Another Iberian Power Play
Iberdrola, the Spanish power company, which has already made several large investments in Latin America, says it plans to invest $1 billion over the next four years. Through its subsidiaries Ibernico and Iberener, Iberdrola has projects in 11 Latin American countries, including Argentina, Brazil, Chile and Colombia. Iberdrola plans to start developing a natural gas-fueled power station in Monterrey, Mexico after the Inter-American Development Bank approved a $457 million loan for the project. The 1,000-megawatt plant will supply power to private and public distribution firms. The Mexican government’s Comisión Federal de Electricidad has a 25-year agreement to buy energy from the plant, which Iberdrola both owns and operates. The project should be ready in 2003.
Keeping Aerolíneas Flying
The Spanish government’s SEPI holding company, which controls Aerolíneas Argentinas and its domestic carrier Austral, agreed to a $208 million capital injection to keep the airline in business. The money is intended to keep the airline flying until a shareholder’s meeting in late-September decides on how to make the flag carrier profitable. The airline is currently $870 million in debt, and has accumulated more than $1 billion in losses. Argentine officials have frequently blamed SEPI-owned Iberia and Spanish mismanagement for the company’s plight. The Argentine government sold Aerolíneas 10 years ago as part of its privatization program. American Airlines, which own 8% of Aerolíneas, says it will reject any further demands for fresh capital. Argentine officials are hoping the Spanish will not insist on job cuts. Aerolíneas has 7,000 employees worldwide, who also own 10% of the company’s stock, but SEPI officials see few options other than cuting salaries and eliminating jobs. Aerolíneas hopes to form an alliance with Brazil’s largest airline, Varig. The agreement would enhance a 10-year-old ticketing agreement between the airlines.
Bombardier Wins Subsidy Rift with Embraer
The World Trade Organization has ruled in favor of Canadian aircraft maker Bombardier, ending a four-year dispute with its Brazilian competitor Embraer. The WTO said federal export subsidies paid to Embraer were illegal. The Brazilians had launched a counter-claim alleging that the Canadian government supported Bombardier. The WTO authorized Canada to impose $1.3 billion in trade sanctions against Brazil divided over the next five years. Canada originally asked for $3.3 billion over seven years.
AHMSA Restructures Debt
Mexico’s largest steel maker, Altos Hornos de México SA (AHMSA), has agreed to a debt-restructuring plan with several creditor banks. The banks will convert $500 million in debt for an equity stake in AHMSA. Spain’s Aceralia Siderúrgica recently withdrew an offer to buy debt-ridden AHMSA. The company ran into financial problems and stopped making payments on its $1.85 billion debt. The creditors had rejected Aceralia’s offer to share production facilities and acquire part of AHMSA.
Sempra Moves into Argentina
San Diego’s Sempra Energy agreed to buy Dominion Resources’ stake in three Argentine energy companies for $145 million in cash. Sempra is increasing its stake in the holding company that controls Camuzzi Gas Pampeana and Camuzzi Gas del Sur by 22%. Together the companies have 1.2 million customers in central and southern Argentina. Sempra will also gain a 25% stake in Empresa Distribuidora de Energía Atlántica, a distribution company serving 4000,000 customers in the province of Buenos Aires, the country’s wealthiest and most populous region. Sempra currently operates in Chile, Mexico, Peru and Uruguay. The sale is awaiting approval from Argentina’s competition authorities, even though Sempra will not assume a majority stake in any of the power companies.
Endesa Fails to Meet Service Targets
The Brazilian electricity industry regulator Agência Nacional da Energia Elétrica (Aneel) barred Spain’s Endesa or any of its subsidiaries from participating in any electric privatization or distribution concession tenders for one year. Aneel says Endesa has not met minimum service targets in the northeastern state of Ceará. Endesa, along with subsidiaries Enersis, Chilectra, and CERJ, owns a majority of Companhia Energética do Ceará (Coelce), which the government privatized in 1998. Aneel has threatened to cancel Coelce’s concession if it has not improved service by the end of August. Coelce has invested $145 million since 1998, but Aneel continues to fine the company for failing to meet its targets.
Interbank Succumbs to Regulators
Banking regulators at Nicaragua’s Superintendency of Banks took over Banco Intercontinental (Interbank), the country’s third-largest bank, following the bank’s failure to meet minimum reserve requirements. Officials suspect fraud. The scandal centers on an $11 million loan made to Agropecuaria Renacer de San Miguel (Agresami). Agresami is reportedly controlled by Humberto Ortega, the former Sandinista military chief. The superintendency has suspended three other banks over the last five years. Guatemala’s Banco del Sur was the latest bank to come under investigation. Interbank was the fastest-growing bank in Nicaragua, with deposits increasing 65% in the past year.
Brazil Clamps Down on Gas and Power Prices
In August Brasília introduced measures to prevent gasoline and power price increases after inflation in July rose to 1.6%, its highest level this year. The central bank had cut short-term interest rates aggressively this year, confident that this would not threaten its 2000 inflation target of 6%. Commentators worried that the controls signaled a break with liberalization and a return to government intervention. The depressed share prices of privatized power companies had surged following government-approved rate increases. However, Rodolpho Tourinho, the Brazilian mines and energy minister, announced that the higher rates would be delayed until February 2001. The government announced a 1.5% cut in gasoline prices, and reduced the amount of fuel alcohol added to gasoline, decisions that could depress bidding at future power company privatizations.