MDB & Energy Project: Regional Studies: Latin America Report

Energy and the Multilateral Development Banks in Latin America Contradictions between facts and discourse

Chapter 3

The repeated recipe...and the usual winners

Despite the structural heterogeneity and diverse conditions in Latin American countries—which are acknowledged in IDB documents—one single recipe is being applied to all. The same ingredients are used in practically the same proportions. In this chapter, we analyze some of these ingredients: privatization, new regulatory frameworks, and regional energy integration. We also identify the main beneficiaries of restructuring.

Reform of the electric power subsector started in Chile in 1982, followed by Argentina (1992), Peru (1992), Bolivia (1994), Colombia (1994), El Salvador (1996), Guatemala (1996), and Panama (1997). All eight countries, although at different degrees of implementation, have made substantial advances in their respective restructuring.

Another group of countries are in less advanced stages of reform. This group has already passed electricity laws and in some cases established regulations, following exactly the same guidelines as the first group. This group includes Ecuador, Uruguay, Dominican Republic and Nicaragua. Paraguay has a draft electricity law, and Brazil has taken significant steps toward restructuring its energy sector. Mexico, on the other hand, faces several obstacles in implementing the reform.

Privatization

A key aspect of restructuring in the Latin American energy sector is privatization of electric utilities, oil companies and other state-owned energy enterprises. This transfer of assets to the private sector is not specific to the energy sector but is part of a broader process of privatization, which has accelerated in Latin America in the 1990s under the influence of neo-liberal policies and pressure from the MDBs.

Since 1996, however, the energy sector has become the main target of privatization in the region and concentrated the greatest volume of operations with transactions which amounted to US$6.7 billion, equivalent to 46% of total investment in privatization.

In 1997, Latin American countries implemented US$15.7 billion in privatization projects. This is a historic record since the beginning of the process in the 1980s. Nearly 50% of overall privatization of state-owned enterprises in the region is in the energy sector. The process has differed in pace and scope in the different countries of the region. Some countries have completed privatization of companies in the main energy sector while others are in the first stages. Chile and Argentina are leaders in the privatization process in Latin America.

A new phenomenon that has arisen in the course of the privatization process is the internationalization of energy companies. Several firms have become involved in energy enterprises of other countries of the region, examples being Chilean electric utilities and the Argentinean Yacimientos Carboníferos Fiscales’ (YPF) involvement in the exploration and exploitation of oil and gas fields in other countries.

Chile

Privatization of the electric power sector coincided with the introduction of economic transformation at the end of the 1970s. In a first phase from 1974-1981, enterprises that had been expropriated by the previous government were given back to the private sector. Banks, industrial plants and equipment were sold to private companies. Large companies were not included in this phase: significant sectors of the economy—mining, oil extraction and refining, electric generation and distribution, iron-smelting and telecommunications—remained under state control.

Many companies were members of the Corporación de Fomento de la Producción (Production Development Corporation). To facilitate their sale, some companies were divided into subsidiaries or smaller units.

Power conglomerates are being divided into generation, transmission and distribution companies:

Generation: includes electric power generated in the plants;
Transmission: organized on a regulated basis, as a consequence of the natural monopoly implied by bulk energy transportation.
Distribution includes power supply to consumers from the transmission points.

Chilectra was divided into three parts: Chilgener (Generation and transmission in the area of Santiago and Valparaiso), Chilectra Metropolitana (Distribution in Santiago) and Chilectra V Region (Distribution in Valparaiso). Also, state-owned ENDESA was transformed into a company dealing exclusively with generation and transmission. Four additional distribution companies were created, as were four new companies in the area of generation.

The initial privatization consisted in the public auction of two ENDESA distribution utilities. After 1985, the process was accelerated. By the end of 1989, Chilmetro, Chilgener and Chilquinta were completely privatized and 90% of ENDESA shares were privately owned, with owners including the private pension funds.

Today 99.8% of generation, transmission and distribution in Chile is in private hands and a local micro-enterprise in the South Zone with a capacity of around 15–20 megawatts is being privatized. Despite this transfer to private owners, the development of new actors in the electric power subsector has been limited and it still consists of the same initial enterprises. The pension funds own approximately one-third of the subsector. North American and Spanish capital is invested in some of these firms. For instance, Spanish Endesa bought 29% of Enersis (owner of Chilectra and of 25% of ENDESA).

ENDESA, with its subsidiaries, controls 61% of power generation capacity in Chile, and Chilgener controls 16%. ENDESA also controls Transelec, which has the greatest share of power transmission. Enersis, main shareholder of Chilmetro, which operates in the distribution sector, in turn holds shares in ENDESA.

Argentina

Privatization in this country has reached all the energy subsectors: coal, natural gas, oil and electricity.

In the coal subsector, the government awarded a 20-year concession on Yacimientos Carboníferos Fiscales (YPF) to a consortium formed by the Federación de Trabajadores de Luz y Fuerza and the local firms IATE, Eleprint and Dyopsa.

In the natural gas subsector, the state-owned company Gas del Estado was subdivided into two gas transport companies and eight distributors. In addition, concessions on natural gas reservoirs were granted to private firms. Natural gas production shows significant concentration in five companies (YPF, Total Austral, Perez Companc, Pan American Energy and Pluspetrol) that produce 76.2% of the total.

In the oil sector, in addition to a scheme giving private firms concessions on natural gas reservoirs, exploration and exploitation, YPF, the main oil producer was privatized. In the first stage, the Argentinean state retained a percentage of YPF stock, but its last shares are now being sold.

In the power sector, the new structure imposed by the Electricity Law (1992) segmented the state-owned utilities involved in generation, transmission and distribution of power as a first step toward privatization. Approximately 75% generation, transmission and distribution have already been privatized, while some provincial utilities are still to be privatized.

