[A-List] Ecuador: privatisation woes

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Ecuador scraps power sale after bidders pull out
By Guy Hedgecoe in Quito
Financial Times: April 12 2002

Ecuador's government announced on Thursday that it has cancelled the
sale of seven coast-based electricity distribution companies, scheduled
for April 26, following the withdrawal of the companies qualified to
bid.

The decision brings to an end the government's attempts to privatise the
state's 17 distributors; in March it cancelled the sale of the 10
highland-based companies, due to opposition from local authorities.

Ricardo Noboa, president of the National Modernisation Council (CONAM)
and brother of President Gustavo Noboa, told reporters that the three
potential buyers, Union Fenosa of Spain, AES of the United States and
Pecom of Argentina, decided not to bid for the 51 per cent of the
distributors up for sale, due to resistance from local municipalities
and legal uncertainty.

The Constitutional Tribunal declared the sale illegal in 2001 and the
court's consequent failure to clarify its position, Ricardo Noboa said,
left potential investors open to a legal "ambush" after the sale.

The government now plans to open up the administration of as many of the
state's distributors as possible to bids from private companies,
although Mr Noboa said a date has not yet been set for that process.

"Ecuador urgently requires investment in electricity generation and
there will not be investment in generation if the distributors are not
in private hands," Mr Noboa said. "If it is not possible to sell the
shares of the distributors, putting the administration in private hands
is a stimulant to those who are interested in investing in generation."

The privatisation of the state's electricity generation and transmission
companies was scheduled to follow the sale of the distributors. Sale of
electricity distributors was planned to be Ecuador's first major
privatisation project and several previous governments have also tried
and failed to modernise the sector.

AES and Pecom's participation in the auction has been in doubt for
several months due to their reported financial problems and the sale of
the coastal and highland packages has been postponed several times since
last year for technical reasons.

Meanwhile, political opposition to the sale has increased steadily. On
April 3, President Noboa acknowledged that the privatisation process had
failed when he announced the abandonment of planned electricity tariff
increases until the end of his term in January 2003.

The government also announced the postponement of the re-privatisation
of the Ecuador Electric Company (EMELEC), which distributes electricity
to the port city of Guayaquil, from April 29 to mid-May.

Full article at:
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3A4RX0XZC&live=true&tagid=ZZZ60A9VA0C&subheading=americas

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx