| Daily News - 1 October 2003 |
As of late last night, the Dominican government took control of the electric distributors, Edenorte and Edesur, the long-standing targets of fervent protests due to deficient service. With this handoff, the blackouts will again be the government's headache. According to the Listin Diario and the Diario Libre, the final negotiating sessions were long and drawn out, with Diario Libre calling them "a marathon". The transfer of the distributors was completed as the newspapers reached the hour of their publication deadline. The economic advisor of the CDEEE, Edwin Croes, called the sale the largest economic transaction ever seen in the Dominican Republic. Some 14 contracts had to be reviewed before the signing could take place. According to reports in El Caribe, the government made its payment with a certified check dated 15 October, which caused the Union Fenosa people to get a little edgy. After the negotiating teams resolved that issue, there was a shareholder meeting, where the deal had to be approved. All of this dragged on well into the wee morning hours. Croes, who is to be operations manager of the new company, assured reporters that all was going according to plan. Cesar Sanchez, the current head of the CDEEE, will head the new company. Meanwhile, Radhames Segura, former general manager of the CDE prior to privatization, commenting on the deal on TV last night said that if the Mejia government had not signed the Madrid Agreement in 2001 that extended the contracts of the Union Fenosa distributors from 5 years to 15 year terms, the country today could be saying goodbye to the failed company for a fraction of the present cost it is now taking on. The privatization contract signed in 1999 during the Fernandez government would have been up for renewal in 2004. The Madrid Agreement was negotiated in 2001 by the same executives that now will head the renationalized Edesur and Edenorte. Segura also recalled that the Mejia government has been specially generous with Union Fenosa. Despite this being violatory of the Electricity Law, he said the government granted special conditions for the installation and operation of the Palamara and La Vega power plants. Moreso, he mentioned the government also helped the company finance the operation guaranteeing Interamerican Development Bank loan. He also pointed to the Union Fenosa accounting practices whereby power subsidiaries Edesur and Edenorte borrowed from the principal company, Union Fenosa at up to five times the market price financial cost. Veri Candelario, reporting for CDN's morning talk show, opened with a disparaging comment on the skills of the negotiators for the Dominicans, saying that the government had instead proved to be adept in negotiating in favor of Union Fenosa.
The economic editor of Hoy newspaper, Mario Mendez writes of the general concern regarding how the government will pay for the debt it is picking up with Union Fenosa in order to buyback the Spanish company's power distribution subsidiaries. He writes that the government had already negotiated a loan [US$200 million] with the World Bank to cover older debts and has accumulated more debt with the power generators for US$115 million. Furthermore, Mendez reports the distribution of power was losing US$12 million deficit per month. All this in addition to the about US$50 million a year the government agreed to pay Union Fenosa over a 12 year period. Mendez says the question in everyone's mind now is that of how the government will make the payments, given the present fiscal restraints the government is suffering and the commitments taken on with the International Monetary Fund. Mendez says that in the letter of intent signed with the IMF, the government agreed to gradually increase power rates to consumers to make up for the additional costs attributed to the depreciation of the peso and the difficulties in adjusting rates to consumers at the same pace as inflation and exchange rate depreciation. The government had planned on compensating the increase in cost with the 5% tax on exports. But the 5% tax on exports was effectively protested by business sectors and only produced RD$60 million in its first month, of an estimated RD$500 million the government was hoping for. Free zone and hotel sectors refused to pay the tax, the Agribusiness Board (JAD) also instructed its exporter members not to pay, and the Supreme Court is expected to render shortly its verdict on the legality of the tax that was established by governmental decree.
Hoy reports that the IMF mission that was participating in talks concerning the government takeover of the EDEs electrical distribution companies have packed their bags and left "for consultations" in Washington. In diplomatic terms, this usually means that they are unhappy with the way things were going. Sources close to the IMF team said that if the group had been satisfied with the progress of negotiations, they would have left a note saying that the IMF supported the contracts for the buyback of the distributors. According to the IMF people, the contract to purchase Union Fenosa's 50% shares in Edenorte and the Edesur violates the Letter of Intent and the Consensus of Washington. The letter of intent has three parts - fiscal equilibrium, privatization and tariff reforms.
The prolonged series of lengthy blackouts provoked protests yesterday that injured a dozen people, including one lieutenant colonel of the police. Dozens more were arrested and certain highways were momentarily blockaded, including major thoroughfares. According to Hoy, two policemen were wounded in Santiago and one in Santo Domingo. More injuries were reported in Bonao, and Barahona. Hoy gives accounts of protests also occurring in Navarrete, Licey al Medio, Villa Altagracia, and various sectors along the Duarte Highway. In other related stories, El Caribe reports that the blackouts themselves are evident all over the country. According to reporter Mercedes Gonzalez, at least 16 of the generating facilities are out of service, causing 96 circuits of the national grid to fail. With the 552-megawatt deficit, the North was, as usual, most severely affected with over 35 circuits down. Later in the day, as the deficit was reduced to 176 megawatts, service did improve.
