UNCLAS SANTO DOMINGO 000707

SIPDIS

LA PAZ FOR A/DCM LAMBERT

E.O. 12958: N/A
TAGS: ECON EFIN ETRD ENRG EAIR SENV DR
SUBJECT: SANTO DOMINGO ECONOMIC-POLITICAL ROUNDUP, JUNE 23,
2009

(U) In this edition of the roundup:


1. GODR Announces Sale of 49 percent of Government-owned
Refinery to Venezuela

2. Government Revenue Falls Sharply in First Quarter;
Fernandez Rules Out IMF Program For Now

3. Caribair Suspension Lifted

4. Protests Over Plans to Build Cement Plant Near National
Park


1. (U) GODR Announces Sale of 49 percent of Government-owned
Refinery to Venezuela

The GoDR announced at the Petrocaribe Summit that Venezuela
has agreed to purchase 49 percent of the capital of Refineria
Dominicana, S.A. (Refidomsa), the country's sole oil
refinery, for USD 130 million. Refidomsa was a joint venture
with Shell until the GoDR bought out Shell's stake in the
company in November 2008 for USD 110 million. Although the
government cited strategic national interests in
consolidating state ownership of the 30,000 barrel-per-day
facility, the Fernandez administration simultaneously urged
Venezuela to participate in the acquisition. In addition to
the USD 20 million profit from the sale, the GoDR has cited
the possibility of increasing the amount of Venezuelan crude
it imports under the Petrocaribe financing program as
justification for the sale. The Refinery would have to
expand its volume capacity before it could increase imports.
Dominican business and opposition leaders have been largely
critical of the deal, noting that it may subject the local
hydrocarbon supply to increased dependence on a single
provider as well as the political whims of the Chavez
administration. Other commentators say that with Refidomsa
providing less than one-third of finished oil products
consumed in the country, these fears may be exaggerated.
More details may emerge later this month as Chavez has
announced he will visit the Dominican Republic on June 30 (to
participate in events commemorating the 100th anniversary of
Juan Bosch's birth). However, Chavez has said he would visit
before and has not done so.


2. (U) Government Revenue Falls Sharply in First Quarter;

Fernandez Rules Out IMF Program For Now

In May, the GODR released official fiscal results for the
first time since October 2008. Data from the general tax
office indicate that government revenue and spending were
down sharply in January-March. Current revenue dropped 18.3
percent year on year, with earnings from taxes down 17
percent. Income from customs led the fall in tax revenue.
Total spending was down 18.1 percent year on year in the
first quarter, although employee wages were up 21.6 percent.
The dramatic decrease in capital spending, 58.4 percent year
on year, has been widely criticized by the private sector.
According to the Dominican Center for Export and Investment,
exports decreased by 23.4 percent in the first quarter, due
in large part to the closing of the ferronickel mine in
August 2008. As a result of the decrease in revenues, the
GODR continues to seek other financing options. On June 10,
the Minister of Finance announced that the government would
issue a USD 1 billion sovereign bond with half of that amount
going toward government expenses and the other half to be
used as a cushion for unforeseen circumstances. A week after
the Central Bank Governor and Minister for Economy,
Development and Planning called for an IMF agreement,
President Fernandez ruled it out at this time. However he
left the door open for the future if it is needed.


3. (U) Caribair Suspension Lifted

On June 12, the Dominican Civil Aviation Institute (IDAC)
announced that it had rescinded the one-year suspension of
Caribair less than five months after it sanctioned the
airline for safety violations. The original suspension
cancelled all Caribair pilot and aircraft certifications but
allowed the airline to begin flying within nine months if its
pilots and aircraft were recertified. Explaining the change
of course, IDAC director Jose Tomas Perez said only that
Caribair had begun to satisfactorily complete its
recertification. The lifting of the sanction allows Caribair
limited operations; Caribair can fly using only recertified
equipment and personnel. Just two of its six aircraft and
two of its 23 pilots have been recertified. Also, Caribair

may not register new aircrafts and cannot operate outside of
the Caribbean region. Caribair advertisements in numerous
daily newspapers announced that the airline would resume its
normal routes and schedules to Port Au Prince and Aruba as
well as provide charter service throughout the Caribbean and
South America. A Caribair telephone receptionist also told
EconOff that the airline would provide charter service to New
York.


4. (U) Protests Over Plans to Build Cement Plant Near
National Park

Environmental groups and their allies continue to put
pressure on the GoDR to permanently rescind permits it
granted to a cement company to install a cement mine near the
Los Haitises National Park. The production facility would be
located in Gonzalo, Monte Plata, just outside the buffer zone
of the park. Protests organized by environmental NGOs and
student groups, and supported by opposition groups such as
the country's influential transportation union, have taken
place in Gonzalo, Santiago and Santo Domingo. In Santo
Domingo, riot police broke up hundreds of marchers en route
to the Presidential Palace. Although the Ministry of
Environment and Natural Resources (SEMARENA) approved the
company's environmental permit on April 14, some officials
from SEMARENA have spoken out against the decision. The
protestors have been particularly critical of Environmental
Minister Jaime David Fernandez Mirabal, who had previously
enjoyed vast popularity among environmentalists for boosting
enforcement of local environmental laws. The protestors have
accused the company, Consorcio Minero Dominicano, and the
government of colluding to facilitate the project. The
project's defenders cite the jobs it will create in this poor
region of the country and accuse other cement producers of
financing the vocal opposition. On June 19, a civil court
judge provisionally suspended the cement factory's permits
while she studies the case.
BULLEN