The law also provides for the privatization of Argentina’s three nuclear plants, two operating, Embalse and Atucha I, and a third under construction. The sales have not yet been concluded. In December 1998, President Menem signed a decree defining the criteria and methodology for privatization by international public competitive bidding. The three plants will be sold as a single business unit.

The Argentinean government also intends to privatize the bi-national dams of Yacireta (Argentina-Paraguay) and Salto Grande (Argentina-Uruguay).

Brazil

The privatization process in general, and of the energy sector in particular, began later in Brazil than in the other big Latin American countries. Given the amounts involved in Brazilian privatization, this process has become the focus of considerable international attention.

The Brazilian government has initiated the sale of assets of Electrobras—the country’s electric holding company. The packet includes more than twenty hydro and thermal generation plants. The electric utilities have been divided into generation, transmission and distribution companies.

Privatization is occurring only in the generation and distribution sectors, with transmission remaining in state hands. Practically 100% of distribution, as well as some generation, has already been privatized.

The first great privatization was the transfer of about 60% of the stock of the distribution company, Light of Rio de Janeiro, for US$2.216 billion. Previously, Escelsa in the State of Espiritu Santo had been sold at US$390 million. With these two sales, all the distribution utilities managed by the federal government were transferred to private investors. The rest remained the property of state governments.

At present, 13 power distributors have been privatized: Escelsa (Espiritu Santo), Light (Rio de Janeiro), Cerj, Coelba (Bahia), Centro-Oeste, Norte Nordeste, CPFL (Sao Paulo), Enersul (Matto Grosso), Cermat, Energipe (Sergipe), Cosern, Coelce (Ceara), Bandeirantes and Metropolitana (Sao Paulo). Among generation companies, Gerasul (south of Brazil) has already been privatized and the privatization of Furnas, Chesf, Electronorte and Cesp (Sao Paulo) was foreseen for 1999. In December 1998, the sale of the Energy Company of the State of Alagoas (Ceal) was canceled since there were no groups interested.

The state of Sao Paulo has the most ambitious privatization program in Brazil. The State Program for De-statization (PED) has created the Paulist Company of Assets (CPA), which issues privatization bonds and grants authorization for selling state-owned energy companies.The group of companies being sold includes three electric utilities (Cesp, CPFL, Electropaulo) and one gas distributor (Comgas). By official estimates, the net worth of the assets being sold exceeds US$10 billion. By 1996 data, Sao Paulo consumes more than 90 gigawatt hours, which exceeds the total consumption of Argentina.

The program for privatization involves reorganization of the generation and distribution functions of the three existing electric utilities—CPFL, Cesp and Eletropaulo—into six generators and thirteen distributors. After their reorganization, 51% of the companies would be sold. Transmission installations, valued at US$3 billion would be integrated into one single company and would remain the property of the state.

In the oil sector, privatization did not include sale of Petrobras’ assets. Petrobras will remain a state-owned company but develop various associations with private enterprises—particularly foreign. Additionally, de-monopolization opened all the oil sector phases to private investors.

In the gas sector, conditions have been created for the participation of the private sector in the distribution of natural gas.

Mexico

Regulatory reforms have created possibilities for the participation of private capital in power co-generation and production for self-consumption or independent power production, but a wholesale electricity market has not been created and the assets of state-owned utilities have not been privatized. Privatization was resisted by elements within the government, which hindered the process. Natural gas transport and storage are also receiving private investments.

In the oil sector, there are barriers to the entry of new agents, although the new regulations favor a policy of international associations for Pemex.

Colombia

Colombia is promoting the entry of new private agents into the energy sector by selling state assets and opening new spaces for private investment (exploitation concessions, etc.). Approximately 30% of power generation, transmission and distribution has been privatized.

The private sector dominates the wholesale distribution of hydrocarbons, transportation and distribution of natural gas, and production of coal. Mixed enterprises—such as the association of private firms with Ecopetrol—are predominant in oil production and transport and in natural gas production.

Uruguay

Privatization in Uruguay was stopped by a plebiscite brought about by popular initiative. But with the introduction of a new regulatory framework, private sector participation in the energy sector has been facilitated through the modality of public works concessions and through de-monopolization of power generation.

Other countries of the region

In Bolivia, Yacimientos Petroliferos Fiscales Bolivianos was divided into various units in preparation for privatization: one for transportation (gas pipelines and oil pipelines) and two for exploration: Andina—which now belongs to an Argentine-Bolivia consortium—and Chaco, awarded to Amoco. Shell and Enron of Bolivia bought the transportation unit, while another unit, Empresa Petrolera Andina, was acquired by a consortium of Argentinean and Bolivian investors—it is divided in equal shares between a Bolivian pension fund and the Firm Andina Corporation which, in turn, is composed of Argentinean YPF (40.5% of the stock), Perez Companc (40.5%) and Pluspetrol (19%).

In the electric power subsector, already partly privatized, reforms were implemented at utmost speed, the whole sector is now in private hands.

In Peru, the government initiated the privatization of Petroperu through the sale of various of its assets, and also established concessions for oil exploration and exploitation.

In the electric power sector, Empresa Electrolima was divided into three units: generation and distribution were privatized and transmission remained state-owned. Private investment in the Regional Companies of Power Public Service was declared of national interest, and Electroperu S.A. started selling its shares in these companies to private investors. Approximately half of generation and more than 60% of distribution were privatized.

