VZCZCXYZ0002
PP RUEHWEB

DE RUEHDG #1025/01 1172039
ZNR UUUUU ZZH
P 272039Z APR 07
FM AMEMBASSY SANTO DOMINGO
TO RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8125
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 1653
RUEHPU/AMEMBASSY PORT AU PRINCE PRIORITY 4587

UNCLAS SANTO DOMINGO 001025 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CAR, WHA/EPSC, EB/ESC/IEC/EPC, EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: ECON ENRG PGOV PREL EINV DR
SUBJECT: THE DOMINICAN GOVERNMENT'S ANSWER TO THE 
ELECTRICITY CRISIS - MORE ELECTRICITY! 
 
REF: 06 SANTO DOMINGO 3733 
 
¶1.  (SBU) Summary.  According to press reports and industry 
contacts, construction on a 660MW (megawatt) coal-fueled 
electricity generating plant is finally scheduled to begin in 
May 2007, two years after Chinese firm Sichuan Machinery 
signed the contract to build it.  Sichuan Machinery will 
build, own, and operate the plant in Pepillo Salcedo 
(Manzanillo), a small Dominican town on the north coast 
bordering Haiti.  Although most investors would shy away from 
the Dominican electricity sector, the government sweetened 
the deal for the Chinese by offering land, coal, and letters 
of credit.  It may sound promising, but it will not solve the 
three main factors of the electricity crisis: corruption, 
theft and poor service by the government distributors.  End 
Summary. 
 
--------------------------------------------- ----- 
PPAs, the Madrid Accord, and Renegotiation efforts 
--------------------------------------------- ----- 
 
¶2.  (U) Currently, the electricity sector in the Dominican 
Republic has the ability to provide about 3500MW.  Current 
peak demand, however, is about 1900MW.  The Sichuan coal 
plant and the planned 600MW coal plant in Azua are products 
of the government's attempt to better the electricity 
situation.  The coal plants, according to the government, 
would provide an extra 1200MW to the system, which would 
create an oversupply of electricity and, the government 
reasons, drive generation prices down by 2010.  The plan will 
work only if the government can renegotiate its contracts 
under the Madrid Accord (Accord).  The Accord extended the 
power purchasing agreements (PPAs), signed under the 
capitalization program (1998-2000) between the private 
electricity-generation companies and the government, to 2016. 
 
 
¶3.  (U) When the PPAs were rolled up under the Madrid Accord, 
the generation companies agreed to charge 5.1 cents (US) per 
kilowatt hour (kw/h) to the distribution companies; (however, 
the accord allows the price to fluctuate depending on the 
price of oil, which was about USD 21 per barrel at the time 
of signing the Accord).  According to industry experts, up to 
70 percent of the electricity cost that the private 
generation companies charge to the distribution sector is 
indexed to the price of fuel.  Fifty-seven percent of 
electricity generated in the Dominican Republic uses either 
diesel or bunker fuel, whose prices have risen threefold 
since the agreement was signed.  Therefore, the price that 
generation companies are now charging the distributors has 
risen over the years to an average price of 11 cents (US) per 
kw/h.  Due to this price increase, the government decided to 
supply the coal to the Chinese plant in order to lock in the 
5.4 cents (US) per kw/h.  The government claims that its 
involvement will ensure lower prices for the distributors, 
which should equate to lower prices for the end-user. 
 
¶4.  (U) Current consumer electricity prices in the Dominican 
Republic range between 22 to 25 cents (US) per kw/h. 
According to industry experts, the private generation 
companies charge the distribution companies about 10-12 cents 
(US) per kw/h, the transmission company charges about 2 cents 
(US) per kw/h, and the distribution companies charge about 
9-11 cents (US) per kw/h, of which a portion is used to 
offset a hefty government subsidy in the electricity sector. 
 
