natural 
Resources, Gregory Rusland, has asked the government's 
accounting office (CLAD) to undertake a full investigation 
of EBS financial records.  Government officials have tried 
to calm fears of those who remember frequent blackouts. End 
Summary. 
 
-------------------- 
EBS's Financial Woes 
-------------------- 
 
¶2.  According to an Ernst & Young report, EBS posted a 
consolidated loss in 2004 of approximately 8.6 million USD, 
compared to a loss of 5 million USD in 2003.  Internal 
company figures indicate that the 2005 loss is expected to 
reach 18 million USD.  The losses have had a serious effect 
on the company's cash flow, dropping retained earnings from 
the positive range to negative 3.6 million USD.  The 
negative trend is expected to worsen when losses from 2005 
are fully reported.  The ongoing cash flow shortage will 
make it impossible for the company to meet outstanding debt 
payments, and the company has already exhausted most of its 
usual sources of credit.  The company's long-term (more 
than five year) debt stood at 58 million USD and its short- 
term debt at 43 million USD.  Capital repayments and 
interest on the short-term debt stood at 11 million USD in 
¶2004.  EBS further owes its pension fund an undisclosed but 
significant amount.  Ernst & Young has refused to place its 
audited seal on the current report citing "technical 
difficulties," apparently arising from inaccurate or 
incomplete data in 1995-2003 financial statements from EBS. 
 
¶3.  The government's response was for the Minister of 
Natural Resources, Gregory Rusland, to state that the 
government would continue to guarantee the nation's energy 
supply. Rusland hired experts, undefined, to help resolve 
the financial crisis but has been unable to indicate when 
the situation at EBS would be stabilized.  On February 25, 
"Dagblad Suriname" reported that the Minister had asked the 
government's central accounting office (CLAD) to conduct a 
thorough investigation of EBS's finances.  A team of 
experts from CLAD, the InterAmerican Development Bank (IDB) 
and the Energy Commission of the Ministry of Natural 
Resources were also ordered to conduct an evaluation of the 
tariff structure EBS uses, factoring in the effect of the 
last round of price increases in November 2005 which were 
supposed to resolve the company's cash flow problems. 
 
--------------------------------------------- - 
Beyond Financial Problems  Capacity Shortfall 
--------------------------------------------- - 
 
¶4.  EBS' problems go beyond its immediate financial woes. 
The company has been unable to keep up with the growing 
demand for energy.  Household demand for electricity over 
the last 20 years has increased at peak periods from 35MW 
to 125MW  an increase of more than 200 percent. Energy 
experts estimate current shortfall in supply anywhere from 
100 to 150 megawatts.  EBS itself forecasts growth in 
demand at approximately 10 percent annually.  The average 
waiting time for a newly constructed house to be connected 
to the power grid runs anywhere from 6 months to a year, 
and requires the concomitant stamina to navigate a very 
cumbersome bureaucracy.  Many businesses complain about 
severe setbacks in expanding or establishing operations 
because of the power shortage.  Manufacturing companies 
often purchase their own electric generators to maintain 
production levels.  Larger enterprises in Suriname, Suralco 
(Alcoa subsidiary), BHPBilliton and Staatsolie have even 
gone so far as to take their companies off the grid, 
establishing their own power generating systems to ensure 
consistency.  Households and smaller businesses often incur 
losses due to rolling blackouts, which cause damage to 
equipment and merchandise. 
 
¶5.  Another major problem is deteriorating infrastructure. 
Eighty percent of Suriname's electricity is produced by the 
 
PARAMARIBO 00000141  002.2 OF 003 
 
 
hydroelectric plant at the Afobakka dam (Suralco managed). 
The electricity is transported to the city through an 
outdated and inefficient 161 KV transmission line.  Experts 
estimate that approximately 8 percent of electricity is 
lost due to leakage.  The secondary source of energy, EBS's 
diesel generating plant, is costly and inefficient. 
Designed to produce 53.6 MW through 10 diesel-powered 
generators, the plant currently produces only 26.5 MW of 
energy. 
 
