The legacy of autocratic rule in the mid-twentieth century and the practice of distributing social services as political patronage have resulted in a larger role for state-actors in the Dominican economy than in the United States. Since 1997, when the General Law of Reform of Public Companies No. 141-97 was approved, State-Owned Enterprises (SOEs) have been on the decline and do not have as significant a presence in the economy as they once did, with most functions now performed by privately held firms. Notable exceptions are in the electricity, banking, mining, and refining sectors.
The Dominican Corporation of State Enterprises (CORDE) was established by Law No. 289 of June 30, 1966, with the purpose of managing, directing, and developing all the productive and commercial companies, goods, and rights ceded by the Dominican State as a result of the death of the dictator Rafael Leónidas Trujillo. Among the state-owned companies that came to be managed by CORDE are the salt, gypsum, marble, and pozzolana mines. In 2017, the dissolution of CORDE was entrusted to a Commission chaired by the Legal Consultancy of the Executive Power, which assumed the operational, administrative, and financial management of this entity until the dissolution process was definitively completed. Within the framework of the dissolution process of CORDE, the ownership of the mining concessions of the Dominican State was transferred to the Patrimonial Fund of Reformed Companies (FONPER) through the Mining Concessions Transfer Agreement between CORDE and FONPER dated July 2, 2020.
Shortly after being sworn into office, in August 2020, President Abinader issued Decree No. 422-20 forming the Commission for the Liquidation of State Organs (CLOE) under the charge of the Ministry of the Presidency. Since then, the CLOE has been in the process of dissolution and liquidation of CORDE, and on December 8, 2020, CLOE requested the FONPER Board of Directors revoke the Concessions Transfer Agreement. FONPER’s Board of Directors approved the revocation through Minutes No. 02-2021 of March 11, 2021, authorizing the president of FONPER to sign an agreement with CLOE that revokes and nullifies the Transfer Agreement.
In 2021, the executive branch transferred the functions and properties of the State Sugar Council (CEA) to the Directorate General of National Assets (Dirección General de Bienes Nacionales). The State Sugar Council maintains one remaining sugar mill, Porvenir. According to DIGECOG, the State Sugar Council continues to receive resources from the Central Government to the tune of $2 million in 2022 but did not present their financial statements or budget execution documents at years end “since [it is] in the process of dissolution.” President Abinader began the elimination of the CEA, in October 2020, when he submitted to Congress the draft law that provides for the suppression of that entity. Similarly, the Dominican Corporation of State-owned Electric Companies (CDEEE), received some $1.6 billion for the 2022 fiscal year and was described as in a state of dissolution despite the decree calling (No. 342-20) for its liquidation having been promulgated more than two and a half years ago on August 16, 2020. In February 2022, the government announced its intentions for the Directorate General of National Assets to absorb both the CEA and the CORDE and the formation of a working group to work out the details of the merger.
In 2021, the Office of the President proposed a bill to regulate government business assets, government participation in public trusts, and to create the National Center for Companies and Public Trusts (CENEFIP). The bill’s intent is to reform the management of state assets and replace the disgraced Patrimonial Fund of Reformed State Enterprises (FONPER), which is being investigated for alleged irregularities that may have personally benefited politically affiliated persons. The CENEFIP bill is under review in the legislature. In FY 2022, dividends from FONPER and BanReservas (see below) contributed more than $220 million to the national treasury, however, FONPER did not submit its final budget execution reports according to the February 2023 report by the General Directorate of Government Accounting (DIGECOG). Investigations into FONPER’s operations between 2012 and 2020, under Fernando Rosa and Carmen Magalys Medina, president and former vice-president of that institution, respectively, are ongoing as part of the high-profile “Anti-Octopus” corruption investigation.
After encountering obstacles and opposition from various sectors, the Senate passed the Public Trust bill into law in March 2023, and it will likely be promulgated by the Executive soon. The law aims to regulate public trusts and establish rules for their organization, structure, and operation, as well as to grant them the legal capacity to administer public resources. The law also establishes the rules and requirements so that any authorized public entity can act as settlor, trustee, or beneficiary, as well as institute regulations for trusts. The Public Trust law met with strong rejection from opponents and other sectors at first, considering that they would be privatizing the land and properties of the State. However, through consensus with the opposition, the law was revised to ensure trusts would be governed by the Law of Purchases and Contracts. They also agreed that the public debts of the trusts would go through the National Congress for approval. It is not clear whether the final version of the law includes the creation of the National Center for Companies or addresses the future of FONPER.
In 2022, the government announced that J.T. International Holding B.V. (JTI) would transfer its shares in La Tabacalera, representing 50 percent of the total capital, to the Dominican State at no cost. The decision was adopted after an agreement with the Dominican Government and JTI. With the measure, FONPER became the owner of 99.5 percent of La Tabacalera’s shares and will control operations. “The government of the Dominican Republic and FONPER will take the necessary steps to convene an international public bidding for the sale of the shares ceded by JTI to a strategic investor in compliance with the provisions of Law 141-97 on Public Enterprise Reform,” a statement said.
In the partially privatized electricity sector, private companies mainly provide electricity generation, while the government handles the transmission and distribution phases via the Dominican Electric Transmission Company (ETED), the three electricity distribution companies (north, south, and east) and their Unified Board of Directors (Consejo Unificado de las Empresas Distribudoras). While the sector continues to undergo major reforms, talks about privatization of the management and operation of the distribution companies died down in 2022, and will likely not be revisited until after the next election in 2024, if at all. The distribution companies remain among the largest SOEs in terms of government expenditures. In 2022, the government paid $1.5 billion to subsidize the Electricity Distribution Companies (EDE’s).
