Saturday, February 10, 2007

Saturday morning factoid of the week

There was a sense of relief last week as during an elaborate ceremony we were treated to the Venezuelan government agreeing to pay the US owners of AES for their majority stake in the Venezuelan utility la Electricidad de Caracas. I suppose that considering that Chavez could have just ordered to take it over and kick them yanquis out, we should feel pleased that they will get their investment back. Or will they?

Fortunately Veneconomy gives an editorial to clear away all the B.S. that has been held around this totally unnecessary nationalization. Below the editorial within which I will include some comments to enlighten the reader about what the XXI socialism promises us to be.

Veneconomy, 9/02/2007

One month ago, President Hugo Chavez announced that the government would be taking control of the electric power companies. This Thursday the Venezuelan State became the majority shareholder of Electricidad de Caracas when it agreed to buy 82.14% of the equity capital from the U.S. company AES. The price agreed upon by the parties was $739.2 million. In addition, AES is entitled to receive a dividend of $98.6 million, bringing the total value of the package up to $837.8 million, or $0.31 per share a figure that, at the official exchange rate, is equal to Bs.666.12 per share.

So far so good. It must just be remembered that La Electricidad de Caracas was always a private company, founded by the Zuloagas many, many decades ago. It was always one of the best run companies of Venezuela, and certainly the best running utility company in Venezuela, by far, very far.

The deal can be considered fair. First of all because the price is close to the price of the Elecar shares being traded on the Caracas Stock Exchange in late December and early January. Secondly, because the government is recognizing AES’ legitimate right to repatriate its capital at the official exchange rate. And, thirdly, because the authorities have told the minority shareholders that they can sell their holdings under the same terms and for the same price as the AES sale. (Although this is not actually a gracious concession by the government, since the Capital Market Law requires that anyone acquiring control of a company offer all stockholders the same terms and price as were offered to the majority stockholder).

But you know, chavismo has got into that mood of "granting" even what they cannot grant...

This, however, does not mean that the government has not run roughshod over AES, all Elecar shareholders and the Venezuelan people in general.

For the past three years Elecar has not been allowed to adjust its rates, a fact that was reflected in the low price at which the company’s shares were being traded on the Caracas Stock Exchange. If Elecar had been allowed to charge fair rates, it shares would have been trading for at least twice as much and, therefore, AES would have been making a profit, not losing money, on the sale.

Ah! Indeed! The only thing that matches the governmental obsession to control prices is its abject failure at even reaching the single digit rate of inflation. Blocking energy prices for three years (or more according to the item) is leading us today of a possible speeding up of the inflation rate above 20%, on of the highest in the world.

Note also that the government can regulate quite well the price of electricity. So, why nationalize it? There is ABSOLUTLEY no reason, no rationale behind this nationalization, the more so that chavismo had allowed the Zuloagas to sell to AES a few years ago. Now the Zuloagas have their money safely away and are laughing at Chavez and AES. The only reason behind this economic nonsense is because Chavez said so, because in his primitive mind and understanding, there cannot be socialism without a few nationalizations. Since the food giant Polar is too complex and the government is failing its food distribution with Mercal, what other notorious company was left for the government to nationalize but AES and CANTV? That is the only reason behind it, a whim of Chavez, a spoiled brat tantrum.


Moreover, neither does this mean that the government is being fair to Venezuelan investors as, with this forced sale, plus the upcoming sale of CANTV, trading on the Caracas Stock Exchange will become virtually insignificant and the small investor will have fewer options for placing his savings.

There will be no major company left in the Caracas stock exchange (Polar, for example, is privately owned, not on the stock market). Then again, Chavez probably would like nothing better but to close the Caracas stock and come back to colonial times mercantilism.

The consumer, too, will be losing out. First of all because, up to now, Elecar has been an efficient and well-run company that gives its customers an excellent service. So much so, that Caracas is the only city in the country where hotels don’t have to make sure they put candles in the guests’ rooms.

I remember once that some guy in Caracas refused to sell me a certain type of AC for San Felipe because he said that the controls were delicate and he had too much trouble with the AC he sold for the provinces: the only ones that worked fine were those he sold in Caracas. As you can see, this is a lot more than just about candles.

Now, however, under the umbrella of PDVSA, it is a sure thing that the new Elecar will become an inefficient company providing bad service. Secondly, because the government is spending $900 million to buy out an efficient company, instead of spending the money where it is really needed, i.e. on Cadafe so as to improve its service and benefit the 20 million Venezuelans who do not live in Caracas and who, therefore, put up with –and will have to continue putting up with—the consequences of a faulty power utility and the resulting blackouts.

Hear! Hear! For those of us who must deal with the regular shortages in the provinces, if Caracas Elecar goes down, if the government keeps postponing once again the urgent investments needed for energy services for us, we might as well start planning to buy our own electric generator. Already it is common practice in livestock operations to set up electric generators, as folks are tired to have electricity go away at any time, provoking substantial losses.

The loser in all these 21st Century negotiations is definitely Venezuela.

And the losses are only starting. By the time we are though with chavismo it would be like merging from a war but without the bombs. Well, I hope without the bombs as further social divisions could lead us who knows where...




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