US embassy cable - 05SANTODOMINGO4269

C O N F I D E N T I A L SECTION 01 OF 03 SANTO DOMINGO 004269 
 
SIPDIS 
 
DEPT FOR WHA, WHA/CAR, INR; NSC FOR SHANNON; USSOUTHCOM 
ALSO FOR POLAD; TREASURY FOR OASIA-MAUREEN WAFER; USDA FOR 
FAS; USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION; 
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS 
ITURREGUI; 
STATE PASS USTR FOR SHANNON 
 
E.O. 12958: DECL: 09/09/2015 
TAGS: EPET, DR, VE, PREL 
SUBJECT: DOMINICAN REPUBLIC JOINS PETROCARIBE 
 
REF: A. SANTO DOMINGO 4041 
 
     B. SANTO DOMINGO 3443 
 
Classified By: Ambassador Hans Hertell for reason 1.4 (b) and (d). 
 
1.  (C)  Summary:  A senior Dominican cabinet official says 
that President Leonel Fernandez and his team resisted 
pressures from Venezuelan Vice President Vicente Rangel and 
from Cuba's President Castro and nevertheless secured the 
generous PETROCARIBE financing deal from Venezuelan President 
Chavez at Montego Bay, Jamaica, on September 6.  Under 
current market conditions, the Dominicans can obtain highly 
concessional long-term financing for 40 percent of the value 
of an average of 50,000 barrels per day of Venezuelan 
petroleum.  This is a 60 percent increase in the volume 
financed under the 2004 Caracas Accord and a 50 percent cut 
in the long-term interest rate; the payback term goes from 15 
years to 25.  The Dominican Government continues to seek 
additional international help to satisfy its energy and 
energy financing needs.  End summary. 
 
2.  (C)  Dominican Minister of Industry and Commerce 
Francisco Javier Garcia (protect source) on September 8 
provided the Ambassador with a copy of the PETROCARIBE 
bilateral agreement, the text of which has not yet been made 
public.  He said that Vice President Vicente Rangel had been 
annoyed that President Fernandez had taken time during his 
last visit to Venezuela (in June) to meet with 
representatives of the Venezuelan private sector, considered 
to be opponents of the Chavez government.  Rangel told Javier 
Garcia that the Dominicans did not qualify for PETROCARIBE. 
Javier Garcia read this as a political rebuke, not as an 
evaluation of the Dominican economy or its need for external 
financing. 
 
Cuban Proposal Rejected 
- - - - - - - - - - - - 
 
3.  (C)  In addition, Javier Garcia said, during the 
negotiations a week before the signing, the Venezuelans were 
arguing for the establishment of a joint Dominican-Venezuelan 
corporation (compania mixta) into which the savings from the 
Dominican oil purchases from Venezuela would be put. 
Venezuela would have authority to decide which projects in 
the Dominican Republic would be funded.  The Venezuelans 
insisted on this company as a precondition for PETROCARIBE 
eligibility.  Javier Garcia said that this approach was 
suggested by Fidel Castro himself, who appeared concerned 
that President Fernandez, in the presence of several other 
countries' officials, rejected this precondition.  According 
to Javier Garcia, the Dominican message was simple: the 
country needed the financing, intended to repay it, and did 
not need Venezuela to get involved in creating a governmental 
joint venture.  Castro made his displeasure known to 
Fernandez.  Chavez accepted the Dominican argument, said 
Garcia.  The PETROCARIBE agreement makes no mention of any 
joint venture.  The Venezuelan Minister of Energy and PDVSA 
are responsible for administering the agreement.  PDVSA will 
ship the oil and derivatives, obliging the Dominican Republic 
to cancel its existing arrangement with Shell and its 
contractors. 
 
4.  (C)  On the plane returning from Caracas, according to 
Javier Garcia, Mejia told other delegation members that 
Chavez is trying to distance himself from Castro.  Chavez 
believes Castro is trying to take over the "Bolivarian 
revolution" as his own.  Consequently, relations between 
Chavez and Castro are "troubled." 
 
