VZCZCXYZ0001
PP RUEHWEB

DE RUEHDG #3733/01 3471844
ZNR UUUUU ZZH
P 131844Z DEC 06
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 6943
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

UNCLAS SANTO DOMINGO 003733 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CAR, WHA/EPSC, EB/ESC/IEC/EPC, EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: DR ECON ENRG PGOV PREL EINV
SUBJECT: DOMINICAN ELECTRICITY SECTOR - DEMANDING 
RENEGOTIATION IS EASIER THAN REFORMING 
 
¶1.  (SBU) Summary.  Since September 2006, the Dominican 
Republic has held four conferences on electricity sector 
reforms.  The result is that the government wants to 
renegotiate the contracts but the generators do not; the 
private sector wants the government to criminalize the act of 
stealing electricity, to improve collections, and to continue 
to privatize the rest of the state-owned electricity sector. 
Although a law to criminalize the theft of eltectricity is in 
Congress and should pass, the government declines to 
contemplate further reform of its state-owned electricity 
entites.  The Fernandez administration has no internal 
consensus and the President appears essentially to have 
abdicated leadership on this issue. End Summary. 
¶2.  (SBU) Since September 2006, the Dominican Republic has 
held four conferences to discuss approaches to electricity 
sector reform. The first of these conferences was a 
government-only closed-door session followed by a 
government-private sector conference.  The government-only 
conference focused only on the proposed initiative of 
renegotiating its contracts with the private generation 
companies.  The conference reportedly revealed a sharp 
discord between the vice-chair of the state-owned electric 
company, Rhadames Segura, and the President's Technical 
Secretary, Temistocles Montas.  Montas wants to further the 
 
SIPDIS 
privatization program, while the "statist" Segura wants to 
renegotiate as well as assume more state control over the 
electricity sector. 
¶3. (SBU) The government-private sector conference that 
followed focused only on the government's desire to 
renegotiate the contracts.  In what appeared to be an 
ultimatum, Segura demanded the private sector provide a 
response by November 8 to the government's request to 
renegotiate the contracts .  Most responses favored 
developing a working group to  analyze the issue. 
¶4. (SBU) The third conference that followed was organized at 
the President's think-tank FUNGLODE on November 30th by the 
Economist Group, at the request of the government. The 
conference focused on electricity reform and included 
speakers from the government and the private sector.  During 
one of the panels, Segura of the state electric company, 
CDEEE, and Antonio Isa Conde, presidential advisor on 
industry and head of the Dominican Competitiveness Board, 
engaged in a heated debate (similar to the Montas-Segura 
episode) about whether to privatize the sector.  One 
consideration was mismanagement and corruption within the 
state electric companies. As usual, no consensus came out of 
the conference.  Events have given the impression that for 
the government, in matters electrical Radhames Segura is 
dominating.  He is a high ranking member of Fernandez' party, 
the PLD, and is close to Danilo Medina, the former 
presidential chief of staff (Medina intends to run against 
Fernandez for the PLD presidential nomination).  Reading 
between the lines, it appears plausible that Fernandez does 
not want to upset his fellow PLD members by reforming the 
sector.  According to industry experts, the state-owned 
electricity sector has a one billion dollar cash flow that 
provides many jobs to party members. 
¶5.  (U) The fourth conference, hosted by the private sector, 
discussed the contract situation (power purchasing agreements 
or PPAs) as well as technologies to improve collections of 
electricity bills.  The panelists said that the pricing 
mechanism of the contracts between the government and private 
sector is par for the course throughout Latin America, so 
long as the generation companies do not use diesel.  The 
presentation about a new technology for better monitoring of 
electricity usage was offered by the SAAB Company.  Within 
the last year, the company has installed this technology in 
South Africa and has decreased distribution losses in a city 
of 80,000 from 50% to 3% in only three months. 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
- - - - 
Will the Government finish the capitalization (privatization) 
program? 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
- - - - 
¶6.  (SBU) The president of Smith-Enron (a 180MW generator now 
owned by Ashmore Energy) told Econoff that at the sector's 
recent meeting with President Fernandez, the President said 
that the capitalization program, started under his first 
administration, is now definitely on hold until presidential 
elections are over (in mid-2008).  This program, strongly 
endorsed by the President's Technical Secretary-Temistocles 
Montas, was designed to privatize the rest of the state-owned 
electric companies (e.g.,the distribution centers, but also 
the transmission and hydroelectric companies).  The President 
added that the current environment is not right to start 
privatizing the sector (translation: it's too political and 
he wants to be re-elected.  Many in the PLD believe that it 
lost the elections in 2000 because the capitalization program 
began shortly before the elections and coincidentally, oil 
 
prices rose at that time, pushing up electricity prices.  The 
general public blamed the increase in electricity prices on 
the PLD and not the market.) 
- - - - - - - - - - - 
Renegotiation or Bust 
- - - - - - - - - - - 
¶7.  (SBU) Segura's comments as carried in a December 7 
article by the Latin Press, suggest that the Dominican 
government is pushing hard to renegotiate the generation 
contracts: "In views of the current situation, Segura 
announced the intention to terminate the contracts signed by 
the power distributing plants with the generating ones, 
including Palamara-La Vega, Dominican Powers Partners, and 
Aes-Andres.  He also accused the government of former 
President Hipolito Mejia (2000-2004) of signing those 
agreements for a generating capacity of 3,340 megabytes, and 
extending its validity until 2016, with an inflated value." 
This, despite the fact that industry analysts consistently 
have said that renegotiating the contracts will not solve the 
overarching problems, which are principally distribution 
losses due to a lack of collections and mass theft. 
¶8.  (SBU) Some private sector owners would come to the 
renegotiating table if the government were serious about 
getting its house in order.  The problem is that at the 
present time the government doesn't want to offer anything up 
for a renegotiation deal. The sector faces 40 percent 
distribution losses, 90 percent of which are non-technical in 
nature -- that is, theft, refusals to pay and corruption. 
 
¶9.  (SBU)  If the government forces a renegotiation, by the 
terms of their contracts the private sector operators will be 
able to bringthe government to international arbitrage.  If 
this happens, the government most likely will lose. 
 
- - - -- 
COMMENT 
- - - - 
 
¶10.  (SBU)  It appears that Fernandez has lost his way and 
his will regarding electricity sector reforms.  When 
Fernandez took office in 2004, he announced that his top 
priority was to fix the electricity sector.  We have passed 
the midway mark of his term and the only two areas where we 
have seen movement is a law to criminalize the theft of 
electricity and a push to renegotiate their financial 
contracts with the private sector generation companies. 
Complicating the reform process is Segura's goal to become 
more powerful; hence his recent proposal to the President to 
have CDEEE in charge of all state-owned electric entities as 
well as his desire to be compensated for this.  The draft 
bill would provide that the executive members of CDEEE be 
paid at the same rates as the executives in the private 
sector -- farewell to the concept of public service.  We 
anticipate this proposal to die in place. 
 
¶11.  (SBU) The government's perpetual theme is that some of 
the contracts it signed with power companies were not 
negotiated well by government officials.  However, at the 
time of these contracts, the price of oil was about USD 24 a 
barrel, the country was looking for hundreds of millions of 
dollars worth of foreign direct investment, and the country's 
credit rating was B.  To resolve that flaw, the government 
needs to negotiate a renegotiation instead of demand a 
renegotiation. 
 
¶12.  (U) This report and extensive other material can be 
consulted on our SIPRNET site, 
http://www.state.sgov.gov/p/wha/santodomingo/  
BULLEN