US embassy cable - 05PORTAUPRINCE684

UNCLAS SECTION 01 OF 03 PORT AU PRINCE 000684 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAR 
EB/ESC/IEC 
WHA/EPSC 
INR/IAA/MAC 
STATE PASS TO AID FOR LAC/CAR 
USDOC FOR 4322/ITA/MAN/WH/OLAC/ (SMITH, S.) 
 
E.O. 12958: N/A 
TAGS: ENRG, EPET, ECON, EFIN, EIND, EINV, PGOV, HA 
SUBJECT: Haitian Energy  Avoiding Political Shock 
 
Sensitive but Unclassified please handle accordingly. 
 
1. (SBU) SUMMARY:  Haitians view electricity production as a 
measure the government's effectiveness.  Electricity de 
Haiti (EDH) and the Interim Government of Haiti (IGOH) are 
having trouble providing power.  EDH is beset with problems 
throughout its production, transmission and 
commercialization process; it is running a significant 
deficit.  In the short term, the IGOH will support EDH while 
EDH tries to increase its revenues.  However, EDH is aware 
that in the long term, it must address its network 
inefficiency and its dependence on diesel.  The elections 
are also fueling concern that if the next government is 
unable to at least maintain the power supply, its viability 
may be jeopardized.  EDH and the IGOH are considering 
private management, but not private ownership at this point. 
Some in the private sector are also interested in 
privatization.  However, EDH's problems are systemic, the 
transition to private ownership would be difficult.  In 
addition, a private owner might cut power and alienate the 
poor, on whom the government is dependent for long-term 
success.  END SUMMARY 
 
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Electricity and Politics; Hand in Hand in Haiti 
--------------------------------------------- -- 
 
2. (U) Haitians use electricity provision as a measure of 
the ability of the government to govern and provide 
services.  According to EDH general director Harold Morose, 
consistent power is so politically essential that EDH and 
the IGOH made special provisions to supply power nearly 24 
hours a day during Christmas and Carnival.  For the past 
seven months, on normal days, with USD 23 million from 
USAID, Electricity de Haiti (EDH) has provided between 12 
and 16 hours of electricity per day to some neighborhoods. 
However, USAID support ended in early March.  Morose said 
that continuing to provide power at current levels through 
the elections is critical to the IGOH's success.  However, 
EDH claims that with the end of USAID support for EDH, EDH's 
ability to continue to deliver power at current levels is 
unclear.  Post has observed a reduction in the electricity 
supplied since USAID support ended.  EDH is running a 
significant financial deficit, and is now dependant on the 
IGOH for financial support. 
 
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EDH: Problems from Top to Bottom 
-------------------------------- 
 
3. (U) EDH is beset with problems throughout its power 
production, transmission and commercialization process. 
EDH's problems begin with their power generation, which is 
largely dependant on contractors running diesel generators. 
Diesel generation is both expensive and insufficient for the 
needs of Port-au-Prince. 
 
4. (U) According to EDH Commercial Director Kathleen 
Wrainright, the situation has caused EDH to give different 
circuits power at different times of the day.  Industrial 
circuits get power during the day, when factories are in 
operation, residential circuits get power in the evening, 
when people are at home, and commercial circuits get power 
in the day and evening, when businesses are open.  Some 
"priority circuits" that have a mix of at least two types 
customers are powered as much as possible, however, even 
they receive only 12 to 16 hours daily. 
 
5. (U) Haiti's antiquated power transmission network and 
rampant power theft are significant in making EDH a money- 
losing state-run enterprise.  EDH loses 20 percent of its 
power through old inefficient transformers, and theft 
accounts for another 37 percent (some believe that the 
reason illegal power lines are not cut is because corrupt 
technicians are in the pay of power thieves), leaving 43 
percent upon which its billing rests.  The result is that 
EDH cannot cover the cost of its fuel without outside 
support, even without considering other expenses such as 
equipment maintenance and salaries. 
 
