US embassy cable - 05PORTAUPRINCE1455

UNCLAS PORT AU PRINCE 001455 
 
SIPDIS 
 
DEPT FOR WHA/CAR 
WHA/EPSC 
EB/IFD/OIA 
EB/IFD/OMA 
EB/IFD/ODF 
TREASURY FOR ALLEN RODRIGUEZ, GREGORY BERGER, 
WILLIAM BALDRIDGE, LARRY MCDONALD 
USDOC FOR 4322/ITA/MAN/WH/OLAC (SMITH, S.) 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EIND, ECPS, ENRG, ETRD, PGOV, HA 
SUBJECT: HAITI:  PRIVATIZATION UPDATE 
 
REF: A. (A) PORT AU PRINCE 0170 
 
     B. (B) PORT AU PRINCE 0561 
 
1.  (U) This cable is Sensitive but Unclassified. 
 
2.  (SBU) SUMMARY:  The Interim Government of Haiti,s (IGOH) 
goal of completing audits of five state-owned enterprises by 
the end of May, as a precursor to privatization, is behind 
schedule.  An early July completion date is more realistic. 
The IGOH is currently considering a combination of outright 
sales, management contracts and long-term leases for the five 
entities.  However, time is running out and we are not 
convinced that the IGOH has the technical capacity or 
political will to carry out privatizations prior to 
elections.  Post recommends that privatization be a 
requirement under future agreements with the IFIs, including 
the IMF Poverty Reduction and Growth Facility (PRGF) to be 
negotiated with the new government.  END SUMMARY. 
 
Privatization of Haitian State-Owned Enterprises 
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3.  (SBU) Econ Counselor spoke to an official from the 
Ministry of Finance to review IGOH progress toward 
privatizing the five state-owned enterprises previously 
identified by the IGOH has top priorities for privatization: 
the electricity company (EDH); the phone company (Teleco); 
the port at Port-au-Prince, the international airport; and 
the water and sewage company.  (See reftels). 
 
Audits are Behind Schedule 
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4. (SBU) According to the official, IGOH,s original goal was 
to have the audits of all five entities completed by the end 
of May, a requirement that was part of the IGOH agreement 
with the World Bank.  However, the official admitted that the 
IGOH would miss this deadline; an early July completion date 
was more realistic.  The official argued, though, that 
privatization --either an outright sale, long-term lease or a 
management contract-- for one or two of the five was still an 
accomplishable goal for the IGOH. 
 
Different Means for Different Entities 
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5. (SBU) Strategically, the IGOH is now thinking of an 
outright sale of the phone company and a tender for a 
management contract for the electricity company.  However, 
these two entities, although identified originally as the top 
priorities, were the furthest away from being privatized. 
The balance sheets of both companies are a disaster.  A 
visiting IMF delegation told the Econ Counselor that the 
records and accounting at EDH was so bad the company was 
essentially "unaditable."  The IGOH is currently considering 
a tender for a management contract of 3-5 years for the port 
and a long-term lease of 25 years for the international 
airport.  A long-term lease for the airport was necessary 
because the Finance official estimated that USD 40 to 60 
million in new investment was necessary to modernize the 
airport; any potential investor would need the time to get 
its money back from such an investment. 
 
6. (SBU) COMMENT:  Despite assurances that privatization is a 
still a priority for the government, as elections draw nearer 
we are increasingly skeptical that privatization, in whatever 
form, will happen under the watch of the IGOH.  Time is 
running out and we are not convinced that the IGOH has the 
technical capacity nor political will to carry out even one 
privatization prior to turning over power to an elected 
government.  We will continue to advocate strongly on behalf 
of privatization and/or private management.  Post repeats its 
recommendation in reftels that privatization be a requirement 
under future agreements with the IFIs, including an IMF 
Poverty Reduction and Growth Facility (PRGF) to be negotiated 
with the new government.  Indeed we believe that the only 
reason that the audits will eventually be completed is 
because it is a requirement of the World Bank program.  END 
COMMENT. 
FOLEY