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Dominican Power Problems Persist
LatinFinance / March 2006

By Larry Luxner

Blackouts of up to 18 hours a day used to be common in the streets of Santo Domingo. While those days are largely gone, power shortages are a recurring issue in the Dominican Republic and threaten the country's economic prosperity.

"The apagones are still worse than any other problem," concedes Frederic Emam-Zade, director-general of the Fundación Global Democracia y Desarrollo think tank created by President Leonel Fernández. "They're swallowing a subsidy of close to $600 million a year, which is part of the government's deficit. That is really hurting the economy."

Adds Eddy Martínez, minister for exports and investment: "The problem used to be the generation of electricity. Now it's the distribution system. I don't want to accuse anybody of stealing, but 30-40% of the electricity we produce is rendered to consumers without being paid for, and this government is finally addressing the issue."

At least it's attempting to.   

In early 2005, the Fernández administration embarked on a plan to reduce the electricity sector's dependence on public funds. "Unfortunately, no effective plan was ever implemented," notes Bear Stearns analyst Franco Uccelli, "and official assistance to the sector amounted to more than $500 million, and is expected to total just as much in 2006."

Kevin Manning is an adviser to AES Dominicana S.A., the largest single investor in the country's energy sector. AES operates the Andrés LNG port receiving facility, which receives liquefied natural gas from Trinidad and feeds two power plants generating a combined 520 megawatts. The company also has a controlling interest in the 450-mw Itabo coal-fired plant.

"We're at the point now where total demand is roughly 1800 mw at peak time, and generating capacity exceeds 3000 mw. So basically, the blackouts are due to unusually high losses in the distribution process," says Manning, who's also president of the American Chamber of Commerce of the Dominican Republic.

"Because the government has supported the sector as strongly as it has, the only question now is the cost of energy, not the availability. Prices have gone up substantially," said Manning, estimating the average energy price at 16 cents/kwh for residential customers and 23 cents/kwh for industrial consumers.

AES Dominicana, which has invested over $800 million in the country, is lobbying for the government to step up efforts to put all neighborhoods on a paying basis by cracking down on power thieves.

"There isn't enough cash flow for the distributors to purchase 100% of the electricity they need," Manning said. "The government has developed a program called Programa para la Reducción de Apagones which serves poor barrios where the distribution companies traditionally have not been able to collect. The government pays for 75% of the energy going into them, but the distribution companies have to bear the brunt of the other 25%."

In 2006, the Fernández government will spend $611 million to reinforce the national energy system. About $500 million of that will cover deficits by three distribution companies and state-owned electricity authority Corporación Dominicana de Empresas Eléctricas Estatales; the remainder will be spent on hydroelectric plants, networks and transmission substations.

Meanwhile, CDEEE has selected four companies for final bidding on two 600-mw coal-fired power plants to be built in Azua and Manzanillo, including subsidiaries of power conglomerates based in China and the United Arab Emirates.

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