In Venezuela, privatization of the oil sector has not involved the sale of the state-owned oil company (Petroleos de Venezuela PVDSA); rather, the government has granted concessions for exploration and exploitation to large international oil firms and also to some Latin American firms, such as Perez Companc and YPF of Argentina, and Petrobras of Brazil. In the power sector, privatization of several firms was announced (Cadafe, Enelven, Energía Electrica de Barquisimeto).

In Ecuador, the Congress approved the sale of 39% of the Instituto Ecuatoriano de Electrificación (INECEL) to private investors. The Electricity Law permits private participation in power generation and transmission. The privatization of San Francisco, Toachi, Emelec (39%) and other regional distributors has been announced.

State-owned electric utilities in Caribbean countries have been taken over one by one by US companies.

In the Bahamas, the government announced that the Bahamas Electricity Corporation would be privatized through international public bidding. American Southern Electric, which already owns the other significant supplier in the country, Freetown Power Corporation, has shown interest in participating in the bid.

In Jamaica, the government announced that power generation, transmission and distribution under the Jamaica Public Service Company would be sold in a single lot. Southern Electric and Houston Industries are the main candidates for its procurement.

In Trinidad and Tobago, in 1994, 49% of the power generating assets of Trinidad & Tobago Electricity Commission were sold to Southern Electric and Amoco, while 51% of the new generation utility PowerGen remained the property of the state.

In El Salvador, Guatemala and other countries of Central America, privatization of the power sector is planned. In Guatemala, 20% of generation and 70% of distribution have been privatized, while in Panama, 100% of distribution and generation has been privatized.

THE NEW RULES OF THE GAME

Setting new rules of the game—new regulatory frameworks—is being justified by the fragmentation and multiplication of agents in the markets that has occurred as a result of the privatization and demonopolization processes. "The appearance of new agents necessarily generates conflicts among the parties concerned, and therefore the rules of action for each of them must be put in writing, even though there is an established market... ."

The new regulatory frameworks determine the key characteristics of the emerging industry, especially in the electric power subsector: private participation, vertical disintegration, free competition in some areas, free access to transmission grids or transportation, creation of wholesale markets, price regulation and the creation of regulatory agencies independent of the operators.

With these common elements, the national regulatory frameworks differ according to the various practices and customs of each country. "There are countries which have established very general regulations, such as the law in Argentina, Colombia, El Salvador, and apparently in Brazil. On the other hand, other countries have passed laws with more detailed and precise provisions. Such is the case of Chile and Peru, where the law is practically a regulation, aiming at preventing the introduction through regulation of interpretations or changes which may make unstable a framework which has been thought to offer stability to the actors. All this depends on the legal tradition of every country. There are also other countries with intermediate positions, such as Bolivia, Guatemala or Panama where the laws have 80 or 90 articles but leave a great deal to be dealt by regulations."

In Brazil the decentralization and privatization of the sector was accomplished mainly through bilateral contracts between generation and distribution sectors, rather than by adhering to a mega-regulatory framework as in the other countries.

Mexico, limited by its constitution and by the electricity monopoly under CFE, has attempted to open its system without breaking CFE—which would require a complex constitutional change that would be difficult to pass—but mainly through contracts with independent generators and by expanding the concept of self-generation.

Vertical disintegration or segregation of generation, transmission, distribution and marketing is a key feature of the new regulatory frameworks—or, broadly, of the reform process. Former state-owned utilities were divided into various firms with differentiated functions as a step toward privatization, as in the case of Chile and Argentina. In some countries it is officially accepted that one holding company may control the various newly created firms, but at minimum, generation, transmission and distribution must be managed separately (be individually accountable).

The demonopolization of the energy markets and thus, the introduction of competition among private and/or public agents is another key feature of the reform. In the electric power subsector, competition has been opened for generation and distribution but not for transmission. In only a few cases, such as Chile for instance, parallel transmission grids can be developed and there is more than one agent for electricity transmission, although in Chile, only one of them, Transelec, is significant in the market. The monopoly of transmission networks enables regulators to permit generators to access the grid with payment of a corresponding wheeling toll.

Free competition among generators does not mean that all consumers can freely choose their generator. Only the "big consumers"—generally industries or trade businesses—have this choice. All other consumers, especially residential ones, remain a captive market for the distributor that holds the local monopoly. In some countries, however, there seems to be a trend toward reduction of monthly kilowatt hour consumption limits above which a client becomes a "big consumer." For instance, this limit, currently fixed at 400 kilowatt hours in Panama, has been reduced to 100 kilowatt hours in Argentina. The absence of competition at the retail level required regulations regarding prices to consumers to prevent price fixing at the discretion of the local distribution monopolies.

The segregation of the power subsector into various agents, some of which compete with each other, necessitated the creation electricity wholesale markets, this being a feature of the new regulatory frameworks. Wholesale market administrations—integrating generators, transmitters, distributors and big users—regulate energy transactions. In some cases, market administrators prioritize system operations, determine which plants should be in operation to cover demand, oversee settlements among agents, and calculate prices.

The creation of regulatory agencies independent of system owners is a result of the new legal frameworks. Such bodies establish the rules of the game, particularly those regarding pricing under monopoly conditions (to small consumers, transmission grid wheeling tolls) and consumer protection.

REGIONAL ENERGY INTEGRATION

The restructuring of the energy sector in Latin America—particularly in some sub-regions—is rooted in regional integration processes (formation of customs unions, free trade zones or preferential tariffs zones). In association with economic integration, energy integration adopts different forms and shows different degrees of intensity. In some cases, it is restricted to supply agreements under special conditions (eg, the San Jose Agreement); in other cases, it is oriented to the physical interconnections (electricity or gas); in others, steps are taken toward conformity—with shared rules of the game—to create unified energy markets that go beyond the mere physical interconnection.

