VZCZCXYZ0004
PP RUEHWEB

DE RUEHDG #0205/01 0441451
ZNR UUUUU ZZH
P 131451Z FEB 09
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 2259
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHLP/AMEMBASSY LA PAZ FEB 0493
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY 1781

UNCLAS SANTO DOMINGO 000205 
 
SENSITIVE 
SIPDIS 
 
LA PAZ FOR A/DCM 
STATE PASS TO USTR (DOLIVER) 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EINV DR
SUBJECT: BONDS, THIEVES AND ARBITRATIONS: A DOMINICAN 
REPUBLIC ELECTRICITY SECTOR UPDATE 
 
REF: A. 08 SANTO DOMINGO 1729 
     ¶B. SANTO DOMINGO 183 
 
¶1. (U) Summary: In what the electricity generators consider a 
very positive step forward, the Dominican Corporation of 
State-Owned Electricity Companies (CDEEE) is paying a large 
part of its outstanding 2008 balance to the generators with 
USD 250 million in bonds backed by a sovereign guarantee.  In 
addition, the Electricity Superintendence has announced that 
enforcement of the electricity theft law will begin on 
February 20.  Both of these announcements came against the 
backdrop of the GoDR-sponsored National Summit, which is 
discussing ways to address the problematic electricity 
sector.  This cable also contains an update on the three 
arbitration cases brought by Trust Company of the West (TCW), 
fifty percent stakeholder of electricity distributor Ede 
Este, against the GoDR, which owns the other half of the 
company. End Summary. 
 
--------------------------------------------- ----------------- 
Acceptance of CDEEE bond offer pending congressional amendment 
--------------------------------------------- ----------------- 
 
¶2. (U) Facing an outstanding balance of about USD 440 million 
owed to electricity generators operating in the Dominican 
Republic (Reftel A), the CDEEE offered to cover USD 250 
million of this deficit with sovereign bonds.  The dollar 
bonds, which are in three equal parts set to mature in one, 
two and three years, have an annual yield of 10.6 percent. 
In order to ensure that they can easily trade the bonds, the 
generators have asked the Finance Ministry to request 
Congress amend its December approval of the bond issue to 
allow the matured bonds to be used to pay government 
obligations, including Dominican taxes.  On February 10, the 
generators signed a memorandum of understanding (MOU) that 
they would accept the bonds if Congress passes this amendment 
within three months.  The bonds continue to mature in the 
meanwhile in a CDEEE account. 
 
¶3. (SBU) The major electricity generators greeted the bond 
offer positively.  Compania de Electricidad de San Pedro de 
Macoris (CESPM) General Manager Roberto Herrera told EconOff 
that the bonds are a good outcome given that the government 
has seen revenues drop well below expected levels and 
appeared to lack other options for payment.  He said that 
CESPM and the other generators recognize the bonds as a 
good-faith effort to settle the debt.  The CDEEE also came up 
with an additional USD 50 million in cash and has allowed the 
private generators to forego payments owed to state-owned 
companies in exchange for reducing CDEEE debts to the 
generators.  Herrera said that given the lower fuel prices, 
he expects the CDEEE to catch up on the remaining 2008 
balance in the coming months.  The debt from 2002-04, which 
was "frozen" and scheduled to be repaid in subsequent years, 
remains at USD 202 million, according to press reports. 
 
¶4. (SBU) Marco de la Rosa, president of AES Dominicana, told 
EconOff that AES will receive USD 110 million in bonds, 
leaving USD 60 million outstanding from 2008.  He noted that 
the MOU signed with the CDEEE includes the state-owned 
holding company's commitment to pay 2009 invoices on time ) 
a necessity to ensure that the generators have operating 
capital throughout the year. 
 
 
--------------------------------------------- ------ 
Electricity theft crackdown promised for this month 
--------------------------------------------- ------ 
 
¶5. (U) The Superintendent of Electricity, Francisco Mendez, 
announced that his office would initiate the formal 
application of Law 186-07, which criminalizes the theft of 
electricity, on February 20.  Although this law has been part 
of Dominican criminal code since late 2007, the government 
has not yet sought to enforce it.  In a February 10 press 
conference to announce the upcoming start date for the law, 
Mendez noted that the spirit of the law is to dissuade fraud 
and urged those currently illicitly obtaining electricity to 
regularize their connection to the grid.  Along these lines, 
the Superintendence took out advertisements in newspapers on 
February 12 describing the penalties for electricity thieves. 
 
 
¶6. (U) Numerous analyses of the sector have found that about 
25 percent of electricity users in the Dominican Republic 
 
have illegal connections.  Illegal users include all sectors 
of the population, from small residential users to large 
industrial consumers.   This theft is the primary reason that 
distribution losses in the Dominican Republic are the fourth 
highest in the world, at close to 40%, and more than double 
the Latin American average (based on 2005 data). 
 