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EDH Damage Control 
------------------ 
 
6. (U) EDH has undertaken some measures in an attempt to 
mitigate its deficit.  In the short term the IGOH has said 
it will furnish EDH with USD 5 to 6 million monthly in order 
to keep the power on in Port-au-Prince.  However, this is a 
band-aid solution. 
 
7. (U) EDH is also searching to increase its revenues 
through decentralization and community billing.  According 
to Commercial Director Wainright, EDH is attempting to 
decentralize their revenue collection, service provision and 
maintenance operations through the creation of local EDH 
agencies.  To address the question of power theft by poor 
neighborhoods, EDH has started a pilot program in which poor 
communities currently stealing power are attached to the 
power grid through a single meter and are billed as a whole 
through community organizations.  Wainright said that their 
pilot program in Cite de Dieu is working well, and they hope 
to expand to include more communities that have historically 
stolen power. 
 
--------------------------------------- 
Long Term  Raise Efficiency, No Diesel 
--------------------------------------- 
 
8. (U) However, EDH is also aware that in the long term, it 
must address two fundamental problems: its network 
inefficiency and its dependence on diesel fuel.  EDH General 
Director Morose was adamant that EDH must stop diesel 
generation as soon as possible.  (Note: some believe that 
the reason that Haiti still uses diesel power is that diesel 
fuel can easily be stolen and sold, or used in vehicles.) 
Morose said he believes that given Haiti's lack of technical 
resources, a nation-wide transmission network needs to be 
constructed along with a power plant(s) sufficiently large 
to supply all of Haiti's power needs.  He said that he is 
talking with the Government of Germany about such a 
proposal, a statement that was later confirmed by a private 
sector contact. 
 
-------------------- 
Beyond the Elections 
-------------------- 
 
9. (U) The politics of power in Haiti are also fueling 
concerns about what will happen after elections at the end 
of 2005.  EDH Director General Morose told Econoff that 
power would stay on through the elections, but said because 
EDH is dependant on the IGOH for financial support, he does 
not know what will happen after the elections.  He said that 
without government support, EDH would be forced to cut back 
to at most four hours of electricity a day.  Should such 
cuts occur, he doubted that any government would be able to 
remain in office. 
 
-------------------------- 
Privatization? It Depends. 
-------------------------- 
 
10. (U) EDH and the IGOH are considering private management 
as part of the solution to EDH's woes, but not private 
ownership anytime soon.  According to a source on the 
Committee for the Modernization of Public Enterprises 
(CMEP), EDH is currently being audited.  By the end of 2005, 
after the audits are finished, the IGOH plans to tender a 
management contract as a first step towards privatization. 
However the IGOH prefers to leave the politically sensitive 
issue of privatization to an elected government. 
 
11. (SBU) Meanwhile, some in the private sector are 
interested in privatization.  A source with U.S.-owned 
Alstom Power Rentals said recently that Alstom and some 
private partners would like to buy EDH.  Alstom's idea calls 
for Alstom and its associates to own 80 percent of EDH and 
the government of Haiti to retain only 20 percent. 
 
12. (U) Both approaches come as some in the private sector 
believe EDH to be in a good position to be privatized 
because of the market it serves, if its problems can be 
addressed.  Director General Morose says that EDH has 
eliminated its debt to Texaco and Alstom, though Alstom 
complains that EDH never pays its bills on time.  In 
addition, Alstom believes that EDH would be profitable once 
its problems are overcome.  Nonetheless, privatization could 
pose political problems, first because a private sector 
company would cut off power to customers that do not pay, 
and second because a private sector company would be likely 
to make significant layoffs as part of the privatization 
process. 
 
13. (U) COMMENT: Should the IGOH set EDH on the road to 
privatization, the transition will be fraught with 
difficulty, particularly in weeding out pervasive 
corruption.  Additionally, despite its commercial and 
financial woes, EDH and the IGOH keep the power on in part 
because they fear the political repercussions of turning it 
off.  A private company seeking profit would not share their 
compunctions.  Turning off the power of non-paying customers 
may serve to alienate the poor, the very people that the 
government needs to court in order to be a long-term 
success.  END COMMENT.