Everything, absolutely everything, needs to be subject to tenders, where the bases need to be discussed by a wide audience before it becomes official.

By Frederico A. Martínez
Special for Hoy

Let us start by clarifying that privatization was not an option. It was the only possibility to avoid a total collapse of the system. The premise in privatizing the power system was that the privatizing companies would invest in low-cost generation plants that would replace the old and dilapidated plants of the CDE. The implicit strategy assumed the units would be rehabilitated to maintain minimal supply in the short range, while the new units would provide the system with low-cost energy and be built over a period of three to five years. To make the investments commercially viable, two decisions were made that have proven to be fatal:

• The companies were handed over without debts.
• Prices for generation and transmission and a valued-added distribution that ensured positive cash-flow were tabled in five-year contracts.

The original plan was to renegotiate from March to September of 2004 a set of new prices with the low-cost generation plants in operation, a transmission system with standard technical losses and a distribution system that would be collecting by then 90% of the power served. At least, that was what the donkey had in mind.

He who rode the saddled donkey thought…

He who rode the saddled donkey thought…They are selling me something more than 1,200MW of capacity for US$0.2 million dollars per MW of theirs, of which half is useless or too expensive to operate. Solution: Repair those that can be made to produce power in the short term, recover the operation expenses, and pocket the capital cost (depreciation), plus benefits.

He who rode the saddled donkey thought: I have no liabilities, but lots of assets; the repair costs I can secure by mortgaging these assets, which are capitalized and do not affect profits. I share the profits with the government, they are happy, and I cash in my investment as fast as I can.

He who rode the saddled donkey thought: There is no Power Law, the Dominican Republic is a country without judicial security, and thus the next government can set all this back; better not to make long-term investments in efficient high-capacity plants, and wait and see what happens. Even if the new government guarantees whatever it may be, I invest in bunker motors that generate cheaply and can be installed quickly, and if suddenly there is a movement to oust us, they have few hidden costs (costs that one cannot recover by dismantling).

He who rode the saddled donkey thought: To collect the equivalent of US$6.25 a month from a poor family I would have to invest approximately US$100 in lines, sub-stations, transformers, drainpipes and meters. At the present prices, the US$6.25 yields less than 5% gross profit. Better to invest in delivering power to the middle class, so that the same US$100 investment will buy much more power and pay more profits; let the government subsidize the power service to the poor, and if the government does not, then it becomes a political problem for them.

He who rode the saddled donkey thought: Best to concentrate on the cities. With few additional kilometers added to the network, I can sell power to those who can afford to pay the most. To the small and remote towns, we will offer service once we have “skimmed the cream”.

He who rode the saddled donkey thought: The substantial investments that have to be made I will turn into liabilities, but since I do not know how long this is going to last, I will take out big, long-range loans with bilateral organizations under the guarantee of the government. If I am removed, they can keep the debt.

He who rode the saddled donkey thought: I will contract the short-term loans through my main office, at interest rates that ensure that if we do not make profits here, we make them there.

Economic reasoning and what we want

Readers may think they have been abused, but no. This is merely a case of economic reasoning. If you were the investor and these were the market signals that you were given, you would have done the same thing.

How can this be corrected? The same way it was created, with clear indications of what we want and by closing the door on whosoever is not willing to deliver. The following are some indications of the strides we should be making:

1. The Madrid Agreement must be dismantled. If it is necessary to secure the services of Judge Garzón to accomplish this, let’s go for it. The power market by definition is a one of perfect competition. Agreements such as this accord sully this perfection and negate the possibility of lowering generation costs.

2. The contract with the Compañía Electricidad de San Pedro de Macorís needs to be renegotiated, taking into consideration that their business is to produce and collect power, not legal wrangling.

3. Without lengthy contractual ties (PPA), the CDEEE can call a tender for the construction of a PPA that would supply an additional 500 MWH with a variable dispatch cost of les than US$25 per MW, while fuel costs stand at US$26. There will not be inexpensive, quality power service until large, efficient power plants are installed.

