VZCZCXYZ0000
RR RUEHWEB

DE RUEHDG #1587/01 2881232
ZNR UUUUU ZZH
R 141232Z OCT 08
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC 1569
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 0263
RUEHWN/AMEMBASSY BRIDGETOWN 2192
RUEHCV/AMEMBASSY CARACAS 0931
RUEHPU/AMEMBASSY PORT AU PRINCE 4861
RUEHSN/AMEMBASSY SAN SALVADOR 0881

UNCLAS SANTO DOMINGO 001587 
 
SENSITIVE 
SIPDIS 
 
EEB FOR MATT MCMANUS, STATE FOR USOAS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON SENV DR
SUBJECT: (SBU) BIOFUELS CONSULTANTS BEGIN WORK ON SECOND 
PHASE OF U.S.-BRAZIL BIOFUELS INITIATIVE 
 
REF: A. SANTO DOMINGO 1121 
     ¶B. SANTO DOMINGO 1158 
 
 ¶1. (U) SUMMARY. Biofuels consultants working under the 
U.S.-Brazil Biofuels Initiative were in the Dominican 
Republic October 2 and 3 to meet with GoDR and private-sector 
players in the liquid fuels sector.  The State Department 
provided funding through the Organization of American States 
(OAS) to Hart Energy Consulting and Energy and Security Group 
(ESG) to provide technical assistance for the implementation 
of an ethanol blend in gasoline as mandated under the 
Dominican Republic,s renewable energy law.  To kick-off the 
event, the U.S. and OAS Ambassadors, as well as the DCM from 
the Brazilian embassy, helped the consultants present the 
project to a group of high-level officials from key GoDR 
ministries. The event was covered widely in the press. 
Subsequent meetings, while very productive, revealed GoDR 
infighting on the issue and doubts about local ethanol 
production. END SUMMARY. 
 
¶2. (U) Hart Energy Consulting and Energy and Security Group 
(ESG) joined forces to work on this contract, granted by the 
OAS with funds provided by the Department, as part of the 
cooperative initiative between the United States and Brazil 
to promote biofuels in the Caribbean region. The companies 
have received a USD 300,000 contract to provide technical 
assistance to help the Dominican Republic begin blending 
ethanol in domestically sold gasoline. Although the 
consultants will analyze the possibility of different blends, 
ranging from 2 to 85 percent ethanol, Law 57-07, the 
renewable energy law, calls for a 10 percent blend by 2009 
and 15 percent by 2010. 
 
¶3. (U) The eight-person team was led by Judy Siegel of ESG 
and Frederick Potter of Hart.  They were joined by Department 
AAAS fellow Noel Gurwick and Francisco Burgos of the OAS. 
EconOff also attended all meetings.  The kick-off meeting 
began as a closed-door session with high-level GoDR officials 
including National Energy Commission (CNE) President 
Aristides Fernandez Zucco, Dominican Corporation of State 
Electricity Companies (CDEEE) Executive Vice President 
Radhames Segura and Congressmen Pelegrin Castillo and Victor 
&Ito8 Bisono.  Ambassador Fannin opened the meeting by 
speaking to the merits of biofuels and OAS Ambassador Paul 
Durand followed with similar praise.  Following the 
introduction of the consultants and the consultants, 
presentation of their project, the contractors, Burgos and 
EconOff responded to questions from the group.  Zucco also 
spoke about CNE progress on the issue, describing plans for 
an international tender to import ethanol.  The press then 
joined the meeting; Ambassador Fannin welcomed their entrance 
and described the importance of and potential for biofuels in 
the Dominican Republic. 
 
¶4. (SBU) In addition to the kick-off presentation, the group 
met separately with the CNE,s director of biofuels, Onil 
Abreu Tabar, and the Ministry of Industry and Commerce,s 
(SEIC) director of non-conventional energy, Salvador Rivas. 
Although these two agencies share the lead role on renewable 
energy issues, tensions were apparent ) when EconOff asked 
Rivas to speak in an aside during the kick-off event, Rivas 
said he did not want to speak with CNE President Aristides 
Fernandez Zucco in the room.  Rivas said he opposes the 
CNE,s plan to hold an international bidding process for 
ethanol importers. 
 
¶5. (U) Yet while these agencies disagree on details, they 
share the common goal of achieving the blending benchmarks, 
which Rivas and Tabar say are opposed by some civic groups as 
well as the refinery administration.  On October 3, the group 
visited the country,s sole refinery, Refinera Dominicana, 
S.A. (Refidomsa).  Refidomsa managers shared internal 
calculations showing that a 10 percent ethanol mix would lead 
to USD 30 million annually in lost tax revenue for the 
government and cost the refinery USD 2.5 million per year, 
while providing only a minimal cost reduction in gasoline 
prices for the consumer.  Rivas, who attended the Refidomsa 
briefing, disputed these numbers and said that SEIC had its 
own calculations showing a much brighter scenario. 
 