Details of the Agreement 
- - - - - - - - - - - - - 
5.  (SBU)  Presidential chief of staff Danilo Medina 
announced the agreement at the presidential palace in Santo 
Domingo on September 7, accompanied by Javier Garca and 
roving ambassador to leftist countries Miguel Mejia.  All had 
accompanied President Fernandez on the trip.   Medina said 
that the Dominican Republic would continue to benefit from 
preferential terms under the Caracas Accord of 2004 but that 
in addition, under PETROCARIBE, the country would receive 
more favorable financing.  Effective immediately, as long as 
the average price exceeds USD 50 per barrel, the country will 
be able to defer payment of 40 percent of the cost of the oil 
bought from Venezuela, to be repaid over 25 years including a 
2-year grace period, at 1 percent interest.  If international 
prices fall below USD 50, the interest rate will be 2 
percent. If oil should reach USD 100 per barrel, the volume 
financed would rise to 50 percent. 
 
6.  (SBU)  With 40 percent financed, the remaining 60 percent 
of the cost will be payable in 90 days.  Provision is made to 
negotiate payment of some or all of this in Dominican goods 
or services, at prices to be negotiated.  Medina called the 
financial terms &a gift to the Dominican Republic,8 which 
would save the country USD 500 million annually.  (Initial 
estimates from other commentators suggest that the effect 
could be less, perhaps on the order of USD 250 to 300 
million.)   All that remains is for the government to work 
out a mechanism with the Dominican Petroleum Refinery for 
placing orders with Caracas. 
 
7.  (U)  The PETROCARIBE agreement provides the Dominican 
authorities an escape from adverse public reaction to Javier 
Garcia's announcement on September 2 that the government 
would probably be imposing restrictions on motor vehicle 
usage as an energy saving measure.  He told the press 
September 7 that this approach has been set aside.  He warned 
that the fuel supply situation continued to be "an 
emergency8 and Dominicans would have to curb consumption. 
Javier Garcia said President Fernandez would convene the 
National Energy Commission to consider alternatives for 
saving energy &without disrupting routine acitivities.8 
 
Other Goodies from Venezuela 
- - - - - - - - - - - - - - - 
 
8.  (U)  The press carried the news earlier this week that 
Technical Secretary Temistocles Montas had secured a promise 
from the Venezuelan Development Bank of USD 139 million in 
financing for the completion of rural water systems. 
 
9.  (U)  Dominican authorities expressed hope that Venezuela 
would provide help with another, even more sensitive domestic 
issue:  electric power blackouts that cause deep discontent 
in the neighborhoods and hamper business and industry. 
Presidential chief of staff Medina said that in the near 
future the government would be discussing with Venezuela a 
proposal for an additional agreement, provisionally called 
&PETROENERGIA,8 by which Venezuela would provide assistance 
to the Dominican electrical sector.  He suggested to the 
press that the government might discuss Venezuelan 
involvement in oil refining in the Dominican Republic, either 
through the existing plant or through some other arrangement. 
 
Help from Other Countries 
- - - - - - - - - - - - - 
 
10.  (U)  The Fernandez administration is also looking to 
other countries to satisfy Dominican energy and energy 
financing needs.  On September 8, Central Bank president 
Hector Valdez Albizu and Banco de Reservas president Daniel 
Toribio announced agreement with unspecified &international 
banks8 in New York for credits to finance the refinery,s 
purchases of oil through December ) a measure that they said 
would alleviate current upward pressure on the dollar-peso 
exchange rate.  The same day, Colombia,s ambassador to the 
Dominican Republic Jorge Garavito told the press that his 
nation would offer expanded financing to the Dominicans for 
the importation of Colombian gasoline and coal.  An existing 
bilateral accord on coal supply, signed by the first 
Fernandez administration (1996-2000), is to be extended for 
one year. 
 
Comment 
- - - - 
 
11.  (C)  Javier Garcia has no interest in the ideology or 
geostrategic aims of Hugo Chavez or Fidel Castro.  We believe 
that his views reflect those of Leonel Fernandez.  Rangel's 
initial rejection of the Dominican Republic for PETROCARIBE 
suggests that the Venezuelans are entirely capable of trying 
to yank the PETROCARIBE chain.  If so, they will have to be a 
good deal more subtle about it; Fernandez, with his keen 
sense of national sovereignty, is careful not to put himself 
in a position to be dismissed as any other country's puppet. 
Also interesting is Javier Garcia's assertion that the idea 
for the precondition to form a governmental joint venture 
between Venezuela and the Dominican Republic came from Castro. 
HERTELL