4. A tender needs to be called for the concession, construction and operation of a gas pipeline to transport natural gas to San Pedro de Macorís that will supply clean and efficient power to the 500 MW plant installed there and to its industry. First, legislation must be drawn up to regulate the transmission and tolls for fuel. In 2002, the Finance Ministry held an international contest to hire the experts, but never implemented the project.

5. The market ceiling for power needs to be lowered. The Merit List system has a defect in that it does not encourage the construction of more efficient units during peak hours, favoring instead the operation of inefficient plants at peak times. The ceiling needs to be tied to a heat rate of no more than 9000 btu per KW. The same needs to be supplied with bunker motors actually in base generation.

6. A goal to reduce the system’s emissions of nitrogen oxide within five years needs to be set, so that these emissions can remain at levels that permit us to opt for Decontamination Bonds for the reduction of emissions.

7. An international tender needs to be held to select and grant a concession for the construction and operation of a 345 kV transmission line. The only requirement should be that the selected company have carried out similar or larger works in the past and have economic and moral solvency to carry out the project. This is not an economic line, but rather the only guarantee that the power can be made available to all zones across the country and that in the long term the transmission be robust enough to prevent nationwide blackouts. The proposal of Ambassador Amado for 80 million euros has to be taken, but I suggest that it become a 20-year loan, without interest granted to the winner of the above-mentioned tender.

8. The hydroelectric generators need to be tendered out in the form of concessions, in an international bidding contest in which only well-known international companies, with capacity and solvency, commit to rehabilitate, operate and maintain them, charging fees that would be deducted from the excess generation that they achieve over present generation levels.

9. The minimum to declare oneself a non-regulated user should be lowered to 500 kw. Power is an industrial input and we will not be competitive if we do not lower the cost of this input.

10. The industrial rate for power needs to be variable per hour. It is not fair that a surcharge be collected during peak hours of 7pm to 10pm to users consuming on base-production schedules.

11. The price for smaller industrial users should be based on an average cost of the PPA, plus the aggregated distribution value (VAD), and the domestic consumer rates should be determined according to consumption. The power used by a luxury apartment air-conditioner should not cost the same as that which is used by a boy in a poor barrio to do his homework.

12. The electrification of the poor barrios and rural areas should not be a lucrative business. There are sources of extremely ordinary funds (those that do not pay interest rates at terms of 10 years or more) that can be used to finance it. The government could assume the investment, by way of international public contest, as part of the capitalization of the distributor.

13. The distributors should be audited for efficiency of service and coverage of clients, with specific goals listed on a clear timetable. The failure to increase collections on behalf of the distributors is their problem; I have clients that have not paid me but those who do pay do not accept my increased fees to cover the deficit, but that is my problem.

14. Users generating power via renewable sources (air, sun, waves, etc) should be regulated so their surplus can be injected into the network and credits be given for dispatched generation at purchase prices.

15. A megawatt of non-conventional power generation needs five times as much investment as for fossil fuel. All taxes, tariffs, surcharges, etc. need to be eliminated for those who invest in these ways of generation, and an international fund for the financing at subsidized rates must be secured to facilitate access to this technology and give priority to dispatch parks that may be built.

16. Above all, absolutely, above all, everything should be decided by international tender, where the framework and basis are discussed widely and publicly before formalization.

17. The power business moves more than US$1 billion a year in prices to consumers. While not questioning the honesty of the players, one should not assume the honesty of any. It is vital that the private companies retain boards of directors with representatives of the industrial sector, civic society and government. The financial statements and, foremost, their management need to be transparent and open to public scrutiny. All sales data, purchases and expenses must be accessible online, right down to second-level accounting.

I do not believe in the monopoly of truths, and perhaps I am wrong about many things. Nevertheless, I am sure that most of these measures are appropriate, starting in the short range. Only when we give out clear and unequivocal market indications that the donkey does not want this rider saddled, but rather one that is fairer, will the rider respect it.

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