Identifier
Created
Classification
Origin
08SANTODOMINGO1587
2008-10-14 12:32:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Santo Domingo
Cable title:  

(SBU) BIOFUELS CONSULTANTS BEGIN WORK ON SECOND

Tags:  ENRG ECON SENV DR 
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RR RUEHWEB

DE RUEHDG #1587/01 2881232
ZNR UUUUU ZZH
R 141232Z OCT 08
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC 1569
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 0263
RUEHWN/AMEMBASSY BRIDGETOWN 2192
RUEHCV/AMEMBASSY CARACAS 0931
RUEHPU/AMEMBASSY PORT AU PRINCE 4861
RUEHSN/AMEMBASSY SAN SALVADOR 0881
UNCLAS SANTO DOMINGO 001587 

SENSITIVE
SIPDIS

EEB FOR MATT MCMANUS, STATE FOR USOAS

E.O. 12958: N/A
TAGS: ENRG ECON SENV DR
SUBJECT: (SBU) BIOFUELS CONSULTANTS BEGIN WORK ON SECOND
PHASE OF U.S.-BRAZIL BIOFUELS INITIATIVE

REF: A. SANTO DOMINGO 1121

B. SANTO DOMINGO 1158

UNCLAS SANTO DOMINGO 001587

SENSITIVE
SIPDIS

EEB FOR MATT MCMANUS, STATE FOR USOAS

E.O. 12958: N/A
TAGS: ENRG ECON SENV DR
SUBJECT: (SBU) BIOFUELS CONSULTANTS BEGIN WORK ON SECOND
PHASE OF U.S.-BRAZIL BIOFUELS INITIATIVE

REF: A. SANTO DOMINGO 1121

B. SANTO DOMINGO 1158


1. (U) SUMMARY. Biofuels consultants working under the
U.S.-Brazil Biofuels Initiative were in the Dominican
Republic October 2 and 3 to meet with GoDR and private-sector
players in the liquid fuels sector. The State Department
provided funding through the Organization of American States
(OAS) to Hart Energy Consulting and Energy and Security Group
(ESG) to provide technical assistance for the implementation
of an ethanol blend in gasoline as mandated under the
Dominican Republic,s renewable energy law. To kick-off the
event, the U.S. and OAS Ambassadors, as well as the DCM from
the Brazilian embassy, helped the consultants present the
project to a group of high-level officials from key GoDR
ministries. The event was covered widely in the press.
Subsequent meetings, while very productive, revealed GoDR
infighting on the issue and doubts about local ethanol
production. END SUMMARY.


2. (U) Hart Energy Consulting and Energy and Security Group
(ESG) joined forces to work on this contract, granted by the
OAS with funds provided by the Department, as part of the
cooperative initiative between the United States and Brazil
to promote biofuels in the Caribbean region. The companies
have received a USD 300,000 contract to provide technical
assistance to help the Dominican Republic begin blending
ethanol in domestically sold gasoline. Although the
consultants will analyze the possibility of different blends,
ranging from 2 to 85 percent ethanol, Law 57-07, the
renewable energy law, calls for a 10 percent blend by 2009
and 15 percent by 2010.


3. (U) The eight-person team was led by Judy Siegel of ESG
and Frederick Potter of Hart. They were joined by Department
AAAS fellow Noel Gurwick and Francisco Burgos of the OAS.
EconOff also attended all meetings. The kick-off meeting
began as a closed-door session with high-level GoDR officials
including National Energy Commission (CNE) President
Aristides Fernandez Zucco, Dominican Corporation of State
Electricity Companies (CDEEE) Executive Vice President
Radhames Segura and Congressmen Pelegrin Castillo and Victor
&Ito8 Bisono. Ambassador Fannin opened the meeting by
speaking to the merits of biofuels and OAS Ambassador Paul

Durand followed with similar praise. Following the
introduction of the consultants and the consultants,
presentation of their project, the contractors, Burgos and
EconOff responded to questions from the group. Zucco also
spoke about CNE progress on the issue, describing plans for
an international tender to import ethanol. The press then
joined the meeting; Ambassador Fannin welcomed their entrance
and described the importance of and potential for biofuels in
the Dominican Republic.


4. (SBU) In addition to the kick-off presentation, the group
met separately with the CNE,s director of biofuels, Onil
Abreu Tabar, and the Ministry of Industry and Commerce,s
(SEIC) director of non-conventional energy, Salvador Rivas.
Although these two agencies share the lead role on renewable
energy issues, tensions were apparent ) when EconOff asked
Rivas to speak in an aside during the kick-off event, Rivas
said he did not want to speak with CNE President Aristides
Fernandez Zucco in the room. Rivas said he opposes the
CNE,s plan to hold an international bidding process for
ethanol importers.


