VZCZCXYZ0000
PP RUEHWEB

DE RUEHDG #0022/01 0051150
ZNR UUUUU ZZH
P 051150Z JAN 07
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 7056
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHPU/AMEMBASSY PORT AU PRINCE 4432
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHDC
RUMISTA/CDR USSOUTHCOM MIAMI FL

UNCLAS SANTO DOMINGO 000022 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/CAR, WHA/EPSC, EB/ESC/IEC/EPC, EB/IFD/OIA; 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV PGOV DR
SUBJECT: 2006 WRAP-UP OF THE DOMINICAN ELECTRICITY SECTOR 
 
REF: 06 SANTO DOMINGO 3733 
 
¶1.  (U) Summary. In 2006, the Dominican government was hard 
pressed to find a way to resolve the decades-old electricity 
crisis.  After atwelve conferences the Dominican Republic 
comes up empty handed for the year.  The government could not 
reduce the electricity subsidies or the distribution losses, 
renegotiate  current contracts, increase the cost recovery 
index and collection rates, or pass a law to criminalize the 
theft of electricity.  End Summary. 
 
¶2.  (SBU) After 12 conferences, most of which included 
government executives, government experts, internationally 
acclaimed consultants, private sector executives and industry 
experts, the Fernandez' administration cannot point to a 
single positive step forward toward ending the electricity 
crisis.  Both government and industry officials consider that 
the country made no advances toward reforming the mismanaged 
and inefficient energy sector.  When Leonel Fernandez took 
office in 2004, he promised to the public that he would find 
a solution to this problem, calling it his "number one 
priority."  After two and half years of his presidency, the 
situation remains as follows: 
 
      - No reduction in the ever-growing electricity 
subsidies (for 2006, subsidies cost the government around USD 
650 million). 
 
      - No significant reduction in the distributors' 
technical and non-technical losses (their goal was to reduce 
losses to 38 percent, but at year's end, losses stood at 44 
percent.  Technical losses (8 percent) are attributed to poor 
infrastructure, transmission failures, and weak connections 
while non-technical losses (36 percent) are attributed to low 
collection rates, theft, and corruption. 
 
      - No positive movement regarding the proposal of 
renegotiation of contracts between the 
government/distributors and the independent power producers 
(IPPs). Recently, vice chairman of the the state electric 
company (CDEEE) Rhadames Segura, who sits on the 
renegotiating council, threatened to renegotiate the 
contracts on terms to be imposed by the government and not in 
a mutually or business-friendly environment.  The IPPs have 
requested the government's renegotiating team to work with 
them, but have yet to hear a response from Segura or the 
renegotiating council.  CDEEE is trying to portray the IPPs' 
contracts as the root cause for the electricity crisis, an 
unsubstantiated assertion that has been refuted by the IPPs 
and the press.  One reason why CDEEE is trying to renegotiate 
the contracts is to ensure that planned coal-fired generating 
plants will be able to sell their electricity on the local 
spot market without having to compete with the contract terms 
established between the IPPs and the government, in effect 
until 2016.  Another reason is that Segura believes that a 
renegotiation will substantially lower the costs of 
electricity for the end-user, which will then increase the 
collection rates because the end-user will be more willing to 
pay the "lower" rate.  Industry experts and the press both 
believe that a renegotiation will have only a minor affect on 
the electricity price and that the real problem lies in the 
lack of collection and the high levels of corruption within 
the sector (see reftel). 
 
      - Failure to meet the cost recovery index (CRI) goal 
set with the World Bank at 0.64 for 2006. The CRI for 2006 
was 0.57. The CRI is a mathematcal formula that indicates 
how much electricity s invoiced and how much of that is 
collected.  CIs can be used in different industries and, 
according to industry experts, the CRI in the Dominican 
Republic signifies an extremely inefficient indusry. 
 
      - Slow movement on electricity reform.  President 
Fernandez has submitted a bill to Cngress that criminalizes 
the theft of electricity.  The bill is still in Congress but 
is expected to pass in early 2007; 
 
      - No ground breaking ceremony for the two new, 
long-discussed coal-fired electricity-generating plants that 
were scheduled to begin construction in 2006.  The coal 
plants are intended to provide 600MW each to a country that 
already has roughly 1000MW of extra installed capacity 
waiting to be used.  Both companies proposing the project, 
one Chinese and the other from the Mideast, are lacking the 
financial capital to break ground, due in part to the current 
contractual framework that the government has with the other 
generating companies (IPPs). 
 
      - Backward movement on electricity reforms and a 
potential return to the framework of the early 1990's of 
extensive state ownership. CDEEE's Segura proposed a bill to 
Fernandez that brings all the state-owned electricity 
companies (transmission, hydroelectric, and electric) under 
the CDEEE roof, chaired by Segura.  Embassy contacts indicate 
that Fernandez plans to send the bill to Congress.  If this 
bill becomes law, CDEEE will then become one of the most 
powerful institutions in the country.  As we reported on our 
SIPRNET website, this legislation will not solve the energy 
problem in the Dominican Republic.  The proposal counters 
Fernandez' original plan to privatize the sector and is 
strongly opposed by other high level government officials, 
including Technical Secretary to the President Temistocles 
Montas.  Industry experts agree that continued state 
ownership of the electricity sector will only worsen the 
electricity crisis because the government does not have the 
capital to invest in the sector.  Fernandez, however, appears 
to be playing party politics and wants to appease Segura, who 
is a powerful PLD party member. 
 
¶3.  (U) The electricity sector in the Dominican Republic is 
inefficient and woefully mismanaged.  Due to improper billing 
for 2006, the electricity regulator has instructed the 
distributors to return RD 133 million pesos (USD 4 million) 
to their clients.  Since September, the cost of electricity 
has dropped because of the fall in oil prices and the 
appreciation of the Dominican peso against the dollar. 
However, the government has not let the clients enjoy the 
drop in price because the government is using this surplus to 
help pay for the electricity subsidies that went way over 
budget. 
 
¶4.  (SBU) Comment.  The Dominican electricity crisis will 
continue until the government decides to take effective 
action to stop the corruption and theft  (i.e., enforce the 
current laws), to increase collection rates, to reduce 
electricity subsidies, and to work with the private sector, . 
 The government knows this and doesn't need another 12 
conferences in 2007 to tell them so.  The unfortunate state 
of affairs in the electricity sector will most likely not 
improve because of political considerations.  The political 
parties are already in a ferment over choosing candidates for 
the presidential elections of 2008.  Fernandez, never one to 
go through when he could go around, is not about to start 
displaying decisiveness in breaking down privilege or 
redistributing turf.  End Comment. 
 
¶5.  (U) This report and extensive other material can be 
consulted on our SIPRNET site, 
http://www.state.sgov.gov/p/wha/santodomingo/  
HERTELL