¶5.  (SBU) Since 2005, the government has been trying to 
renegotiate the Madrid Accord, but has yet to produce 
significant results due to the government's willingness to 
waive the stick without offering any carrots.  The goal of 
the renegotiation effort is to reduce the 12-year timeline of 
the contracts in order to free up the electricity-purchasing 
market by 2009, which coincides with when the new coal plants 
would come on line.  Owners of the coal plants know that a 
coal-fired electricity generation plant can produce 
electricity at a cheaper cost than those plants that use 
diesel or bunker fuel.  If the Madrid Accord is curtailed in 
2009, the market will favor the coal plants over diesel or 
bunker fueled plants. 
 
--------------- 
The Coal Plants 
--------------- 
 
¶6.  (U) Sichuan Machinery is not new to the electricity 
industry, but is new to the Caribbean region.  The 660MW coal 
plant will consist of two units.  The first unit should be 
completed in 2 years and the second in 33 months.  The plant 
 
will provide electricity to the Cibao region, particularly 
Santiago, the second largest city in the Dominican Republic. 
It will provide electricity to the state-owned distribution 
company (EdeNorte).  The expected cost of generating the 
electricity will be 5.4 cents (US) per kw/h.  This is a 50 
percent reduction in the current price of electricity to the 
distributors, which stands at about 11 cents (US) per kw/h. 
The reduction is not a surprise considering that the 
government is supplying the coal. 
 
¶7.  (SBU) Two private electricity-plant general managers told 
econoff that they would be very happy to have the same terms 
as these two coal plants received from the government: free 
land, free fuel, and letters of credit.  They also mentioned 
that if any new U.S. player comes into the market, they could 
demand the same terms that these coal plants received under 
the National Treatment clause of the CAFTA-DR regional free 
trade agreement. 
 
¶8.  (SBU) The Azua coal plant is still in a state of flux. 
Emirates Power signed a contract with the government holding 
company of state-owned electric companies (CDEEE) to develop 
a 600MW coal fired electricity generation plant.  However, 
financing issues are holding up the project.  Industry 
sources say that Emirates Power is looking to sell its 
contract to Seaboard Corporation and the sugar-producer 
Vicini family.  In private conversation, Vicini's 
Communications Vice President added that Seaboard is taking 
the lead on the coal-plant contract and confirmed Embassy's 
opinion that Seaboard is waiting for the outcome of the 
government-led renegotiation efforts to finalize their 
decision.  If Seaboard acquires the contract, the Vicini 
Group will become a minority share holder; the Vicini Group 
solely owns MetalDom, a 50MW electricity-generation plant 
that uses bunker fuel, but sells on the spot market. 
 
-------- 
Concerns 
-------- 
 
¶9.  (SBU) Although greater supply should bring down the price 
of electricity, the overarching issues to the electricity 
problem will still not be resolved.  As previously reported 
in reftel, the real causes of the electricity crisis are 
theft, corruption, and poor distribution service.  Until the 
government forces its own institutions, big business, and the 
population at large to pay their electricity bill, new coal 
plants and a minimally reduced electricity bill will not 
solve the problem. 
 
¶10.  (SBU) The government's involvement in the coal business 
is yet another area where existing government corruption may 
exert its influence.  The government is also taking on the 
burdens of finding and allocating government resources to 
purchase coal on the international market and of becoming a 
dependable coal supplier for the Sichuan coal plant.  This 
suggests that the government will have to create more jobs to 
handle the business of purchasing and distributing coal. 
According to coal experts, a 500 megawatt coal plant produces 
3.5 billion kilowatt-hours per year, enough to power a city 
of about 140,000 people. It burns 1,430,000 tons of coal/yr, 
uses 2.2 billion gallons of water/yr and 146,000 tons of 
limestone/yr.  For the Sichuan coal plant, the government 
will be contracting ships to carry roughly 30,000 tons of 
coal weekly from Colombia to Manzanillo.  This is just 
another headache that the government thinks is a remedy to 
solve the electricity crisis. 
 
¶11.  (U) This report and extensive other material can be 
consulted on our SIPRNET site, 
http://www.state.sgov.gov/p/wha/santodomingo/  
HERTELL