Latin American Southern Cone countries, and particularly Mercosur countries, have gone the furthest in energy integration. Interconnection through gas pipeline networks and transmission grids, and the big bi-national dams, have reshaped the map of the subregion. Also, steps have been taken to create unified energy markets.

There is considerable experience of power integration among the Southern Cone countries. By the end of the 1970s, the hydroelectric generation plant of Acaray in Paraguay started operation in interconnection with the Province of Misiones in Argentina and the State of Parana in Brazil. There followed bi-national hydroelectric projects: Salto Grande (Argentina-Uruguay), Itaipú (Brazil-Paraguay) and Yacireta (Argentina Paraguay). In recent years, power interconnections have been implemented between Argentina and Brazil, and Uruguay and Brazil. Thus physical conditions have been created for electricity exchange between these countries.

Argentinean-Brazilian Mercoluz

The establishment of compatible regulatory frameworks facilitates this trade. But other steps, such as the adoption of common rules, are also important. An example is the so-called Argentinean-Brazilian Mercoluz. Argentina and Brazil took a significant step toward integration of the first energy common market in Latin America when they signed a memorandum of understanding allowing free contracting of power supply. This agreement opens the way for integration of the gas sector.

The agreement seeks to ensure "competitive conditions in the generation market, without subsidies which may alter the normal competition conditions." This memorandum should advance de-regulation of the Brazilian electricity sector, a process in which Argentina is further ahead. It also offers a general framework—which includes big users on either side of the border—for Argentina to sell its surplus thermal energy surplus and for Brazil to sell its hydropower. The buyers will be distributors and electricity-intensive companies directly connected to power generators.

The memorandum states that national laws of both countries will be respected, but it establishes that both countries must comply with a minimum set of symmetries.

A first objective is to ensure competitive conditions, without subsidies, so that prices reflect efficient economic costs, "avoiding discriminatory practices in reference to demand and supply agents of the electricity market in either country." A second aim is to ensure that freely agreed purchase agreements between sellers and purchasers will be permitted and respected, and that a "commitment is made that no restrictions to their physical fulfillment will be made other than those established for local contracts."

These two principles aim to ensure open access to pipeline transportation and to guarantee that transmission conditions and prices are the same in both countries as they are in contracts between firms of different countries.

Steps are being taken toward creating a single load dispatch, since it is intended that the supply within each country will result from an economical load dispatch that includes energy surpluses in the international interconnection. In order to obtain this result, the memorandum states that both countries will exchange information about markets, systems and transactions. Both countries will perform the studies required for joint operation.

Argentina, Bolivia and Chile

Argentina also signed integration agreements with Bolivia and Chile. With Bolivia, it signed a Partial Scope Agreement about energy integration aimed at stating norms for energy trade and transportation between both countries and encouraging private investment. The agreement guarantees that there will not be restrictions to oil and power export and import.

The agreement also establishes non-discriminatory treatment of demand in both countries and fosters the participation of private capital in any joint hydroelectric project that may be decided by both countries. It reads, "[i]nvestments should be made through concessions or licenses to private investors that may undertake all risks for their respective projects, with no subsidies."

The agreement proposes the development of infrastructure to interconnect the electric, gas, and oil systems in an attempt to create a "regional energy interconnection network, abiding by symmetry criteria." To improve business, the agreement highlights the need for avoiding subsidies or taxes that may alter normal conditions for competition.

Argentina and Chile have also signed an energy integration agreement. The treaty will allow free access to transmission systems within both countries. In this case, however, the agreement will be enforced only after a five-year period, as electric systems still have to be made compatible. According to this agreement, free access to power transmission is allowed and the participation of private capital is ensured in the projects negotiated by both countries. The agreement will also enable the implementation of project Termo Andes, under which the construction of an overhead powerline between the Argentinean province of Salta and the North of Chile has already begun. This powerline will supply the network between Antofagasta and Arica on the frontier with Peru.

Gas pipeline network

The Southern Cone is crossed by an extensive network of pipelines carrying gas from countries with large natural gas fields (Argentina and Bolivia) to deficit countries (Brazil, Chile and Uruguay). At least three gas pipelines will reach Brazil, three Uruguay and two Chile. In the coming years, the Brazilian electric system is expected to grow by 4,4 megawatts per hour (MW/h) as a consequence of a boom in thermoelectric plants, most of which will be fueled by gas.

The Uruguayan government has awarded construction of a gas pipeline between Buenos Aires and Montevideo to a joint venture of Pan American Energy, British Gas and the state-owned oil monopoly ANCAP. The gas pipeline will join Punta Lara (Buenos Aires) with Montevideo and will require an investment of US$120 million. The gas pipelines that join the Argentinean province of Entre Rios with Paysandu and Casablanca in Uruguay are already in operation. The purchasers for the delivered gas will be two Uruguayan state-owned companies UTE (electricity) and ANCAP (oil).

Argentinean natural gas is already flowing to Chile through the Andes in a 463 km pipeline built by the consortium GasAndes with an investment of US$325 million. This project will eventually deliver ten million cubic meters per day of natural gas to the area of Santiago. GasAndes is led by Canadian Novacorp and includes Argentinean Techint, CGC and American Lone Star, Santa Fe Energy and Duke Power, Australian BHP and Chilean Gasco, Copec and Chilgener.

There are two gas pipelines between Chile and Argentina: the one which joins both countries across the Andes in Tierra del Fuego, with a projected flow for the year 2000 of five million cubic metres/day, and GasAndes. The latter’s partners—Nova,Techint, CGE and Chilgener—have another project, GasSur, which will result in a third pipeline between Neuquen and Concepcion.