Today's op-ed contribution by leading economist Pedro Silverio is quite succinct: The Dominican government is not doing much to inspire a healthy "investment climate". He identifies the decline of direct foreign investment as an indicator, showing the fall from 7.6% of the GDP to just 4% over the past four years, representing an erosion of 45%. The problem is clear, says Silverio. "The government is doing things that deteriorate the 'investment climate'." He pointed out, as have others, that the President was even forced to listen to accusations of inferior judicial security from King Juan Carlos of Spain and Spanish head of government Jose Maria Aznar - criticism that is quite unusual at formal meetings of heads of state. Silverio ends today's article by saying that the takeover of the electrical distributors is just one more step in the wrong direction.
A new industry has arisen as a result of the precarious energy situation: home-built generators using automotive engines. El Caribe reports that many businesses and families are turning to the locally-constructed generators that use old automobile engines as a source of power. Depending on the source of fuel (gasoline or diesel) and the size of the generator, these emergency generators can save between 50% and 75% of the cost of a comparable generator imported from abroad. Local builders use rebuilt automotive and light-truck engines and the readily available generators to assemble the units. The article in today's El Caribe lists several of the vendors and their locations.
According to reports, the energy crisis is having serious effects on the sale of beer, one of the largest taxpayers in the country. Jose Leon Asencio, president of the Leon Jimenes Group, told reporters that beer sales were down by 7% from last year, for which he blamed the lack of electricity. Retailers are having to increase the price of the product to pay for their own emergency power plants, and this, in turn, has caused a decrease in sales.
According to the Supreme Court, the Dominican judicial system needs 545 more judges in order to bring the new Penal Code and the new Child Protection Law to bear. Using the acronym CNNA, derived from its Spanish name (Codigo de Ninos, Ninas y Adolescentes), the child protection law calls for 92 judges to handle the cases and the new Penal Code requires the participation of 203 judges. Furthermore, the new CNNA judges will require 786 new employees, such as secretaries, assistant district attorneys and other ancillary personnel. The new penal judges will need 462 additional personnel.
According to the Listin Diario, 500 governmentally operated OMSA buses are not in service due to lack of fuel. Reporter Adriana Peguero says that thousands of passengers were left without public transport yesterday. President Mejia ordered RD$10 million to be sent to OMSA, as a partial payment on the RD$25-million fuel debt with Mopatex-Isla, their supplier. Diogenes Castillo, the head of OMSA, told reporters that the money was approved for OMSA after he apprised the President of the situation. OMSA's spokesman, Enrique Alberto Ramirez, would not comment further on the subject, saying only that the RD$80-million subsidy the OMSA receives is not enough to allow them to operate at 100% efficiency levels. A requested increase of the subsidy to RD$150 million was rejected by government officials.
While the common citizens of the Dominican Republic have to tighten their belts more and more each day, the government continues to increase its spending. Diario Libre reports that the public sector's payroll increased by 10-11% in August alone. A governmental budget report published yesterday shows that, in real terms, the government is collecting less revenues. Last month, the government took in RD$4.6 billion and disbursed RD$4.4 billion for current spending obligations. Of this amount, the government disbursed RD$196 million to pay its debt with commercial banks, leaving a deficit of RD$24 million for the month. Diario Libre points out that, despite the recommendations of the business sector and the signing of the stand-by agreement with the IMF, the implementation of the budget has yet to reflect austerity in payroll matters. Central Bank half year report showed that the government had employed 15,000 new persons.
El Caribe reports that the 6.5 magnitude earthquake damaged 73 schools in 15 cities from one side of the country to the other. The provinces of Puerto Plata and Santiago were the most severely affected, but schools in San Cristobal, Santo Domingo and Monte Plata in the southcentral part of the country were also damaged. With the exception of Santiago Rodriguez, all other provinces in the Cibao Valley reported damages to their schools. Jaime Duran, a spokesman for the Public Works Ministry, told reporters that many of the schools were not built to the specifications required. President Mejia observed that only by the grace of God were there just three deaths attributed to the quake - two were victims of heart attacks and another was a sleeping watchman killed in the collapse of a brothel - and noted that the loss of life could have been far greater. He mentioned that in Puerto Plata the second floor of the Reform High School collapsed onto the first floor, in which ten classrooms that normally hold 65 students each were demolished by the quake. The complete list of the damaged schools can be found in today's El Caribe. News reports say that school reopened yesterday in Puerto Plata at non-damaged buildings, eight days after the Monday, 22 September earthquake and aftershocks kept students home. News reports are focusing on the construction vices affecting the public schools, contrary to most private schools.
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