US embassy cable - 05SANTODOMINGO3443

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 003443 
 
SIPDIS 
 
STATE FOR WHA, WHA/AND, WHA/CAR, WHA/EPSC, EB, 
EB/ESC/IEC/EPC; 
NSC FOR SHANNON; USCINCSO ALSO FOR POLAD;TREASURY FOR 
OASIA-MWAFER 
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI 
 
E.O. 12958: DECL: 07/01/2015 
TAGS: PREL, DR, ENRG, EFIN 
SUBJECT: DOMINICANS PLAY PETROCARIBE FOR MAXIMUM ADVANTAGE 
 
REF: A. SANTO DOMINGO 3408 
     B. SANTO DOMINGO 3121 
 
Classified By: Charge Lisa Kubiske.  Reason: 1.4 (b) and (d). 
 
1.  (SBU) Summary.   Dominican President Leonel Fernandez 
came home from the "Petrocaribe" summit of June 27-28 with 
Venezuelan promises of more than USD 100 million cash 
financing for rural infrastructure projects, terms for oil 
financing more favorable that last November's "Caracas 
Accord," and press coverage of him praising the intiative and 
generosity of Hugo Chavez.   These were all politically 
useful deliverables as Fernandez reinforces domestic 
confidence in his ability to manage the economy, necessary 
fiscal reform, the IMF standby and ratification of the 
DR-CAFTA regional free trade agreement with the United 
States.  End Summary. 
 
2.   (C) Dominican President Leonel Fernandez did not 
indicate to us on June 21 that he was intending to 
participate in Hugo Chavez's "Petrocaribe" summit of June 
27-28 (ref a).  With his dismissive evaluation of Chavez in 
that conversation, Fernandez may have been seeking to 
inoculate the USG in advance from reacting against his 
participation in the summit - -or he may at that time simply 
not yet have decided whether to go. In either case, it is 
certain that the presidency and senior policy makers were 
involved in discussions and probably negotiations with 
Venezuela concerning revisions of the November 2004 "Caracas 
Accord" on energy cooperation and oil financing (ref b). 
 
3.  (SBU) The press coverage of the arrival prominently 
displayed pictures of Fernandez, Chavez and Fidel Castro and 
the presidency's web site led with a photo centered on an 
earnest Fidel face-to-face with Fernandez.   Upon his arrival 
on this 11th trip abroad in ten months in office, Fernandez 
again sounded the "big picture" theme:  "This is a 
multilateral meeting for all of us to visualize a joint 
relationship. . . here and now we are going to talk about 
macros problems with long-term effects, and this will be an 
undertaking for regional energy integration."  This 
internationalist posture does Fernandez little damage at home 
and further bolsters his authority within his center-left 
PLD, currently in the midst of a six-week national congress. 
 
4.  (SBU) Texts of agreements are not yet available in Santo 
Domingo, although our Foreign Ministry contacts promise us 
copies as soon as they are delivered by the presidency. 
Fernandez's press office is declaring the meet a big win for 
the Dominicans.  The lead story was that  Venezuela will be 
providing USD 106 million in immediate funding, supposedly 
from credits accumulated through the San Jose Accord 
Mechanism over the years.  Use of this mechanism had 
previously been limited to purchase of Venezuelan products, 
principally asphalt, and virtually nothing had been provided 
since the mid-2003 cutoff by Chavez of sales to Hipolito 
Mejia's government.  Following a meeting with Nelson 
Menendez, head of Venezuela's National Social Development 
Bank, Fernandez announced that theVenezuelan government would 
immediately make a cash transfer of USD 31 million to support 
construction of a municipal aqueduct in the rural province of 
Altagracia; in addition, he said, the Venezuela Investment 
Fund would soon provide USD 27 million for rural 
electrification projects.  Subsequent presidential press 
office comments changed the spin and called the total of USD 
58 million a "loan"  (an arrangement that would have to be 
approved by the Dominican Congress). 
 
5.  (C) The Dominicans signed a revised version of the 
November 2004 "Caracas Accord" on energy cooperation and 
petroleum financing.  The November agreement provided 15-year 
concessional financing for 25 percent of the value of up to 
50,000 barrels per day exported to the Dominican Republic (of 
a daily consumption of 150,000 bpd).  The Venezuelans had 
been pressing since mid-April for changes - -  from free-on- 
board (FOB) ex-Venezuela basis to a cost insurance freight 
(CIF) basis, so as to require transportation aboard PDVSA 
vessels.  This was complicated by existing Dominican ship 
charter arrangements with a New York firm that ran through 
January 2006.   It is clear that the Dominicans caved to the 
ideologically driven demand of the Venezuelans.  Fernandez 
commented, "Transport will be carried out much more 
conveniently for the DominicanRepublic, since it will be done 
by a fleet devoted to serving Petrocaribe, at a cost that 
will reflect only what it costs to operate a tanker, with no 
profit at all -- so that we will also have a reduction in our 
petroleum bill."  Fernandez's comment takes no account of the 
expected costs of breaking the existing transport product, 
which refinery president Aristides Zucco complained last May 
could run in the worst case as much as USD 900,000 a month to 
January, 2006.  Fernandez did not explain when this new 
Petrocaribe arrangment would become effective. 
 
6. (U) Other details offered, on the run, by the President: 
 
- - the percentage of oil financed by Venezuela will rise 
from 25 percent to 40 percent when the cost per barrel is 
above USD 40 (as at present); and at higher costs the 
financing percentage would rise to 50 percent. 
 
- - the term of financing rises from 15 years to 17 years; 
when petroleum is more than USD 40 per barrel, the term is 
extended to 25 years. 
 
- - the grace period allowed for payment rises to two years 
and the interest rate charged is lowered from 2 percent to 1 
percent. 
 
- - the Dominicans will be allowed to make payment in kind -- 
in goods or services instead of cash.  At a June 30 event at 
his foundation, Fernandez commented, "If we, for example, are 
good at producing beans, and Venezuela needs to import beans, 
then we can export beans to pay our petroleum bill." 
 
7. (C) Technical Advisor of the Presidency Temistocles Montas 
professed to the DCM on July 1 not to have any information 
about the "Petrocaribe" arrangements, since he had been 
working with IMF and debt rescheduling, instead.  Montas 
commented that under the November "Caracas Accord" terms, the 
Dominican Republic had been importing Venezuelan petroleum, 
although in the early months of the year at a rate lower than 
previously expected.  Projections of the possible benefits 
were running corresponding lower than expected -- perhaps 
about USD 160 million in financing for the calendar year 
instead of the expected 200 to 220 million.  Montas expressed 
mild annoyance at the Venezuelans' choice to make a public 
issue of the issues of FOB vs CIF charges, rather than using 
the agreed consultation mechanisms.  Montas will consult 
presidential chief of staff Danilo Medina in order to obtain 
more ample information.  DCM is scheduled to meet Executive 
Secretary of the National Energy Corporation Reuben Montas, 
 
SIPDIS 
on Tuesday, July 5; Reuben Montas was also a member of 
Fernandez's delegation. 
 
8. (U)  This piece and others can be consulted along with 
extensive other material at our SIPRNET site 
http://www.state.sgov.gov/p/wha/santodomingo/  
 
 
 
 
KUBISKE