From an energetic point of view, the Southern Cone is physically integrated: gas pipelines, bi-national hydroelectric plants, and interconnecting converter stations are the arteries through which the expanding energy trade flows. Simultaneously, regulatory conditions are being created to make this trade feasible.

Integration as a business

With the signing of the energy agreement with Brazil, the Argentinean state created a framework which could help the private generators operating in the country who were then struggling to stay in business at the local level."

In addition to the US$100 million that will be earned through the sale of 1000 MW/h to Brazil, this agreement will also extend trade to Central Puerto and Central Costanera, whose supply contracts with the Argentinean distributors Edesur and Edenor expire in 2000. It will additionally enable the amortization of investments made in the generation sector, which has enlarged its infrastructure and now has a power capacity greater than that required by the existing demand.

This excess of infrastructure and the high-efficiency framework created in the Argentinean electricity market have deprived generators of their backup profitability, since ever-increasingly efficient equipment can be used as backup, which in turn reduces their business opportunities within the market. Since generation in Brazil is based on hydroelectric energy, thermal equipment is scarce: thus, this agreement provides a new use for machines which were of low profitability in Argentina as back-up equipment, in both markets.

Export of power from Argentina to Brazil not only means business for generators but also provides an opportunity for building a high voltage powerline and installing a converter station.

The process of energy integration is increasingly being carried out by the firms themselves. YPF, an Argentinean oil company, for instance, has taken another step in its regional expansion strategy by agreeing to supply gas to a power plant in Cuiba, the capital of the Brazilian state of Mato Grosso. According to the terms of YPF’s agreement, 2.5 million cubic meters/day of natural gas will be supplied for a period of 19 years starting in 1999. With these sales, YPF will make almost US$50 million per year.

The usual winners

According to the supporters of the new energy model now prevailing in Latin America, the great beneficiary of these changes is the consumer—in abstract terms, without economic or social distinction. This is a controversial issue that we will address later in this paper.

There is no doubt, however, that energy sector reform has one clear beneficiary: the transnational firms that operate in the region. With privatization and the new regulations, some transnational firms have found an area of accumulation with attractive profits. Others pursue a strategic target—the same as that of the international financial institutions—which is a guaranteed energy supply at low prices to support their own investments and facilitate greater profits.

In this respect, the appearance of global energy companies cannot be overlooked. Privatization has led to the creation of new multinational firms in the energy industries. Gas and oil made Shell and Exxon famous. Now the giants of electric power, Electricite de France (EDF), Endesa, PowerGen, Southern Electric and many others are using their technology and experience to generate profits in the emerging markets of Central and Eastern Europe, Latin America, Asia and Northern Africa. Private and state-owned companies of all kinds are adopting global strategies to take advantage of the emerging global market. And control over these strategic industries by the global energy companies is stronger than ever. The trend toward de-regulation and opening of markets facilitates the cross-border movement of multinational energy firms. They are the great winners in the ongoing structural reforms in Latin America.

Corporate investments in the region have often been funded by the consumers who were supposed to be the main beneficiaries of the reforms. Tariff policies gave rise, at least at a first stage, to the transfer of resources from consumers to new investors, thus reducing capital contribution and risks.

Beyond the discourse of de-concentration and diversification of capital stand real facts. State property has been fragmented and most of the assets have been transferred to a small number of transnational enterprises in the private sector who are now preparing for new takeovers in the region. The list of names is familiar: British Gas, Shell, AES, Enron, Amoco, EDF, Repsol, Union Fenosa, etc. Some Latin American firms have become international so may join this list: Endesa, Chilgener, YPF, etc.

British Gas, the biggest natural gas distributor in the world, which invoiced US$6.8 billion in 1997, has a strategy to conquer a significant portion of the Southern Cone markets. This strategy includes the construction of a gas distribution network throughout the whole Mercosur area. The plan, of which Brazilian electric generation enterprises are part, is built on the purchase of Metrogas of Argentina, the purchase of Comgas, a gas company in Sao Paulo whose bidding was scheduled for the beginning of 1999, and participation in the construction of gas pipelines in the region.

British Gas is currently participating in the construction of two thermal power plants in Brazil, one in Parana and the other in Rio de Janeiro. Its participation in Metrogas has increased from 17% to 34% and it owns 51% of the firms responsible for 35% of gas distribution in Argentina. Its assets in Buenos Aires operate as a platform for the entry of Argentinean gas in Brazil. British Gas participates (40%), together with Pan American (40%) and Ancap (20%) in the consortium Gasoducto Cruz del Sur S.A. This consortium was awarded the Buenos Aires-Montevideo gas pipeline, which may eventually reach Porto Alegre in Brazil. British Gas also participates in the consortium of the Bolivia-Brazil gas pipeline. Through Metrogas, it is also a member of the consortium GasAndes, which has built and exploits a gas pipeline delivering Argentinean gas to Chile. Likewise, British Gas plans to participate in the privatization of Sulgas, the gas company of the state of Rio Grande do Sul, which will manage the Bolivia-Brazil gas pipeline in this state. In the Brazilian northeast, it will sell liquefied gas imported from its factory in Trinidad.

British-Dutch Shell together with Enron of Bolivia (50% each) bought the transportation unit (gas pipelines and oil pipelines) derived from the division of Yacimientos Petroliferos Bolivianos when it was privatized. Shell explores for hydrocarbons in several areas in Peru; it owns 20% of the gas distributor owned by the state of Sao Paulo; it will undertake exploration projects in Brazil and owns 11% of the Brazilian part of the Bolivia-Brazil gas pipeline. In order to supply Argentinean gas through the Bolivia-Brazil gas pipeline, it made investments of US$386 million on the purchase of gas fields in the Argentinean provinces of Mendoza, Jujuy and Salta: it controls 55% of Rio Colorado and 22.5% of Acambuco, the latter in association with Pan American Energy. With these purchases, Shell claims to have secured probable gas reserves of 6 TCF (trillion cubic feet). Historically, Shell’s activities in Argentina have been linked to refining and marketing but the company is now attempting to become a great exporter of natural gas.

