Bloomberg News

Red Electrica Expects Bolivia to Pay for Nationalization

May 02, 2012

Red Electrica Corp. (REE) SA expects fair payment from Bolivia for the nationalization of the Spanish grid operator’s unit after the Spanish government said it received a compensation guarantee.

“We trust we will reach a friendly agreement with the Bolivian government to set a fair price,” the Alcobendas, Spain-based company said today in a statement. “We respect the sovereign decision.”

President Evo Morales on May Day announced he was nationalizing the business, saying Red Electrica hadn’t invested enough in Bolivia. The decision took place two weeks after Argentina expropriated oil producer YPF SA (REP) from Spanish parent Repsol YPF SA. An independent auditor will decide what compensation Red Electrica should be paid, accounting for back taxes and environmental damage, Bolivia’s state news agency said.

Spain’s government, which holds a 20 percent stake in Red Electrica, will be “vigilant” to make sure a fair price is paid, Economy Minister Luis de Guindos said today in Brussels. Bolivian officials have “guaranteed” compensation, he said. Red Electrica shares fell as much as 4 percent today in Madrid trading, the most in a month.

The nationalization won’t have a “significant impact” on group earnings as the Bolivian unit accounts for 1.5 percent of revenue, the company said today in a filing. Red Electrica, which bought the company in 2002 for $91 million, has invested $88 million in the business, it said.

State Control

Morales, an 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 expropriated YPF on April 16 from Madrid- based Repsol YPF.

Since taking office in 2006, Morales has seized gas fields, oil refineries, pension funds, telecommunications companies and a tin smelter to increase state control of the landlocked nation’s $20 billion economy.

Bolivian international reserves climbed about 48 percent the past two years to $12.6 billion. Finance Minister Luis Arce in March said the economy will expand 5.5 percent this year, up from 5.1 percent in 2011. Bolivia had an estimated budget surplus of 0.8 percent of gross domestic product last year.

‘Negative Signal’

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 by 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 has adopted is a ministerial order designed to reduce demand for Argentine biodiesel.

Bolivia’s decision to nationalize the unit sends a “negative signal to international investors,” an EU spokesman, John Clancy, said today in Brussels.

The Bolivian government is willing to compensate Red Electrica for the loss of its assets and investment in the local unit, the Andean country’s Energy Minister Juan Sosa said today in an interview with La Paz-based television channel ATB. The size of the payout will be determined within 180 days, he said.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net.


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