Bolivia is nationalizing the local assets of Spain’s Red Electrica Corp. (REE), giving the government control of the Andean nation’s power grid two weeks after neighboring Argentina seized its biggest oil company.
President Evo Morales signed the decree today, saying the Alcobendas, Spain-based company’s local investment was inadequate and energy should be controlled by the government, according to a statement on the presidential website. Bolivia generated 45.7 million euros ($60.4 million) in revenue for Red Electrica in 2011, less than 3 percent of total company sales.
Morales, a 52-year-old ally of Venezuelan President Hugo Chavez, is echoing Argentine President Cristina Fernandez de Kirchner in citing underinvestment and strategic reasons for nationalizing the company. Fernandez seized oil producer YPF SA on April 16 from Madrid-based Repsol YPF SA. (YPFD) Since taking office in 2006, Morales has taken over gas fields, oil refineries, pension funds, telecommunications companies and a tin smelter to increase state control of the $20 billion economy.
“A sovereign move to seize private assets often doesn’t happen in isolation,” Lawrence Goodman, a former U.S. Treasury official and president of the Center for Financial Stability, a research firm, said by phone from New York. “The energy sector is often an industry that gets targeted for expropriation and we’ve seen it across a wide range of countries.”
An independent auditor will set compensation to be paid to the Spanish company within 180 days, and will account for back taxes and environmental damage caused by the company, according to a report by the Bolivian state news agency.
YPF (YPF:US) American depositary receipts have declined 65 percent since speculation about a government takeover first emerged at the end of January, helping contribute to a 34 percent drop in Repsol shares traded in Madrid.
Argentina’s Senate approved Fernandez’s proposal to expropriate YPF on April 26, 10 days after she announced her plan to take over the company and appointed two government officials to take over operations. The nationalization heightened concern about the sustainability of the country’s economic policies and the costs to insure against an Argentine default soared as sovereign bond prices tumbled.
Red Electrica American depositary receipts (RDEIY:US) fell as much as 1.7 percent after the nationalization was announced. They rose 3.6 percent to $8.45 as of 2:38 p.m. in New York, with 12,500 shares having changed hands. The Bolivian unit isn’t listed.
Red Electrica bought the Bolivian company, Transportadora de Electricidad SA, in 2002 from Union Fenosa SA, Spain’s No. 3 generator. Fenosa had bought 69 percent of the Bolivian company in 1997 in a state asset sale. Transportadora de Electricidad serves 85 percent of the Bolivian power market.
“This company was ours before and we are nationalizing what was ours before,” Morales said in the government statement. He ordered the military to stand guard over the company’s assets.
Argentina’s takeover of YPF was designed in part to limit capital flight out of the country, while Morales doesn’t face the same issues in Bolivia, Roger Tissot, the managing director of Tissot Associates and a Latin America energy analyst, said in a telephone interview from Calgary.
“Contrary to Cristina his finances are doing quite well,” Tissot said. “She was running out of money, it had to do with a balance of payments crisis. The difference here is I don’t think Bolivia is running out of money like Argentina.”
Bolivian international reserves climbed about 48 percent in the past two years to $12.6 billion. Finance Minister Luis Arce said in March that the economy will expanded 5.5 percent this year after growth of 5.1 percent in 2011. Bolivia had an estimated budget surplus of 0.8 percent of gross domestic product last year.
Transportadora de Electricidad was investing about $5 million a year in Bolivia, when it should have been spending about three times that amount, Bolivian Communications Minister Amanda Davila said in a telephone interview from La Paz.
“Energy is a strategic sector that should be subject to government control,” Davila said. “Red Electrica’s investments were excessively low.”
The seizure may further undermine Spanish Prime Minister Mariano Rajoy, as support for his four-month-old government wanes amid budget cuts. Industry Minister Jose Manuel Soria responded to Argentina’s nationalization of YPF last month pledging “clear and decisive” measures for trade and industry in retaliation for what he called a “hostile” act. Two weeks later the only measure the government had adopted is a ministerial order designed to reduce demand for Argentine biodiesel.
“It’s going to hurt Rajoy and he’s going to have to step up the response,” Ismael Crespo, a political science professor at the Fundacion Ortega-Maranon research institute in Madrid, said in a telephone interview. “The only way of stopping further repeats of this is for clear measures from the EU.”
The Spanish government is studying the situation, said an official who asked not to be identified because of policy.
Red Electrica hopes to reach an agreement with Bolivia that allows for “appropriate compensation” for the nationalization, Antonio Prada, a spokesman for the Spanish grid operator, said in a telephone interview.
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