¶6. (U) In July, the GODR agreed to purchase Shell,s 50 
percent stake in Refidomsa to make it wholly 
government-owned.  The sale is expected to become final in 
 
November, when the government completes payment to Shell. 
Rivas and Tabar both said that full government ownership of 
the facility would facilitate achieving the blending goals, 
though Tabar said he expected the government to resell the 
company to the private sector at some point in the near term. 
(Note: In July, during a Petrocaribe meeting in Venezuela, 
President Fernandez floated the idea of Venezuela purchasing 
a share of the refinery (Ref B). End Note) Refidomsa General 
Manager Alfredo Nara, a Shell employee who expects to leave 
when the sale becomes final, acknowledged that, "In the end, 
we will do what is best for the country."  Nevertheless, he 
stressed that blending would be a hard sell to the public and 
skeptics in the government if it represents an economic 
burden. 
 
¶7. (U) While recognizing that many of the questions of 
political will are beyond the scope of the project, the 
consultants said that they would hone the calculations and 
provide an independent voice that could help reconcile 
inter-agency differences.  Primarily, however, the 
consultants focused their questions on the technical 
information needed to blend ethanol with gasoline, and 
reported that by the end of their visit that they had 
obtained most of the data needed to prepare the contracted 
assistance. 
 
¶8. (U) In other meetings, retail gasoline executives and 
sugarcane producers described additional challenges that they 
foresee with the ethanol blending plans.  The gasoline 
executives noted that gasoline accounts for a shrinking 
fraction of the liquid fuel market share, with subsidized 
liquid petroleum gas (LPG) proving a much more economical 
option for consumers.  According to ExxonMobil General 
Manager Miguel Estepan, gasoline sales fell 27 percent from 
2002 to 2007, while LPG sales jumped more than 30 percent. 
(COMMENT: A government plan to focalize the subsidy for 
public transportation vehicles and poor households that use 
LPG for cooking is being implemented, but even this will not 
eliminate the market distortion as LPG is not taxed. END 
COMMENT.) 
 
¶9. (SBU) The contractors met with sugarcane investors eager 
to produce ethanol but who said they feel stymied by the 
complicated Dominican sugarcane market.  They said that 
despite vast acreage of prime sugarcane land left fallow and 
with sugarcane harvests at an historic low, the potential for 
ethanol production is unlikely in the near term because of 
two factors: inflated prices for refined sugar and an 
oligopoly in the region.  Omar Bros of Cosorcio Tecno Deah 
(CTD) noted that one ton of sugarcane is worth USD 70 as 
refined sugar sold on the Dominican Market, USD 55 as refined 
sugar sold under the tariff rate quota in the United States 
and just USD 37 when converted into ethanol.  Because the 
refined sugar prices are set well above world market prices, 
he dismissed the possibility that current producers would 
forego sugar production to make ethanol.  Furthermore, the 
investors said that the Dominican sugar industry is 
controlled by the Vicini and Fanjul families, allowing them 
to act as a virtual monopoly.  The Vicini and Fanjul families 
have announced plans for a USD 500 million joint venture that 
includes both sugar and ethanol production, but Vicini 
executives told EconOff in June that the project is held up 
by land discrepancies between the government and former 
tenants (Ref A). 
 
¶10. (U) The group also held meetings with officials from the 
Ministries of the Environment and Agriculture.  They hope to 
meet on a subsequent visit with officials working on carbon 
credits under the Clean Development Mechanism. 
 
¶11. (U) COMMENT: Following the meetings, Siegel and the other 
consultants told EconOff that they were pleased with the 
progress they had made on the project but were concerned 
about certain facts that will complicate the practical 
application of the new law.  Internal disagreements, they 
said, are to be expected and they hoped that their 
participation as an outside organization will mitigate 
infighting between the SEIC, the CNE, Refidomsa and other 
agencies.  As Rivas told the consultants, "It,s one thing if 
I say something; it,s totally different if you say it." 
After meeting with the sugarcane representatives, the 
contractors acknowledged that domestic ethanol production was 
impossible in the short-term and accepted the GoDR,s 
 
conclusion that blending could only proceed using imported 
ethanol.  Overcoming the long-term barriers to domestic 
production will require either a complete change in 
Dominican, U.S. and European sugar laws or a heavy subsidy 
aimed at making ethanol prices competitive with refined 
sugar.  Neither option appears likely.  END COMMENT. 
FANNIN