US embassy cable - 04SANTODOMINGO502

UNCLAS SANTO DOMINGO 000502 
 
SIPDIS 
 
STATE FOR WHA AND EB 
TREASURY FOR OASIS: J.TAYLOR, N.LEE, R.TOLOUI AND L.LAMONICA 
NSC for H. Cruz 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, PREL, ENRG, DR 
SUBJECT:  Electricity Sector Shutting Down in the Dominican 
Republic 
 
 
1.  (SBU) Summary:  As more power plants shut down, GODR and 
energy sector representatives in public recriminations. 
Negotiators are close to an agreement that would put 
Cogentrix back on line.  End summary. 
 
2.  (SBU) Nine representatives of the electricity sector 
briefed the Ambassador on January 23 on the meetings they 
had last week in Washington with State, Treasury, NSC, IMF, 
IBD and WB.  They described the system as "close to 
bankruptcy."  Representatives of the generating companies 
described one by one the date that each generating plant 
will be shut down for lack of fuel.  The sector estimates 
that by the end of January, the country will be back to 
generating about half of the daily peak demand. 
 
3.  (SBU) Company representatives assert that approximately 
$200 million is needed immediately to buy fuel and avert 
bankruptcy of at least two of the companies.  However, if 
the cash is not accompanied by actions on tariffs and 
subsidies, the system cannot recover because even with the 
new rates that took effect January 1, the wholesale price of 
electricity is below the retail cost -- and the GODR 
continues to accumulate arrears on subsidy payments.  The 
pricing gap has been growing daily as the value of the peso 
continues to decline. 
 
4.  (SBU) Technical Secretary of the Presidency Carlos 
Despradel himself considers it impossible for the GODR to 
seek to subsidize energy, particularly as the peso devalues. 
"We should tell people we have to pass along the full price, 
just the way we do with gasoline."  He acknowledged, 
however, that decisions on these matters are not his 
responsibility and beyond his ability to influence. 
 
5.  (SBU) In the meantime, Secretary of Finance Calderon 
appeared on television January 25 and in local papers 
accusing the generators of extortion and blaming them for 
the blackouts.  He rebuffed recommendations the sector had 
presented to the GODR and denied that the GODR owed even 
"one penny" to Virginia-based AES, which is the largest 
investor in the sector.  He said if the companies are 
bankrupt, "why not declare it?" 
 
COGENTRIX 
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6.  (SBU) Since the Dominican Republic has been in a 
perpetual electricity crisis, it would be tempting to 
believe that as they have done so many times before, 
government officials will pull a rabbit out of the hat and 
keep the system going.  The rabbit might be a deal with 
Goldman Sachs, new owners of COGENTRIX, which is currently 
in negotiations with the government concerning approximately 
$35 million in arrears.  COGENTRIX has full fuel tanks, so a 
settlement could put 300 MW on line quickly.  Despradel told 
emboffs on January 23 it appeared that Goldman Sachs would 
reduce the amount required to $24 million if $12 million 
were paid promptly.  Cogentrix sources have since confirmed 
agreement on a $16 million payment, but with a firm demand 
for cash by January 29, or company lenders will call the 
Inter-American Development Bank guarantees. 
 
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Comment 
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7.  (SBU) Failing a COGENTRIX deal, we would expect 
increasing long blackouts during the next two weeks 
and cannot entirely rule out the possibility of a system 
shut down.  This means the country will again be living with 
prolonged blackouts that will intensify as the country 
braces for a national strike, enhancing public discontent 
and the possibility for vigorous protest. 
HERTELL