DOMINICAN REPUBLIC JOINS PETROCARIBE

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