DOMINICA: THE POLITICS OF ENERGY

C O N F I D E N T I A L BRIDGETOWN 000585

SIPDIS

EB/CBA FOR DENNIS WINSTEAD
SANTO DOMINGO FOR FCS

E.O. 12958: DECL: 09/25/2018
TAGS: ETRD ENRG EINV PREL XL
SUBJECT: DOMINICA: THE POLITICS OF ENERGY

Classified By: Charge d'Affaires D. Brent Hardt for reasons 1.4 (b) and
(d).

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Summary
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1. (SBU) Dominica media outlets recently reported threats
of unspecified punitive action by the government against the
U.S.-owned monopoly electricity provider DOMLEC Corporation
over rising energy costs. At the same time, the government
has announced its intention to build a new power plant with
Venezuelan assistance - and without DOMLEC's involvement.
DOMLEC's General Manager complains that the government is
unfairly blaming DOMLEC and playing the anti-foreign investor
card against them, and maintains that infrastructure
improvements cannot be made without some certainty of
long-term revenue to cover the costs. This simmering feud, a
legacy of what the Dominica government says were lopsided
contract negotiations that resulted in DOMLEC's initial
monopoly, has not yet boiled over, but bears close watching.
A recent USTDA sectoral study provides a possible way out for
all parties, and deserves active consideration in Washington.
End Summary.

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Consumer Protest Fuels Energy Controversy
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2. (u) Local media reported September 15 that the
government of Dominica had announced plans to take action
against the island's sole electricity provider as a consumer
group planned protest action against high rates. Prime
Minister Roosevelt Skerrit told the state-owned Dominica
Broadcasting Service (DBS) radio that unspecified actions
were being considered, but cautioned that he would not be
rushed into action against the company. The announcement
came following calls from a consumer rights group, Consumers
against High Utility Rates (CAHUR),for the government to
reduce energy charges.


3. (u) At about the same time, a Dominica weekly, The
Chronicle, reported September 12 that the government is
setting up an electricity generation plant with assistance
from Venezuela in a move allegedly intended to reduce the
cost of electricity. Minister of Energy Charles Severin told
The Chronicle that the government is looking at the new plant
initially supplying five megawatts of power and ultimately
moving up to 15 megawatts -- the equivalent of current
consumption. Casting the decision as a plan to cope with the
destruction of one of the country's hydroelectric plants by
Hurricane Dean, Severin noted that any distribution would
have to take place within the existing national grid, and
Government would therefore have to cooperate with DOMLEC on
the project. Energy Ministry Permsec Vincent Philbert noted
that the press in Dominica tends to be sensationalistic, but
reflects the public dissatisfaction with DOMLEC's
performance. He said that the government is commitJ&0^-QQuh DOMLEC to reduce the cost of energy in Dominica.


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DOMLEC FEELING SCAPEGOATED
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4. (SBU) DOMLEC's General Manager, Joel Huggins, took
exception to recent media reports. He told Poloff that the
government has been playing the anti-foreign investor card to
curry favor with constituents. He said his company cannot be
blamed for the cost of electricity, but maintained that the
price of fuel on the world market and government taxes were
largely responsible for the high cost. Huggins noted that
when DOMLEC (52 percent owned by Florida-based MRB
Corporation, which owns a number of power companies
throughout the region) took over the bankrupt electric
utility in 1997 they were given an exclusive monopoly until

2025. The government, he complained, unilaterally altered
the terms of the contract in 2007 so it now expires in 2015
with an option to extend. Critics of DOMLEC - and there are
many in Dominica - claim that DOMLEC obtained a sweetheart
deal that goes far beyond the terms of most such contracts,
and further note DOMLEC has not been interested in exploring
alternative energy until very recently. Many critics of the
company would like to modify the contract or open the market
up for competition.


5. (SBU) Huggins said the government is deliberately

misleading the public to win hearts and minds and to create
more leverage for a contract renegotiation. He said when the
government signed the PetroCaribe deal, they sold it to the
public as a way to lower energy costs to the consumer. Of
course, the PetroCaribe deal never included discounted
prices. Huggins also pointed out that the government imposes
very high energy taxes, with an excise tax and a VAT on top
of the excise tax, which brings the cost per gallon of
gasoline to over seven US dollars at the pump, and puts
electricity costs among the highest in the world. Huggins
also complained that the shortened contract period has made
it very hard to obtain commercial financing. He said he
considered the government's actions in modifying the contract
length to be a material breach of contract and said the
company would seek legal remedies if the situation
deteriorates further. For now, however, DOMLEC is committed
to working with the government.


6. (SBU) Huggins averred DOMLEC has offered to help develop
wind power and bring it into the grid line and has offered to
help identify potential sites. DOMLEC has also, he said,
agreed to install new energy-efficient generators that the
government is acquiring as a grant from the PetroCaribe fund.
He said Severin assured DOMLEC the government is not
"anti-DOMLEC or anti-foreign investment," but is facing
tremendous pressure from the public over soaring energy
costs. The government pledged to work with DOMLEC on seeking
alternative energy sources, Huggins added.

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USTDA Finds Promise in Dominica's Alt Energy Sector
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7. (SBU) USTDA sent a consultant to St Kitts and Nevis and
Dominica in July, 2008 to look at energy sector investment
potential. The initial report (forwarded sep email to
WHA/CAR) provides a good summary of the energy situation in
Dominica, highlighting the political complexity of the energy
sector. It concludes that there is potential to develop the
renewable energy sector (notably geothermal) in such a way to
keep both DOMLEC and the government satisfied. The report
concludes: "If an open IPP solution is actually pursued on
Dominica, WRB walks away and the OPIC guarantee is called...a
likely scenario would be Venezuelan financing for a package
of oil-based electricity sector improvements including state
ownership of DOMLEC. The quid pro quo could well be
implementation of the regional oil refinery -- an unmitigated
disaster for Dominica's standing as the "Nature Island" of
the Caribbean. Because of this, civil society on the island
is generally opposed to closer ties with the Venezuelans and
there is obvious yearning for a renewed US role."

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Comment
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8. (SBU) Dominica, one of the poorer countries in the
Caribbean, has some of the highest energy costs, and patience
among Dominicans is running thin. While recent declines from
historic oil prices may lessen the immediate pressure, it is
clear that the government of Dominica intends to find a way
to change the terms of its contract with DOMLEC. DOMLEC has
enjoyed sweeping powers -- including, rumor has it, the power
to deny importation of individual solar water heaters for
private homes. Both sides, we believe, want to work with
each other, as the alternative is a messy legal battle or
expropriation, but both are looking to give up minimum ground
in the process. The discovery of substantial and sustainable
geothermal energy has changed the nature of the relationship
somewhat, and may provide a creative option all sides need to
maintain profitability while lowering energy costs. The
recent USTDA fact-finding report deserves careful
consideration, and we are looking forward to additional work
with them and other Washington agencies onp(RNS5Q]%CWve energy opportunities.


9. (C) Comment, continued: The Venezuelan role in the
controversy should also not be discounted. Venezuela is
searching for ways to extend its influence in the Eastern
Caribbean, and promoting a shift from a private U.S. company
to a Venezuelan-funded government alternative would lead to a
degree of energy dominance over Dominica that would certainly
offer political leverage down the line.
OURISMAN