Shell’s new strategic target in Brazil is the natural gas market. The purchase of Petrogas by Shell’s local subsidiary was its second acquisition of a natural gas producer in Brazil. It had already paid US$71.2 million for 20% of state-owned Comgas of Sao Paulo—which controls 30% of the Brazilian natural gas market—when that company was privatized.

Shell has likewise inaugurated a plant for the production of liquefied gas in the outskirts of Asuncion that can supply almost 50% of the Paraguayan market. Shell went into this sector of the Paraguayan market in May 1990 with the purchase of the Incogas liquefied gas plant..

The American power utility AES Corporation has participated in privatization in Central America, Brazil and Argentina. On its second incursion into Central America, AES Corporation purchased the remaining 80% of CLESA (Electrical utility of Santa Clara) in El Salvador for US$109 million.

In Brazil, AES Corporation is part of a consortium that was awarded Light (electric distributor) of Rio de Janeiro. The consortium controls 51% and AES individually controls 13.8%. It bought 91% of Centro Oeste de Energia Electrica for US$1.373 million and it owns part of the distributor Metropolitana of Sao Paulo. A consortium it heads with Southern Electric bought 33% of Cemig—Compañía Energetica de Minas Gerais.

This American firm has plans for the construction of several electric power plants in Brazil. The IDB approved a loan for US$132.8 million, which is complemented by another US$100 million from the Brazilian state bank BNDES, for the construction and operation of a 600 MW power plant. This plant, to be built in Uruguayana in the state of Rio Grande do Sul with a total investment of US$350 million, will be fueled with natural gas from Argentina. AES Coporation will sell its production to the three electric distribution utilities Rio Grade do Sul.

In Argentina, AES bought 90% of Central Termica San Nicolas (CTSN). Its generation business was enlarged with the purchase of Hidroelectrica San Juan and Hidroelectrica Rio Juramento in Salta. In 1997, it bought two of the three distributors that were formed when the electric distribution utility of Buenos Aires (former Eseba) was divided. It paid US$565 million for the distributors of the Northern and Southern areas (Eden-Empresa de Distribución Electrica del Norte in San Nicolas and Edes-Empresa de Distribucion Electrica Sur in Bahia Blanca). The concentration process in Buenos Aires was completed in 1998 with the purchase of 90% of Edelap—a distributor with clients in different points of the province—for US$350 million. AES currently serves 700,000 users in Buenos Aires.

Enron, one of the largest energy groups in the USA with revenues of more than US$13 billion per year, has strongly increased its presence in Latin America. Its activities cover all phases of natural gas production and marketing, but in Latin America it deals mainly in distribution and transportation. It is involved in the Bolivia-Brazil gas pipeline consortium; together with Shell it owns the transportation unit that arose from the division of Yacimientos Petroliferos Fiscales Bolivianos. With Spanish firms it forms the consortium that bought Companhia Estadual de Gas of Rio de Janeiro (CEG) and Riogas for US$576 million; it owns 45% of CEG and 32% of Riogas. Enron is planning to construct a 480 MW power plant in Cuiaba (Mato Grosso)—to be served by one branch of the Bolivia-Brazil gas pipeline—which will involve an investment of US$500 million. It has other projects in Brazil, as well. For instance, when Elektro, an electric distribution utility in the interior of the state of Sao Paulo, was privatized, it was awarded to a consortium led by Enron.

In Argentina, Transportadora de Gas del Sur (TGS) and Transportadora del Gas del Norte (TGN) Elektro together control more than 60% of domestic gas transport and form one of two gas transport companies in the country. The main stockholder of the firm (70%) is CIESA, a company which is owned in equal shares by the group Perez Companc and Enron.

Enron is also participating in the construction of a 575 km gas pipeline in Colombia and in the operation of thermoelectric plants in Guatemala, Dominican Republic, Panama and Puerto Rico. Its subsidiary Promigas is the main gas distributor on the Caribbean coast of Colombia—where the accidental explosion of a gas pipeline recently caused several deaths and damage.

American Amoco owns 60% of the Argentinean oil company Bridas, which is controlled by the Bulgheroni family. The joint venture has total oil reserves of 1.5 billion barrels and gas reserves in Argentina and Bolivia of over 130 billion cubic meters. In Bolivia, Bridas Corporation (international operations) retains 19% of Amoco Bolivia Oil and Gas, which in turn owns of 50% of the former state-owned Chaco S.A.. This is one of the exploration companies into which Yacimientos Petroliferos Fiscales Bolivianos was divided for privatization. Pan American Energy—a firm created by the merging of Amoco and Bridas—holds 40% of the consortium Gasoducto Cruz del Sur S.A..As already mentioned above, this consortium was awarded the Buenos Aires-Montevideo gas pipeline, which may eventually reach Porto Alegre in Brazil. Pan American Energy, which already has been licensed by the National Oil Agency to import Argentinean natural gas from 2000, aims to conquer significant portions of the Brazilian market. The firm expects to bid for Comgas —valued at between US$1.5 and US$ 2 billion— when it is privatized. The construction of a gas pipeline with a 35 million m3/day capacity joining northern Argentina and the main consumption centers in Brazil is also among the company’s plans.

Houston Industries of the USA participates in Light of Rio de Janeiro and in the Argentinean power distributor Edelap, of which it is the technical operator.

