DOMINICAN POLITICS #28: VENEZUELA CHANGES TERMS ON

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 003121

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SUBJECT: DOMINICAN POLITICS #28: VENEZUELA CHANGES TERMS ON
BOLIVARIAN OIL



1. (SBU) This is #28 in our series of political reports on
Leonel Fernandez's first year in office.

Bolivarian Oil Dealing Gets Expensive
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Venezuela has abruptly demanded that the Dominican Republic
agree to deliveries of petroleum on Venezuelan ships. The
Dominicans might find themselves obliged to abrogate a
contract with a New-York-based firm that runs through
January, 2006.


Background

Director of the National Oil Refinery Aristides Fernandez
Zucco got quite exercised when the President,s floating
ambassador to Fernandez Zucco commented that Miguel Mejia had
instigated the idea of the change with Venezuela and was
expecting to profit from it. He insisted to journalists that
the Caracas agreement dealt with financing for oil on an FOB
basis (cost at port of departure) and that the Dominican
refinery (REFIDOMSA) refinery already had a long-term
contract for petroleum transport. Zucco got headlines with
his assertions that changing these arrangements would cost
the government USD 900,000 a month plus possible penalties.

President of the National Ethics Commission Jose Joaquin Bido
Medina reportedly advised Zucco to take the volume down,
presumably because the discussion would be one between
governments.

The Paper Trail
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With the help of some of our contacts, we,ve now gotten
copies of some of the exchanges on this subject. On April
14, Simon Suarez, General Manager for trade at Venezuelan oil
company PDVSA, informed REFIDOMSA of a "misunderstanding
concerning the Caracas Accord" - - that as had recently
been agreed "at a high political level in both countrie,s"
future sales would be on a cost-plus-freight (C F) basis,
with financing offered only for the FOB value. The Dominican
refinery officials declined that interpretation in a message
on April 19, indicating they had not been informed of any
such arrangement.

Venezuelan Minister of Mines Rafael Ramirez Carreo wrote
directly to his Caracas Accord counterpart Secretary of
Industry and Commerce Francisco Javier Garcia on May 30,

"Within the policy pursued by the Government within the
framework of the PETROCARIBE strategy of assuring the quality
and timeliness of deliveries of our products within the
Caribbean, with this letter we inform you that we have
decided to supply crude oil and products to the Dominican
Republic, included within the Caracas Accord for Energy
Coopertion, using the modality CIF (cost, insurance and
freight).

"With that aim, this Ministry instructed PDVSA to draw up
appropriate contracts for supplies during the year 2005
according to this new modality. PDVSA,s executive offices
have already sent these contracts to you and awaits your
approval."

Public Diplomacy, Venezuela-style
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Venezuelan ambassador to Santo Domingo Francisco Belisario
Landis confirmed on June 6 that he had delivered a diplomatic
note along these lines. The Dominicans had never brought up
the question of the private transportation of petroleum, he
said. And yes, the accord was drawn up on an FOB basis but
there was nevertheless a mechanism for the resolution of
differences.

Origins?
- - - - - - -
There was early speculation in Santo Domingo that President
Hugo Chavez had, once again, taken exception to Dominican
business interests, this time those involved in petroleum
merchandising. In mid-2003 Chavez told the world he was
suspending shipments to the Dominican Republic because
President Mejia had failed to respond to information about
anti-Chavez plotting here (in fact, strikes and supply
shortfalls at PDVSA were a factor in that decision).

Miguel Mejia had asserted that Dominican entrepreneurs tied
to the previous administration, "along with at least one
official from this administration" had been taking advantage
of the lack of a national merchant fleet to make deals to
profit themselves.

In fact, REFIDOMSA has since 1998 had long-term contracts
with the New-York-based firm OSG Ship Management (511 Fifth
Avenue, NY NY 10017, tel 212-953-4100). This was renewed
most recently in July, 2004 (coincidentally, just before
Hipolito Mejia left office) and runs through January 31,

2006. Though the Embassy has no further information about
OSG, our contacts in the energy sector suggest to us that as
for bribes and pay-offs, they are much more likely to occur
if the current contract is broken so as to give the business
to PDVSA-affiliated ships.

In the larger scope, in its abruptness and arrogance, this
Venezuelan initiative suggests that Chavez,s political
vision for PETROCARIBE is going to take precedence over the
more mundane and rational business of operating an oil
business. No surprise there. And since the Dominicans were
enticed into the November 6 agreement by the vision of
15-year financing for a portion of their oil imports, they
will have to make very careful calculations, both financial
and political, as to whether they will also buy with hard
currency this part of the Chavez vision of a Bolivarian
Caribbean.


2. (U) Drafted by Michael Meigs.


3. (U) This piece and others in our series can be consulted
at our SIPRNET site
http://www.state.sgov.gov/p/wha/santodomingo/
along with extensive other material.
Hertell