UNCLAS SECTION 01 OF 03 PORT AU PRINCE 000684

SIPDIS

SENSITIVE

STATE FOR WHA/CAR
EB/ESC/IEC
WHA/EPSC
INR/IAA/MAC
STATE PASS TO AID FOR LAC/CAR
USDOC FOR 4322/ITA/MAN/WH/OLAC/ (SMITH, S.)

E.O. 12958: N/A
TAGS: ENRG EPET ECON EFIN EIND EINV PGOV HA
SUBJECT: Haitian Energy Avoiding Political Shock

Sensitive but Unclassified please handle accordingly.


1. (SBU) SUMMARY: Haitians view electricity production as a
measure the government's effectiveness. Electricity de
Haiti (EDH) and the Interim Government of Haiti (IGOH) are
having trouble providing power. EDH is beset with problems
throughout its production, transmission and
commercialization process; it is running a significant
deficit. In the short term, the IGOH will support EDH while
EDH tries to increase its revenues. However, EDH is aware
that in the long term, it must address its network
inefficiency and its dependence on diesel. The elections
are also fueling concern that if the next government is
unable to at least maintain the power supply, its viability
may be jeopardized. EDH and the IGOH are considering
private management, but not private ownership at this point.
Some in the private sector are also interested in
privatization. However, EDH's problems are systemic, the
transition to private ownership would be difficult. In
addition, a private owner might cut power and alienate the
poor, on whom the government is dependent for long-term
success. END SUMMARY

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Electricity and Politics; Hand in Hand in Haiti
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2. (U) Haitians use electricity provision as a measure of
the ability of the government to govern and provide
services. According to EDH general director Harold Morose,
consistent power is so politically essential that EDH and
the IGOH made special provisions to supply power nearly 24
hours a day during Christmas and Carnival. For the past
seven months, on normal days, with USD 23 million from
USAID, Electricity de Haiti (EDH) has provided between 12
and 16 hours of electricity per day to some neighborhoods.

However, USAID support ended in early March. Morose said
that continuing to provide power at current levels through
the elections is critical to the IGOH's success. However,
EDH claims that with the end of USAID support for EDH, EDH's
ability to continue to deliver power at current levels is
unclear. Post has observed a reduction in the electricity
supplied since USAID support ended. EDH is running a
significant financial deficit, and is now dependant on the
IGOH for financial support.

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EDH: Problems from Top to Bottom
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3. (U) EDH is beset with problems throughout its power
production, transmission and commercialization process.
EDH's problems begin with their power generation, which is
largely dependant on contractors running diesel generators.
Diesel generation is both expensive and insufficient for the
needs of Port-au-Prince.


4. (U) According to EDH Commercial Director Kathleen
Wrainright, the situation has caused EDH to give different
circuits power at different times of the day. Industrial
circuits get power during the day, when factories are in
operation, residential circuits get power in the evening,
when people are at home, and commercial circuits get power
in the day and evening, when businesses are open. Some
"priority circuits" that have a mix of at least two types
customers are powered as much as possible, however, even
they receive only 12 to 16 hours daily.


5. (U) Haiti's antiquated power transmission network and
rampant power theft are significant in making EDH a money-
losing state-run enterprise. EDH loses 20 percent of its
power through old inefficient transformers, and theft
accounts for another 37 percent (some believe that the
reason illegal power lines are not cut is because corrupt
technicians are in the pay of power thieves), leaving 43
percent upon which its billing rests. The result is that
EDH cannot cover the cost of its fuel without outside
support, even without considering other expenses such as
equipment maintenance and salaries.

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EDH Damage Control
--------------


6. (U) EDH has undertaken some measures in an attempt to
mitigate its deficit. In the short term the IGOH has said
it will furnish EDH with USD 5 to 6 million monthly in order
to keep the power on in Port-au-Prince. However, this is a
band-aid solution.


7. (U) EDH is also searching to increase its revenues
through decentralization and community billing. According
to Commercial Director Wainright, EDH is attempting to
decentralize their revenue collection, service provision and
maintenance operations through the creation of local EDH
agencies. To address the question of power theft by poor
neighborhoods, EDH has started a pilot program in which poor
communities currently stealing power are attached to the
power grid through a single meter and are billed as a whole
through community organizations. Wainright said that their
pilot program in Cite de Dieu is working well, and they hope
to expand to include more communities that have historically
stolen power.

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Long Term Raise Efficiency, No Diesel
--------------


8. (U) However, EDH is also aware that in the long term, it
must address two fundamental problems: its network
inefficiency and its dependence on diesel fuel. EDH General
Director Morose was adamant that EDH must stop diesel
generation as soon as possible. (Note: some believe that
the reason that Haiti still uses diesel power is that diesel
fuel can easily be stolen and sold, or used in vehicles.)
Morose said he believes that given Haiti's lack of technical
resources, a nation-wide transmission network needs to be
constructed along with a power plant(s) sufficiently large
to supply all of Haiti's power needs. He said that he is
talking with the Government of Germany about such a
proposal, a statement that was later confirmed by a private
sector contact.

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Beyond the Elections
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9. (U) The politics of power in Haiti are also fueling
concerns about what will happen after elections at the end
of 2005. EDH Director General Morose told Econoff that
power would stay on through the elections, but said because
EDH is dependant on the IGOH for financial support, he does
not know what will happen after the elections. He said that
without government support, EDH would be forced to cut back
to at most four hours of electricity a day. Should such
cuts occur, he doubted that any government would be able to
remain in office.

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Privatization? It Depends.
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10. (U) EDH and the IGOH are considering private management
as part of the solution to EDH's woes, but not private
ownership anytime soon. According to a source on the
Committee for the Modernization of Public Enterprises
(CMEP), EDH is currently being audited. By the end of 2005,
after the audits are finished, the IGOH plans to tender a
management contract as a first step towards privatization.
However the IGOH prefers to leave the politically sensitive
issue of privatization to an elected government.


11. (SBU) Meanwhile, some in the private sector are
interested in privatization. A source with U.S.-owned
Alstom Power Rentals said recently that Alstom and some
private partners would like to buy EDH. Alstom's idea calls
for Alstom and its associates to own 80 percent of EDH and
the government of Haiti to retain only 20 percent.


12. (U) Both approaches come as some in the private sector
believe EDH to be in a good position to be privatized
because of the market it serves, if its problems can be
addressed. Director General Morose says that EDH has
eliminated its debt to Texaco and Alstom, though Alstom
complains that EDH never pays its bills on time. In
addition, Alstom believes that EDH would be profitable once
its problems are overcome. Nonetheless, privatization could
pose political problems, first because a private sector
company would cut off power to customers that do not pay,
and second because a private sector company would be likely
to make significant layoffs as part of the privatization
process.


13. (U) COMMENT: Should the IGOH set EDH on the road to
privatization, the transition will be fraught with
difficulty, particularly in weeding out pervasive
corruption. Additionally, despite its commercial and
financial woes, EDH and the IGOH keep the power on in part
because they fear the political repercussions of turning it
off. A private company seeking profit would not share their
compunctions. Turning off the power of non-paying customers
may serve to alienate the poor, the very people that the
government needs to court in order to be a long-term
success. END COMMENT.