Electricite de France (EDF) participates in the distributors Light of Rio de Janeiro, which it operates, and Edenor in Argentina, in association with Spanish Endesa and Astra, a local firm. It is also involved in power generation and transmission in the province of Mendoza (Edemsa). Light, in turn, has acquired Metropolitana, the electric distributor of Sao Paulo. EDF is shareholder of Edenor and also has a share in electricity generation at the hydro complex Nihiueles (Mendoza).

With 40% of its international investments in Mercosur, EDF plans to strengthen its involvement in the region by participating in the privatization of electric utilities scheduled in Argentina and Brazil. A main objective of EDF is to enlarge its business network in Mercosur where it has invested US$700 million in the last four years. In Argentina, the most coveted business is the concession of Yacyreta. Also, two provincial distribution markets, Buenos Aires and Mendoza, have been targeted by EDF.

Light of Rio de Janeiro, a distributor bought by EDF in association with Brazilian and American companies, will serve as a gate for investment in Brazil, just as Edenor did in the Argentinean market

Repsol, the first state-owned Spanish company, which opened to private capital in 1989, launched an aggressive process of expansion in the energy area, starting in Spain with the purchase of 45% of Gas Natural and then extending to Latin America. Repsol plays an important role in natural gas exploration in Bolivia, Colombia and Mexico and in its marketing in Argentina, Ecuador and Peru.

In 1990, the company arrived in Argentina and six years later it had strongly increased its share of the oil market, taking over Astra, Pluspetrol Energy and Mexpetrol. Its latest acquisition is EG3. In 2000, the company expects 25% of its business to be in the region.

Repsol paid US$340 million for Astra, second gas producer and fifth oil producer of Argentina. Astra is a member of the three consortiums that were awarded the former public enterprises of the Argentinean energy sector. In association with Spanish Endesa, Astra acquired Central Dock Sud for US$1.3 million, taking over a debt of US$13 million.

Repsol, through Astra, owns 95% of the Argentinean fuel company EG3—the fourth largest oil distributor in Argentina—for which it paid US$294 million. It owns 1% of EG3 Asphalts, 42.5% of Refinería San Lorenzo, 50% of the fuel marketing firm Dapsa and 41.4% of the plant Parafinas del Plata.

Repsol, through Astra, paid US$340 million for 45% of Pluspetrol, an energy company that controls the second biggest natural gas field in Argentina. Pluspetrol owns 60% of the natural gas field of Ramos. Located in the northern province of Salta near the frontier with Bolivia; it represents 9.09% of the natural gas production of Argentina. Repsol controls 31.8% of Metrogas, a natural gas distributor. Pluspetrol plans to invest at least US$500 million in Brazil (it participates in the consortium that acquired CEG and Riogas and it will participate in the auction of Comgas), and US$200 million in Bolivia (mainly for exploration) so as to extend its presence in the region and participate all along the natural gas chain. In Bolivia, it participates in Union Transitoria de Empresas Santa Cruz II, dealing in hydrocarbons exploration.

Astra has also announced its participation in the project GasAtacama to build a 925 km gas pipeline between northern Argentina and northern Chile. It explores and exploits hydrocarbons in Venezuela. Through Metrogas, it also participates in the gas pipeline GasAndes.

The Spanish firm, through Astra, is the major shareholder of Algas and Poligas Lujan, two Argentinean firms of liquefied gas (LG) and owns 25% of the hydrocarbons exploitation in the field Angostura with reserves of three million barrels of crude oil, on an investment of US$79.2 million. With this purchase, it controls 13% of the Argentinean LG market.

Repsol‘s investments in Argentina will reach US$2 billion in coming years. Repsol, an oil, gas and chemical products conglomerate, is the first big state-owned Spanish firm to be privatized.

Repsol bought Spanish Gas Natural which, in turn, owns shares in CEG (19%) and Riogas (51%) of Rio de Janeiro. The most recent incursions of the Spanish group in Latin America were in Brazil and Colombia, through its participation in consortia that were awarded the privatization of public companies in those countries. In only one year, Gas Natural will have invested US$148 million in Argentina where the group distributes natural gas—through Gas Natural Ban—to the residential sector in the province of Buenos Aires. From investments foreseen before the year 2001, US$51.6 million is earmarked for financial acquisitions in Brazil where Gas Natural already controls two gas distributors. Another US$19.3 million is destined for Colombia, and an investment of US$32.2 million is planned in Mexico.

Other Spanish firms that have participated in the process of energy privatization in Latin America are: Union Fenosa, Iberdrola and Endesa.

Union Fenosa is a member of the consortium that was awarded natural gas distribution in the interior of Uruguay. The Spanish group and the international consortium Electric Holding, composed of Argentinean and American firms, bought 90% of the energy distributor of the Argentinean province of La Rioja. The Spanish company invested capital in the distributor and also operates it, as it does the electric utility of the province of San Luis.

Union Fenosa, together with International Electric Holding (USA) and the Argentinean group Accion Exterior, form a holding company that paid US$45 million for 60% of the electric utility of the province of Salta—Empresa Distribuidora de Electricidad (EDESA). It also controls 100% of the stock of Empresa de Servicios Electricos Dispersos S.A. (ESEDSA), which owns a group of small power generation plants in the province.

Iberdrola participates in the consortium that acquired the gas companies of Rio de Janeiro (CEG, Riogas) and bought 66.6% of Coelba, electric distributor of the state of Bahia for US$ 1.6 billion. Coelba, in turn, has acquired Cosern—Compania Energetica de Rio Grande do Norte. Iberdrola’s plans in Brazil include natural gas distribution and other businesses in the area of electricity.

Iberdrola also became a share-holder of the Chilean firms Electroandina and Colbun—two of the main generators that supply power to the Chilean mining sector.

