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). -------------- Summary -------------- ¶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. -------------- Consumer Protest Fuels Energy Controversy -------------- ¶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. -------------- DOMLEC FEELING SCAPEGOATED -------------- ¶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. -------------- -------------- USTDA Finds Promise in Dominica's Alt Energy Sector -------------- -------------- ¶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." -------------- Comment -------------- ¶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