¶6. In late 2004/early 2005, drought caused the water levels 
in the lake feeding the turbines of the hydroelectric plant 
to drop dramatically.  Suralco, as the wholesale supplier 
of electricity, was unable to deliver the full 100 MW it 
had contracted to provide. This event surfaced an ongoing 
controversy over who is ultimately responsible for 
supplying electric energy to Suriname, Suralco or EBS. 
Suralco leased 30 diesel-powered generators (Agrekko model) 
to produce 25 MW of electricity to cover the shortfall. 
These generators operated for approximately six months at a 
price tag of two million USD per month. Who is responsible 
for payment, Suralco or the state utility company, remains 
unsolved and will probably go to arbitration. 
 
¶7.  EBS, as a parastatal has been subject to political 
interference.  The position of general manager, vacant 
since 2001, has been assumed by Oemar Chiragally, chairman 
of the Board of Supervisors.  Chiragally was appointed by 
current President Ronald Venetiaan as a result of his 
connections to the President's NPS party.  The term of the 
current Board expired in January 2005 and no replacements 
have been named.  For years, service on EBS's board was 
considered political plum, as salaries and perks were high 
and management experience seemed a minor detail.  Minister 
Rusland has told the press that his ministry is working on 
a new structure of management, which still needs "political 
backing" and approval of the Council of Ministers. 
 
------------------- 
Attempted Solutions 
------------------- 
 
¶8.  A long-range investment plan, estimated cost 100 
million USD, was drafted to chart the company's future.  As 
part of this, in 2002, EBS signed an agreement with a 
consortium of six companies from Suriname, Germany and the 
Netherlands to expand the transmission and distribution 
network in and around Paramaribo.  Initially budgeted at 11 
million Euros, this project is currently in progress. 
Through an 18.9 million USD credit line with India, EBS has 
also ordered a new 161 KV transmission line to be built 
from Afobakka to Paramaribo.  This transmission line will 
transport 100 MW of electricity from the dam to the city 
without leakage.  To upgrade its diesel-powered plant, EBS 
purchased 3 8-MW generators from Germany for approximately 
seven million USD each.  EBS has also signed a contract to 
purchase electricity from the 15 MW power plant Staatsolie 
is building (See Reftel). 
 
¶9.  Staatsolie (Suriname's most successful parastatal) 
turned over approximately 80 million USD in income tax and 
dividends to the government in 2005.  According to Minister 
Rusland, part of this money will be used to help tide over 
EBS until the depth of its financial and administrative 
problems are clarified by CLAD study.  Private sector 
organizations like the chambers of commerce (KKF and VSB) 
and the labor unions have called for an increase in the 
price of electricity and a better distribution of the 
tariff structure as long-range solutions, although Rusland 
stated that there would be no increase until expert 
evaluation has been completed. 
 
¶10.  The situation is dire enough that there have been 
calls to split the company up into several smaller more 
manageable companies with each taking the responsibility 
for one sub step in the process of power generation and 
supply, or to sell EBS to a foreign investor with the 
capital and expertise to keep it afloat. 
 
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Comment 
-------- 
 
¶11. Suriname is at a crossroad in addressing its energy 
needs and must carefully rectify the problems of the state 
utility company to not only stave off a looming energy 
 
PARAMARIBO 00000141  003.2 OF 003 
 
 
supply crisis but also chart the proper course for the 
long-term electricity needs of a growing economy.  Lack of 
reliable power is hammering business expansion and putting 
some foreign investment on hold.  EBS is another example of 
a parastatal which has been politicized and mismanaged to 
the detriment of the Surinamese population.  The government 
faces politically tough choices: stir outrage now with rate 
increases and install new professional management, or 
continue business as usual which involves postponing 
decisions for as long as possible.  One business group 
claims to have prepared an options paper for the President 
which explains just how costly decisions deferred will be; 
they estimate failure to act could leave the government 
financing an EBS deficit of 35-40 million USD a year by the 
time of the next elections. 
 
BARNES