Empresa National de Electricidad (Endesa) is the main Spanish energy group and has acquired a majority participation in the Argentinean company Central Dock Sud. It also owns capital stock in the Argentinean electric distributor Edenor. Endesa bought the largest privately-owned electric utility in Latin America, Chilean Enersis, for US$1.5 billion. The agreement creates a joint venture between Endesa (55%) and Enersis (45%), which makes the Spanish group the main foreign operator in Latin America. With the purchase of Enersis’ stock, Endesa created a platform for the development of its interests in Latin America and strengthened its capacity to participate in future privatizations of public companies in the region. Enersis is the leader in energy generation and distribution in the Chilean market and has expanded into Argentina, Brazil and Peru.

In association with Enersis, Endesa acquired 51% of Compañía Energetica de Ceara. The consortium led by Endesa-Eneris will be in charge of the electricity interconnection between Brazil and Argentina, which will enable the sale 1,000 megawatt hours of Argentinean energy. Eletrobras and Endesa have reached an agreement which allows the importation of up to 2000 megawatt hours from Argentina (twice the amount established in the original concession) and for this purpose a contract will be signed.

The Chilean company Enersis and its subsidiaries currently have more than half of their businesses abroad, with 8.8 million clients in Argentina, four million in Peru, and 6.4 million in Chile.

Chilectra, the main Chilean power distributor, is the main subsidiary of Enersis, which also owns 25% of Endesa. Endesa controls 60% of Chile’s generation capacity. Enersis has participated in the privatization of energy companies in the North of Brazil and the State of Sao Paulo, and of public service companies in Argentina, as well as in investment projects in Colombia and Mexico. The Enersis group participates in the Chilean power enterprises Endesa, Rio Maipo and Chilectra, in Argentinean Edesur, El Chocon and Central Costanera, and in Peruvian Edelnor and Edelger. Chilectra owns part of Edesur (distributor of the Argentinean Southern metropolitan area), Cerj (electric distributor of the state of Rio de Janeiro) and Edelnor (Lima). Chilectra expects to invest US$46 million in the Chilean capital’s electric system..

Chilgener, Chile’s second generator, increased its capital by US$500 million in order to support the construction of a hydro power plant and a thermal power plant in Brazil, enlarge Central Puerto in Buenos Aires, backup Chivor’s operation in Colombia and execute a power transmission project between Salta and Antofagasta (1,368 km north of Santiago). The company’s initiatives include Andes Norte, a project to construct two thermal plants in Salta and one transmission line to accommodate the electricity demand of the mines in the Chilean region of Antofagasta. It also has a plan for building a hydroelectric plant in Lajeados, near Tocantins, Brazil, together with the Brazilian company Celtins. Chilgener owns 25% in this project. This plant requires an investment of US$1 billion, it will have a capacity of 1,000 MW and its commissioning is foreseen for 2002. The company is also planning to build a thermoelectric plant in Pontal do Sul near Curitiba. In Argentina, Chilgener projects include the expansion of Central Puerto de Buenos Aires and construction of four transmission lines between Neuquen and the Federal Capital City. In Chile, Chilgener is the second major power generator following Endesa. It produces 37% of the energy of the Sistema Interconectado Central (Central Interconnected System), which supplies the central zone between Taltal, 1,109 km north of Santiago, and Chiloe ,1,044 km south of the Chilean capital.

Chilgener plans to expand to Colombia in the next three years with an investment of US$250 million in carbon mines. In Argentina, its major plan is in GasAndes, which will carry natural gas from the south of the country to Chile.

In Chile, nobody would have thought that in a few years, privatized companies would be generating 37% of Argentinean electric power and 50% Peruvian; or that these companies would be planning to generate and distribute electricity to Chile’s huge neighbor Brazil or to a country as remote as Mexico.

International expansion is occurring not only in the energy sector, it is part of a broader internationalization process undergone by Chilean firms—both big and medium-size. But the energy sector is the main destination of Chilean investments abroad.

Something similar has happened to the Argentinean oil company YPF, which since its privatization has expanded internationally with investments in Bolivia, Chile, Peru and Venezuela among other countries, and has participated in several alliances.

YPF, within the framework of its strategy for international expansion, bought the stock of Maxux Energy of Dallas (USA) for US$750 million. Maxus, a firm dealing in oil and gas exploration and extraction, is leader in the north of Texas and has projects in Indonesia, Ecuador, Bolivia and Venezuela. However its liabilities amount to nearly US$ 1 billion.

YPF, in addition to buying Maxus in 1995 for almost US$800 million, has formed a joint venture with Amoco to exploit gas fields in the USA. This strategic association was formed in the beginning of 1997. Amoco controls 8% of the American fuel market.

YPF and Petrobras of Brazil have outlined a strategic alliance that will include exploration, exploitation, marketing and other activities.. With American Dow Chemical—a holding company operating in the downstream area (refining and marketing—YPF and Petrobras have agreed on the Proyecto Mega and they will market the products of both Mercosur companies in Argentina and Brazil.

YPF is not only the main hydrocarbons producer of Argentina, but, through its consortia, it participates as constructor, operator and supplier of the gas network which will serve the Southern Cone.

As shown above, the energy sector map in Latin America has been radically reshaped. Many of the former state-owned companies dealing in electricity, oil or gas have disappeared; others still operate but under new conditions. In the space created by privatization in almost two dozen countries, a small group of transnational firms moved in to take control of the key phases of energy, frequently under oligopolistic or monopolistic conditions. This small group, which repeatedly appears in every country of the region, is the great winner of the restructuring of the energy sector. The reforms opened ways and provided new opportunities for investment and profit. Their success, however, has not brought about a significant improvement in service to consumers.