The Dominican Republic (DR)’s energy sector has long been the main weak point of an otherwise surprisingly solid domestic economy. Plagued by chronic production and financing problems, the sector is often considered the main factor holding back the country’s economic development. Successive Dominican governments have sought to address the sector’s issues to little avail. Since taking office in August 2012, President Danilo Medina similarly pledged to fix the sector once and for all. While there has been hitherto little progress on this front, a recent show of interest from the US is fuelling hopes that the Medina administration may be able to deliver on its promise.
The DR relies on electricity produced by energy plants run on hydrocarbon fuels and as it is not a hydrocarbons producer, it must import these fuels at a very high cost. This has made it historically difficult for energy companies operating in the DR to make a profit. The fact that since the 1990s the country’s energy sector has been organised into a public-private scheme in which the state-run Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE) is in charge of sourcing energy from the private sector in order to distribute it across the country, means that the government directly and indirectly absorbs the sector’s massive costs [RC-04-12]. Indeed the DR’s sizable energy bill is largely responsible for the country’s mounting fiscal deficit.
Upon assuming power the Medina government identified cutting the fiscal deficit as one of its main economic objectives and immediately launched an extensive government austerity plan. While this has delivered some positive results [RC-06-13], it has become increasingly clear that any long term solution to the government’s financial difficulties will require an overhaul of the energy sector. This was recognised in part in the government’s ‘strategic plan for the energy sector’ which Medina presented at the start of the year which includes plans to increase the country’s generation capacity by at least 1,500 Megawatts (MW) over the next four years – an objective which the government recognises would require attracting some US$3m in investment. This would allow it not only to boost its installed capacity but also to diversify the energy generation matrix so as to reduce the rising costs. While the government has announced it would finance the construction of two new 300MW coal-fuelled energy plants in the south of the country (which are currently in the public tender stage), Finance Minister Simón Lizardo Mézquita and CDEEE executive vice-president, Rubén Jiménez Bichara, travelled to Washington D.C. in May in search of funding from US and multilateral organisations for other projects.
Positive response
The Medina government may have had to wait months for an official response from the US for its proposed plans but when it came it was surprisingly positive. On 30 October a US delegation led by Under Secretary of Commerce for International Trade Francisco J. Sanchez visited Santo Domingo, where it held a meeting with President Medina. Following the meeting Sanchez told reporters that Summit Power, a subsidiary of US firm Wellford Energy, had expressed an interest in installing and operating a 1,000MW natural gas operated energy plant in the north of the country. Sanchez added that the Barack Obama administration “wholly” backs the project. Significantly, Sanchez said: “I wanted to tell the president that not only would we back it, but importantly that we will also ensure the supply of US natural gas from 2015 onwards. In addition other important issues that will help carry out this project could also be satisfied… we are here to do everything possible so that the project can be carried out for the benefit of all Dominicans”. Such strong backing will surely give the Medina government the confidence to move along with its plans.
- IMF calls for sector reform
On 10 October the International Monetary Fund (IMF) concluded its first follow-up review of the Dominican Republic after the two sides ended their stand-by agreement in February 2012. In a statement by its executive board, the IMF recommended the DR reform its energy sector so as to limit the burden that it represents to the national fiscal budget. According to the statement, the IMF’s directors “welcomed the authorities’ plans to remedy the structural shortcomings in the electricity sector. In this regard, they highlighted the need for a comprehensive strategy to improve efficiency in the sector without undermining the public finances.” According to the CDEEE figures, its debt to energy generators to 30 September stood at US$568.26m. This, after the Medina government paid off US$1.5bn owed to the sector in the first nine months of the year.
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