¶7. (SBU) Federico Valera, Regulations Manager for the 
state-run Ede Sur distribution company, told EconOff that he 
believes the February 20 start date is realistic.  He said 
that the National Directorate of Quality Standards and 
Systems (DIGENOR) has acquired a laboratory that will be used 
to certify instances of theft.  The Attorney General's office 
has assigned prosecutors to the DIGENOR laboratory for this 
purpose.  Valera noted that part of the delay in implementing 
the law was logistical, as DIGENOR does not have a budget for 
this activity.  After some wrangling, however, Valera said 
that the distributors have paid most of the logistical costs 
and the laboratory is ready to go.  He said he believed that 
Ede Sur has a list of violation allegations (maintained 
confidential by another section of the company) ready to 
bring forward as soon as the prosecutors begin working. 
 
--------------------------------------------- -- 
National Summit Considers Electricity Conundrum 
--------------------------------------------- -- 
 
¶8. (U) Since January 28, various sectors have come together 
to participate in the government-sponsored "Summit of 
National Unity to Confront the International Crisis" (Reftel 
B).  While there has been skepticism about whether the 
meetings will precipitate any action, the "living forces" (as 
President Fernandez calls the participants in the summit) 
appear positive about the opportunity to provide input and 
reach consensuses within the diverse working groups.  One of 
the roundtables is a discussion of Electricity and 
Hydrocarbons, which has prominently included an examination 
of the problematic electricity sector. 
 
¶9. (SBU) AES' De la Rosa, a participant in this roundtable, 
told EconOff that he was pleased with many of the outcomes of 
the meetings, but noted that the summit's methodological 
reliance on unanimity and consensus prevented the group from 
tackling the more challenging items frustrating electricity 
reform.  "The big problems are those where consensus is 
lacking," he said, offering as an example the renegotiation 
of the Madrid Agreement ) a series of power purchase 
agreements (PPAs) signed between generators and the 
government in 2001.  Nonetheless, he said he was pleased that 
the group reached consensus on a number of issues, such as a 
reduction of the level of residential consumption to be 
provided at the lowest tariff. He also mentioned that while 
the generators were unwilling to agree to renegotiate the 
Madrid Agreement, they accepted the formation of a legal team 
to examine the legality of that agreement.  He said he 
believed that President Fernandez was committed to following 
through the Summit's outcome. 
 
--------------------------------------------- --- 
TCW proceeding with arbitrations on three fronts 
--------------------------------------------- --- 
 
¶10. (U) On January 28, Econoffs met with EDE Este General 
Manager Jose Marinas Fernandez and received an update on the 
TCW arbitration case in a phone call with TCW lawyers.  The 
lawyers provided an update on the status of the three ongoing 
arbitration cases under the DR-France Bilateral Investment 
Treaty (BIT), CAFTA-DR, and a concession agreement.  In 
September 2008, the International Chamber of Commerce (ICC) 
arbitral tribunal found it had jurisdiction over the claim 
under the DR-France BIT. On January 23, TCW filed a brief on 
the merits and the DR is expected to respond in May.  Under 
the CAFTA-DR proceedings, the DR has contested jurisdiction 
and has submitted an opening memorial.  TCW expects to issue 
a response very soon.  The lawyers said they expect a 
decision on jurisdiction to be made by the end of the year. 
A hearing was held to sign the terms of reference in the case 
involving the concession agreement and the parties are 
negotiating a procedural schedule.  TCW expects the 
jurisdictional phase to start in early 2010. 
 
¶11. (U) EDE Este and TCW expressed concern to Econoffs over 
statements made by the GODR lawyer during an ICC hearing in 
January regarding intentions of the GODR to nationalize EDE 
Este.  EDE Este wrote a letter to President Fernandez noting 
 
their concern over these remarks and asking for 
clarification.  EDE Este also printed the letter in a full 
page ad in local newspapers.  In response, CDEEE Executive 
Vice President Radhames Segura commented in a radio interview 
that the GODR had no intention of nationalizing EDE Este. 
Marinas Fernandez said that EDE Este has not had any direct 
dialogue with the GODR due to the ongoing litigation, however 
EDE Este managers have confirmed media reports that Segura 
requested a meeting with EDE Este along with several 
electricity generators and the World Bank on February 19. 
 
 
------- 
Comment 
------- 
 
¶12. (SBU) The recent news of a bond issue to pay generators 
and plans to enforce the electricity theft law mark promising 
steps toward addressing the most pressing impediments in the 
country's electricity sector.  Nonetheless, neither 
initiative has been concretely established.  Having already 
approved the bond issue, it is unlikely that the Congress, 
which is controlled by President Fernandez' Dominican 
Liberation Party, would suddenly refuse to add this critical 
amendment, but a protracted delay due to consideration of the 
proposed constitutional reformcould cause the MOU to expire. 
The electricity law implementation demands more skepticism. 
After repeated delays and rhetoric without action, only 
criminal prosecutions will demonstrate the GoDR's commitment 
to combating this abuse. End Comment. 
BULLEN