HAITI: PRIVATIZATION UPDATE

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