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
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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
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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
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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
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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
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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