ONE DEAD AS BLACKOUTS LEAD TO PROTESTS

UNCLAS SANTO DOMINGO 001729 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG ECON EINV DR SUBJECT: ONE DEAD AS BLACKOUTS LEAD TO PROTESTS REF: A. SANTO DOMINGO 1611 ¶B. SANTO DOMINGO 1133 ¶1. (U) Summary: Owed USD 500 million, the country's private power generators have cut back electricity output, causing extensive blackouts throughout the country. This situation has incited violent protests, increased crime and caused economic losses. With GoDR officials saying the government lacks the funds to cover the generators' debts, sector insiders say the problem is bound to worsen. The government is seeking World Bank approval to divert a USD 60 million loan intended for structural improvements to the electricity grid to pay the generators' invoices. End Summary. ¶2. (SBU) The current debt to electricity generators continues to grow, reaching USD 500 million at the end of October. (Reftel A) When the government failed to pay July invoices by the end of October, the generators severely cut back production, asserting that they lacked the cash to purchase fuel. Most notable was the reduction at the 300 MW AES Andres plant; AES Dominicana canceled its December fuel delivery and has been rationing production since mid-October. AES Dominicana President Marco De la Rosa told EconOff that if they do not receive payment by the end of November, AES will cancel the January shipment and power down AES Andres in early January. "If that happens, it will be a national tragedy," he said. He also noted that they will need to replenish the coal supply at the company's 240 MW Itabo plant before it runs out of coal on December 10. ¶3. (U) The electricity deficit averaged 40 to 50 percent of demand for the first few days of November. To deal with this, the three public electricity distributors operating on the national grid, which are known as EDEs, have implemented rolling blackouts throughout the country. In some neighborhoods, the blackouts last as long as 20 hours per day. On November 5, government-provided fuel oil brought the deficit down to 15 to 20 percent, somewhat stabilizing the situation. The blackouts have lessened slightly, but continue. ¶4. (U) Generation company executives told EconOff that they have met numerous times with Radhames Segura, the executive vice president of the Dominican Corporation of State-Owned Electricity Companies (CDEEE) ) the holding company that controls the EDEs, and once with Finance Minister Vicente Bengoa. The message they received, said Roberto Herrera of Compania de Electricidad de San Pedro de Macoris (CESPM),was that the government does not have the money to pay its current debt. ¶5. (SBU) This message is consistent with Bengoa's public statements on the country's fiscal situation. In interviews with the press, he has acknowledged that government revenues have been lower than expected of late. Furthermore, he told the industry representatives that the drop in fuel prices has meant a drastic cut in the oil financing that the GoDR was receiving from Venezuela through the Petrocaribe agreement (Reftel B),Herrera and De la Rosa told EconOff. An economic downturn could compound this situation. Perhaps even more worrisome, however, is the possibility that one of the generators will invoke the sovereign guarantee of its contract, which Herrera said that CESPM's financier, Citibank, is considering. ¶6. (U) In their meeting with Bengoa and Segura, the generators asked the government to make a payment of USD 200 million to enable the generators to buy fuel. The pair of officials said they could not come up with that amount of money, but discussed a pair of possible avenues for obtaining some funds to pay the generators, De la Rosa told EconOff. One such manner would be for the government to transfer budgeted funds from another area of public spending to pay the generators. Another possibility, Bengoa told the generators, would be to use loans that the World Bank and Inter-American Development Bank (IDB) have provided to the GoDR for electricity infrastructure rehabilitation to pay the generators. Any such extraordinary use of multilateral loan would require the approval of the lending institution. On November 6, Hoy newspaper reported that Segura sought USD 130 million to pay the generators. -------------- -------------- Blackouts spur protests, close schools and incite crime -------------- -------------- ¶7. (U) While blackouts are a daily part of life in the Dominican Republic, the current crisis has vastly increased their frequency and their duration. The lack of electricity has led hundreds of small shops and businesses to close their doors, and areas that receive potable water via electric pumps are left without access to water. The blackouts are a particular burden on hospitals. Schools have responded by closing early, relying on candle and lamplight or holding classes outdoors. ¶8. (U) The situation has led to protests in many areas of the countries. Violent street protests erupted in the Cibao (northern) region, as residents burned tires, blocked roads and threw rocks. Many of these incidences led to clashes with police, who employed the use of teargas, rubber bullets and live fire to disperse the protesters. In Bayaguana, Monte Plata, a police bullet killed 17-year-old Eliezer de la Cruz, who was playing basketball near the protest, on the night of November 5. Police contacts also told RSO that many police stations lack the electricity to adequately operate their communications equipment and have seen their crime-fighting efforts hampered by the blackouts. Press reports suggest an increase in break-ins; one newspaper called blackouts a "thief's best friend". -------------- -- Private sector calls for comprehensive solution -------------- -- ¶9. (SBU) While most public outcry has been focused on finding an immediate solution to the current situation, business chambers have seized on the chance to call for a comprehensive solution for the problematic sector, noting that electricity problems hurt the country's competitiveness and discourage investment. The National Private Business Council (CONEP) released a timely study led by Argentine consultant Daniel Llarens that placed primary blame for the crisis on the weakness of the government institutions involved in the sector and on the rampant electricity theft, which the study estimated consumes 35 percent of the total electricity generated in the country. The CDEEE responded combatively to the study, distracting attention from the study's conclusions by focusing on its assertion that the controversial Madrid Accords, which Segura blames for inflating the cost of electricity when oil costs rise, are fair. De la Rosa said he hopes that the government will use this study (or any of the many past studies which have reached similar conclusions) as a starting point for real reform in the sector. -------------- -------------- Blackouts affecting Embassy operations and security -------------- -------------- ¶9. (SBU) Like all institutions in the Dominican Republic, Post has been affected by the current electricity crisis. The Public Affairs Office has been forced to cease most operations early on two occasions due to power outages when its generator failed. The increased crime and civil unrest has RSO and its residential guards on heightened alert. Facilities Management has seen requests for generator fill-ups at government-leased residences increase from 10 to 12 per month to 51 in the past month. The American Citizen Services unit issued a warden message regarding the violence and danger associated with the protests. -------------- Comment -------------- ¶10. (SBU) The worsening electricity situation appears far from a solution, and even a short-term fix may be hard to come by given the government's dire fiscal situation. While it is encouraging to see talk of a comprehensive long-term solution to this problem, the government's goal appears to be to reach an agreement with the generators that would do little more than prop up the status quo. End Comment. FANNIN