SPARKS I NEED

Dominican Republic 2013 | ENERGY | B2B: TRANSMISSION

The price of electricity is a contentious issue in the Dominican Republic. Sector leaders now aim to cut costs and raise profits.

Hipólito Núñez Martínez
HIPÓLITO NÚÑEZ MARTÍNEZ
General Adminstrator Manager
Edesur
Luís Ernesto de León
LUÍS ERNESTO DE LEÓN
General Administrator Manager
Edeeste

Several international institutions, such as the IMF and the World Bank, advise the Dominican Republic to increase electricity tariffs. What is your take on the debate?

HIPÓLITO NÚÑEZ MARTÍNEZ The Dominican people are very much against an increase in electricity tariffs, because they compare price and services with other regional countries and argue that we already have the most expensive tariffs in the region. This statement is not entirely true. I am a representative of the country at the Latin American Energy Association, and can say that this country is currently at the medium to high level in terms of tariffs. However, in the residential segment we are at the medium-low level. In fact, in the range of clients below 400 kWh consumption, we lose money, and the segment has been subsidized for many years now. It all comes down to the high costs of energy production in the country, as well as efforts to protect the poorest segment of clients through the implementation of a so-called “light bonus" card that helps people pay for part of their consumption. This initiative also helps to make as many as 800,000 people committed to pay their monthly electricity bill through this “bonus light" card, because if they do not, people will not receive other types of benefit. The initiative will enable us to promote a culture of commitment to pay for services in the lower-income segments of society.

Why is electricity in the Dominican Republic more expensive than in other countries in the region?

LUÍS ERNESTO DE LEÓN Many contracts were signed during the financial crisis and those agreements have resulted in high energy prices. To further understand the issue, we have to look back to the 1940s, when the first contracts were signed at the national level and the first electricity company was founded. In 1996, the capitalization process for electricity companies began with the objective of bringing in investment and reducing the cost of energy, thus meaning the government would not have to cover the deficit. The state electricity company was then split into three parts: generation, transmission, and distribution. This brought in new investment, while the government kept 49% of the shares in generation and distribution and kept 100% of the shares in hyrdro-generation firms and transmission companies. Long-term contracts with the private sector that were not subject to modification then resulted in better prices for the distribution companies. This process brought more investment into the generation segment, but the distribution companies have not been able to reduce losses and the government has to put more money into the sector to keep services in the country. However, the turning point in this entire situation was the signing of the so-called “Madrid Agreement"—contracts with electricity producers were extended, keeping price rates at a high level. In addition to that, we have to consider that the usage of petroleum derivative fuel in the production of electricity has driven prices up.

Since you were appointed to your current position, what have been your main goals?

HNM The company currently has losses of around 39% in terms of the energy we buy from producers and the energy sold to consumers. At the moment, we are in the process of developing a general strategy involving the entire company. We have established a working group to come up with specific action points that will enable us to improve our situation and balance our finances. We aim to reduce our losses by 4%. We have refocused the company's administration on generation centers, which would enable us to better identify the origin of our economic losses in order to take measures to address the situation, become more efficient, and understand where we have to strengthen relationships with our consumers.

LEL I hope to arrive at 2016 with the lowest rate of loss possible and better service to our customers. If we achieve our objectives through hard work we believe that the loss could be around 12%-13%. However, since the sector needs large improvement, I will focus on reducing loss on a yearly basis, making this goal more realistic. We need to increase the collection of unpaid bills, diversify our customer portfolio, and increase the levels of distribution. The company needs to be restructured because most of the services are outsourced, and we need to improve our efficiency.