US embassy cable - 05SANTODOMINGO4036

UNCLAS SANTO DOMINGO 004036 
 
SIPDIS 
 
DEPT FOR WHA, WHA/CAR, EB/IFD/OMA, EB/ESC/IEC/EPC; NCS FOR 
SHANNON; USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION 
 
E.O. 12958: N/A 
TAGS: DR, ENRG, ETRD 
SUBJECT: DOMINICAN REPUBLIC:  COAL PLANTS?  NOT ANY TIME 
SOON. 
 
REF: E.O 12958: N/A 
 
1. President Fernandez abruptly put on hold the idea of 
acquiring two coal-fired generating plants, only days after 
Radhames Segura, President of the Dominican Corporation of 
Electricity (CDEEE), gave an upbeat two-hour presentation on 
the immediate future of coal production.  With ongoing 
sporadic blackouts and rumors of worse to come, the 
government continues to look for a quick solution to the 
country's energy crisis. 
 
2.  Since President Fernandez came into office a year ago, he 
has repeatedly expressed interest in a proposal for the 
importation of two pre-fabricated coal plants that supposedly 
would produce electricity for USD 0.04/kwh versus USD 
0.08/kwh with the gas and fuel oil powered plants.  But on 
August 5 at the end of a four-hour discussion including World 
Bank representatives, Fernandez ordered his energy committee 
to decline the offer by the Westmont Power Company to provide 
two coal plants costing USD 500 million.  Local newspapers 
quoted him as saying that he intended to eliminate the "tit 
for tat" approach to energy and that his administration would 
no longer entertain privately negotiated deals from single 
sources who may have ties to the administration. 
 
3.  Westmont was the only company with which the government 
had been negotiating the coal plant solution.  Fernandez has 
now instructed his energy committee to put the coal project 
out for open bid.  Newspapers comment that the shady 
reputation of the Malaysian owner of Westmont was a factor in 
the decision. (International NGO Transparency International 
just issued a belated retraction of its 2004 assertion that 
Westmont had engaged in corrupt practices in Tanzania.) One 
issue of concern was the Westmont request for a USD 140 
million "loan" upfront, to be repaid from the future revenue 
stream with contract provisions that included "take or pay" 
penalties. 
 
4.  This is the second time World Bank and other experts have 
talked the President out of this deal.  In early 2005 in a 
similar meeting they appeared to have convinced him that 
additional capacity was not a solution, especially not 
through this particular offer.  Fernandez appears to have 
wanted to resuscitate it, in part as a way of pressuring 
other generators to negotiate lower contract tariffs. 
 
5.  The President said he still wants to continue the search 
for alternate forms of energy to relieve the country's 
dependence on petroleum.  Dominican energy authorities argue 
that the demand for electricity will soon surpass the 
generating capacity and therefore the country needs to locate 
cheaper forms of electricity, such as coal, to keep up with 
the growing demand.  This reasoning is tenuous, at best, and 
the numbers paint a different picture.  Installed generating 
capacity is over 3,000 megawatts, and average daily peak 
consumption is around 1,600 mgw.  Most experts on energy 
agree that the Dominican Republic can produce enough energy 
to meet its probable demand.  This has been a principal 
argument against the coal plants from the beginning: why add 
new capacity when none is needed? 
 
6.  A more fundamental problem is the poor performance of the 
distribution companies.  With the distributors collecting a 
little more than USD 0.50 of every USD 1.00 of electricity 
sold, this is the area that needs priority attention.  USAID 
assisted in the development of a "sustainability plan" in 
2004 but due to continued problems in the distribution 
companies they  are seriously behind on the collection goals 
of the plan meant to establish financial sustainability in 
the ector by the end of 2005. Two government-owned 
distributors, EDENORTE and EDESUD, have just yielded to 
insistence by the administration that they employ 
professional managers contracted from Peru.  Until 
collections are improved, the energy sector will continue to 
struggle. 
MEIGS