The government also participates in electricity generation, most notably in hydroelectric power and coal. In compliance with the provisions of Law No. 365-22, President Abinader issued Decree No. 142-23 creating the Punta Catalina Electric Generation Company (EGEPC). The company will be governed by Law No. 479-08, the General Law of Commercial Companies and Individual Limited Liability Companies and by its own operating policies, established in its bylaws. EGEPC is constituted as a Public Limited Company (SA), with its only shareholders being the representative bodies of the Dominican State, which are the Ministry of Finance (99.9%) and FONPER (0.1%). The management and administration of EGEPC will fall to the General Assembly of Shareholders, the Board of Directors, the Chairman of the Board of Directors and the Executive Vice President. According to the statement, the Board of Directors will be made up of five members appointed by decree, including a president, who will be the finance minister (ex officio), three directors, and the executive vice president as secretary with voice but no vote. The Abinader administration hopes that the creation of EGEPC will address the transparency concerns that have plagued the plant since its construction, under former President Danilo Medina’s purview, by disgraced international firm, Odebrecht. The plant has also suffered from management (coal supply) and pollution issues in the past few years.
In the legal and regulatory space, the government is currently reviewing a proposal to liquidate the National Energy Commission (CNE), the institution in charge of outlining the policy of the Dominican State in the energy sector, and vest most of its authorities in the Ministry of Energy and Mines. This change is one of several proposed as modifications to Law No. 125-01, Law No. 100-13, Law No. 57-07, Law No. 225-20 and other provisions related to the electricity subsector. An Energy Efficiency Bill, whose purpose is to create a regulatory framework and an incentive regime for the use of technologies and to motivate changes to consumption habits for the sustainable development of the country’s electric sector, is moving through the drafting process. Regulations that will govern the use of battery energy storage systems are also currently under development and debate.
The state-owned but autonomously operated BanReservas is the largest bank in the country and is a market leader in lending and deposits. Part of this success is due to a requirement for government employees to open accounts with BanReservas in order to receive salary payments. According to labor statistics the government (public employees and defense) is the single largest employer, with 13.08 percent of the total, formally-employed population. BanReservas was also utilized to distribute government social support payments during the pandemic. Roughly a third of the bank’s lending portfolio is to government institutions.
In the refining sector, the government is now the exclusive shareholder of the country’s only oil refinery; Refinery Dominicana (REFIDOMSA), after having extricated Petroleos de Venezuela, S.A. (PDVSA) in August 2021. Refidomsa operates and manages the refinery, is the only importer of crude oil in the country and is also the largest importer of refined fuels. REFIDOMSA’s crude oil processing capacity is a maximum of 34 thousand barrels per day, although it normally operates between 26 and 32 thousand barrels per day, depending on the demand. REFIDOMSA has a market share of over 60 percent in petroleum products, with different types of diesel oil being the most sold product in its portfolio, followed by gasoline for vehicle use. The price for fuel products is set by the Ministry of Industry, Commerce, and SMEs. The government spent over $663 million in 2022 via subsidies to stabilize fuel prices for local consumers. For 2023, the President committed to maintaining a fuel subsidy, despite the lower per barrel cost of oil at the start of the year, assigning $354 million in the 2023 General Budget Law for this purpose.
Law No. 10-04 requires the Chamber of Accounts to audit SOEs. Audits should be published at https://www.camaradecuentas.gob.do/index.php/auditorias-publicadas . The Chamber of Accounts, however, does not have budgetary autonomy, their annual reports to Congress do not include substantial findings or recommendations, and the institution does not effectively follow up on findings. Moreover, due to conflicts among board members, reportedly driven by their loyalty to different political factions, the Chamber of Accounts has struggled to appoint qualified personnel, produce audits of sufficient quality, and suffers from institutional gridlock. The U.S. Department of State assessed that the Dominican Republic did not meet the minimum standards for Fiscal Transparency in its 2023 report.
Partial privatization of state-owned enterprises (SOEs) in the late 1990s and early 2000s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing. In the electricity sector, these reforms were reversed between 2003 and 2009, but have largely remained in place for other sectors. It is unclear to what extent the passage of the Public Trust law in March of 2023 will create opportunities for private sector entities to manage or operate government resources.
With regard to the electric sector, the Unified Board of Directors and the DGAPP took steps in 2021 to improve the governance and performance of electricity distribution companies through the introduction of private sector participation via DGAPP Resolution No. 89/2021, however, talks about privatization of the management and operation of the distribution companies died down in 2022 and will likely not be revisited until after the next election in 2024, if at all. A key element in this effort was the normalization of electricity tariffs the distribution companies could charge to a rate that would cover operating costs. With the help of InterAmerican Development Bank and in accordance with the Electricity Pact, the government began the normalization program in the fall of 2021. Spiking commodity prices following the invasion of Ukraine, however, led to massive increases in electric bills for individual users that led to public outcry and a halt in the program. If the government ever returns to the concept of privatization in part or in full, all indications are that foreign firms will be invited to participate. Questions should be directed toward the Ministry of Energy and Mines ( https://mem.gob.do/ ) or DGAPP ( https://dgapp.gob.do/en/home/ ).