5. (U) Yet while these agencies disagree on details, they
share the common goal of achieving the blending benchmarks,
which Rivas and Tabar say are opposed by some civic groups as
well as the refinery administration. On October 3, the group
visited the country,s sole refinery, Refinera Dominicana,
S.A. (Refidomsa). Refidomsa managers shared internal
calculations showing that a 10 percent ethanol mix would lead
to USD 30 million annually in lost tax revenue for the
government and cost the refinery USD 2.5 million per year,
while providing only a minimal cost reduction in gasoline
prices for the consumer. Rivas, who attended the Refidomsa
briefing, disputed these numbers and said that SEIC had its
own calculations showing a much brighter scenario.


6. (U) In July, the GODR agreed to purchase Shell,s 50
percent stake in Refidomsa to make it wholly
government-owned. The sale is expected to become final in

November, when the government completes payment to Shell.
Rivas and Tabar both said that full government ownership of
the facility would facilitate achieving the blending goals,
though Tabar said he expected the government to resell the
company to the private sector at some point in the near term.
(Note: In July, during a Petrocaribe meeting in Venezuela,
President Fernandez floated the idea of Venezuela purchasing
a share of the refinery (Ref B). End Note) Refidomsa General
Manager Alfredo Nara, a Shell employee who expects to leave
when the sale becomes final, acknowledged that, "In the end,
we will do what is best for the country." Nevertheless, he
stressed that blending would be a hard sell to the public and
skeptics in the government if it represents an economic
burden.


7. (U) While recognizing that many of the questions of
political will are beyond the scope of the project, the
consultants said that they would hone the calculations and
provide an independent voice that could help reconcile
inter-agency differences. Primarily, however, the
consultants focused their questions on the technical
information needed to blend ethanol with gasoline, and
reported that by the end of their visit that they had
obtained most of the data needed to prepare the contracted
assistance.


8. (U) In other meetings, retail gasoline executives and
sugarcane producers described additional challenges that they
foresee with the ethanol blending plans. The gasoline
executives noted that gasoline accounts for a shrinking
fraction of the liquid fuel market share, with subsidized
liquid petroleum gas (LPG) proving a much more economical
option for consumers. According to ExxonMobil General
Manager Miguel Estepan, gasoline sales fell 27 percent from
2002 to 2007, while LPG sales jumped more than 30 percent.
(COMMENT: A government plan to focalize the subsidy for
public transportation vehicles and poor households that use
LPG for cooking is being implemented, but even this will not
eliminate the market distortion as LPG is not taxed. END
COMMENT.)


9. (SBU) The contractors met with sugarcane investors eager
to produce ethanol but who said they feel stymied by the
complicated Dominican sugarcane market. They said that
despite vast acreage of prime sugarcane land left fallow and
with sugarcane harvests at an historic low, the potential for
ethanol production is unlikely in the near term because of
two factors: inflated prices for refined sugar and an
oligopoly in the region. Omar Bros of Cosorcio Tecno Deah
(CTD) noted that one ton of sugarcane is worth USD 70 as
refined sugar sold on the Dominican Market, USD 55 as refined
sugar sold under the tariff rate quota in the United States
and just USD 37 when converted into ethanol. Because the
refined sugar prices are set well above world market prices,
he dismissed the possibility that current producers would
forego sugar production to make ethanol. Furthermore, the
investors said that the Dominican sugar industry is
controlled by the Vicini and Fanjul families, allowing them
to act as a virtual monopoly. The Vicini and Fanjul families
have announced plans for a USD 500 million joint venture that
includes both sugar and ethanol production, but Vicini
executives told EconOff in June that the project is held up
by land discrepancies between the government and former
tenants (Ref A).


10. (U) The group also held meetings with officials from the
Ministries of the Environment and Agriculture. They hope to
meet on a subsequent visit with officials working on carbon
credits under the Clean Development Mechanism.


11. (U) COMMENT: Following the meetings, Siegel and the other
consultants told EconOff that they were pleased with the
progress they had made on the project but were concerned
about certain facts that will complicate the practical
application of the new law. Internal disagreements, they
said, are to be expected and they hoped that their
participation as an outside organization will mitigate
infighting between the SEIC, the CNE, Refidomsa and other
agencies. As Rivas told the consultants, "It,s one thing if
I say something; it,s totally different if you say it."
After meeting with the sugarcane representatives, the
contractors acknowledged that domestic ethanol production was
impossible in the short-term and accepted the GoDR,s

conclusion that blending could only proceed using imported
ethanol. Overcoming the long-term barriers to domestic
production will require either a complete change in
Dominican, U.S. and European sugar laws or a heavy subsidy
aimed at making ethanol prices competitive with refined
sugar. Neither option appears likely. END COMMENT.
FANNIN