US embassy cable - 05SANTODOMINGO3121

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 003121 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA, WHA/CAR, WHA/AND, INR, EB/ESC/IEC/EPC; 
NSC FOR SHANNON; USCINCSO ALSO FOR POLAD;TREASURY FOR 
OASIA-MAUREEN WAFER; USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN 
BASIN DIVISION; 
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI 
 
E.O. 12958: N/A 
TAGS: ENRG, ETRD, PREL, DR, Dominican Politics 
SUBJECT: DOMINICAN POLITICS #28: VENEZUELA CHANGES TERMS ON 
BOLIVARIAN OIL 
 
 
1. (SBU)  This is #28 in our series of political reports on 
Leonel Fernandez's first year in office. 
 
Bolivarian Oil Dealing Gets Expensive 
- - - - - - - - - - - - - - - - - - - 
 
Venezuela has abruptly demanded that the Dominican Republic 
agree to deliveries of petroleum on Venezuelan ships.  The 
Dominicans might find themselves obliged to abrogate a 
contract with a New-York-based firm that runs through 
January, 2006. 
 
 
Background 
 
Director of the National Oil Refinery Aristides Fernandez 
Zucco got quite exercised when the President,s floating 
ambassador to Fernandez Zucco commented that Miguel Mejia had 
instigated the idea of the change with Venezuela and was 
expecting to profit from it.  He insisted to journalists that 
the Caracas agreement dealt with financing for oil on an FOB 
basis (cost at port of departure) and that the Dominican 
refinery (REFIDOMSA) refinery already had a long-term 
contract for petroleum transport.   Zucco got headlines with 
his assertions that changing these arrangements would cost 
the government USD 900,000 a month plus possible penalties. 
 
President of the National Ethics Commission Jose Joaquin Bido 
Medina reportedly advised Zucco to take the volume down, 
presumably because the discussion would be one between 
governments. 
 
The Paper Trail 
- - - - - - - - - - - 
 
With the help of some of our contacts, we,ve now gotten 
copies of some of the exchanges on this subject.  On April 
14, Simon Suarez, General Manager for trade at Venezuelan oil 
 company PDVSA, informed REFIDOMSA of a "misunderstanding 
concerning the Caracas Accord"  - -  that as had recently 
been agreed "at a high political level in both countrie,s" 
future sales would be on a cost-plus-freight (C F) basis, 
with financing offered only for the FOB value.  The Dominican 
refinery officials declined that interpretation in a message 
on April 19, indicating they had not been informed of any 
such arrangement. 
 
Venezuelan Minister of Mines Rafael Ramirez Carreo wrote 
directly to his Caracas Accord counterpart Secretary of 
Industry and Commerce Francisco Javier Garcia on May 30, 
 
"Within the policy pursued by the Government within the 
framework of the PETROCARIBE strategy of assuring the quality 
and timeliness of deliveries of our products within the 
Caribbean, with this letter we inform you that we have 
decided to supply crude oil and products to the Dominican 
Republic, included within the Caracas Accord for Energy 
Coopertion, using the modality CIF (cost, insurance and 
freight). 
 
"With that aim, this Ministry instructed PDVSA to draw up 
appropriate contracts for supplies during the year 2005 
according to this new modality.  PDVSA,s executive offices 
have already sent these contracts to you and awaits your 
approval." 
 
Public Diplomacy, Venezuela-style 
- - - - - - - - - - - - - - - - - - - - - - - - 
 
Venezuelan ambassador to Santo Domingo Francisco Belisario 
Landis confirmed on June 6 that he had delivered a diplomatic 
note along these lines.  The Dominicans had never brought up 
the question of the private transportation of petroleum, he 
said.  And yes, the accord was drawn up on an FOB basis but 
there was nevertheless a mechanism for the resolution of 
differences. 
 
Origins? 
- - - - - - - 
There was early speculation in Santo Domingo that President 
Hugo Chavez had, once again, taken exception to Dominican 
business interests, this time those involved in petroleum 
merchandising.  In mid-2003 Chavez told the world he was 
suspending shipments to the Dominican Republic because 
President Mejia had failed to respond to information about 
anti-Chavez plotting here (in fact, strikes and supply 
shortfalls at PDVSA were a factor in that decision). 
 
Miguel Mejia had asserted that Dominican entrepreneurs tied 
to the previous administration, "along with at least one 
official from this administration" had been taking advantage 
of the lack of a national merchant fleet to make deals to 
profit themselves. 
 
In fact, REFIDOMSA has since 1998 had long-term contracts 
with the New-York-based firm OSG Ship Management (511 Fifth 
Avenue, NY NY 10017, tel 212-953-4100).  This was renewed 
most recently in July, 2004 (coincidentally, just before 
Hipolito Mejia left office) and runs through January 31, 
2006.  Though the Embassy has no further information about 
OSG, our contacts in the energy sector suggest to us that as 
for bribes and pay-offs, they are much more likely to occur 
if the current contract is broken so as to give the business 
to PDVSA-affiliated ships. 
 
In the larger scope, in its abruptness and arrogance, this 
Venezuelan initiative suggests that Chavez,s political 
vision for PETROCARIBE is going to take precedence over the 
more mundane and rational business of operating an oil 
business. No surprise there.  And since the Dominicans were 
enticed into the November 6 agreement by the vision of 
15-year financing for a portion of their oil imports, they 
will have to make very careful calculations, both financial 
and political, as to whether they will also buy with hard 
currency this part of the Chavez vision of a Bolivarian 
Caribbean. 
 
2. (U)  Drafted by Michael Meigs. 
 
3. (U)  This piece and others in our series can be consulted 
at our SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo/  
along with extensive other material. 
Hertell