Nationalization - confiscation
Submitted by Daddy-YO on Wed, 2012/05/02 - 11:11.
Kick 'em while they're down. Spain's economy is suffering due to its membership in the European Union; 50% of its youth are unemployed.
Yesterday, Mayday, International Labor day, President Evo Morales seized control of Bolivia's main power grid from a Spanish-owned company. He nationalized it "in the name of the Bolivian people as a fitting homage to the workers who fought for the recovery of our natural resources and basic services." (AP)
Two weeks ago President Cristina Fernandez of Argentina took control of its top energy company from Spain's Repsol. It thrilled Argentines. Spain was indignant and the EU has said it'll back Spain in court, and that Argentina will be ostrasized from EU markets. Ortega applauded Fernandez's move, but Nicaraguan business leaders say that sends the wrong signal - http://www.nicaraguadispatch.com/business-travel/biz-leaders-reject-orte...
I see no need to list all the foreign-owned companies in Venezuela that Pres. Hugo Chavez nationalized after taking the reins.
Over recent years there's been a lot of protest against Union Fenosa, the Spanish firm that controls (all of?) Nicaragua's power grid. Does the fact that they are members of Grupo Pellas make them untouchable, for now?
More data
I continue to watch this because one of the big financial concerns in the region is how to encourage foreign investment. That is certainly high on Nicaragua's priority list.
With that in mind, the following blog post in Financial Times is very interesting. It happens to be by Bolivia's Finance Minister, Luis Alberto Arce. What is asserts is that what Bolivia has done in terms of nationalizations will not discourage foreign investment.
What he does is explain what the government has done and why. But, more important, are the numbers. The article has a nice chart but the following paragraph tells you what the chart is about.
Bolivia
Of course the Finance Minister of Bolivia will say that their "nationalizations will not discourage foreign investment", since he's trying to encourage more investment. Investments there have increase so much because vast natural gas reserves were discovered in the eastern part of the country, something that Brazil & Argentina want and have invested heavily in piping it, and also it was found they have a desert full of lithium in the highlands, of global interest with the push to use lightweight, rechargable lithium batteries in electric cars. It happened during Morales administration but independent of anything they controlled; it was from the explorations of private corporations begun before Morales.
Bolivia has a unique problem. A large part of its true economy is barter, with its majority indigenous population. (Economist can't capture its value.) All populist leaders want to create Welfare States, it seems; it guarantees their reelection. But how will it get paid for if the country has effectively NO tax-base from its population? Like Nicaragua, Bolivia must rely on taxing industry, tourism & imports/exports businesses and receiving 'charitable' subsidies from its socialist or anti-American allies. In its search for added revenue to finance social give-aways it sets its eye on profitable private (foreign) companies to nationalize. If they were not making a profit, there'd be no reason to nationalize them. They need the money.
'Reinvestment' here is an Orwellian term. True, foreign companies send most of their profits home. But once nationalized how much of that profit is truly reinvested in the business and how much pays politicos &/or goes into those continually running-low welfare coffers? True, it doesn't leave the country, unless those politicos are like Aleman, et al., but that's not strickly reinvestment in the company.
I know a British conservative who is all for National Health
Some investors who aren't ideologically committed might like being in places where the government takes care of health, education, the internet, electricity, water, and the roads and airports and frees up some money for the business's actual business.
It's not impossible for the commonwealth to operate the things it can do for the whole community in a good and productive way, but probably that takes having private business in appropriate areas push the government to do its thing well so they can do their things well.
Rebecca Brown
Bolivia vs. Argentina
More in the press, this time from MercoPress. It pretty much puts the Bolivian government in the light of being moderate.
I don't know all the details of how these industries got privatized but it is likely that the government's hands were tied by IMF requirements. (John Perkins's book Economic Hit Man certainly comes to mind.)
Time will tell.
Bolivia appears to be making amends by compensating the Spanish company. They must need the global good-will more than Argentina.
The IMF is a bank that makes international loans, and yes, with plenty of strings attached, like how to run your economy. But these are sovereign countries. Why are they so desperate to borrow money? (Cause 'they' spend too much on foreign doodads.) It seems to me that what happens is a government sees it as an easy fix to a difficult problem, plus they figure they'll claim lots of overhead, to skim off a nice chunk of cash for the leaders' pockets. Then there's a change of administrations. And the new Pres won't honor what the old one agreed to, unless there's something in it for him. That is, there's no real continuity of sovereign government as far as international contracts are concerned. (And ditto for a lot of internal contracts & jobs too.) There's little in the way of stable institutions that ARE that nation, rather it's the leader-of-the-day.
Seeing as it's you, guru, I'm replying to, I'll hasten to confess I see parallels in our dear homeland. A Republican administration starts a war; a Democratic one ends it, &c. Of course, who in their right mind would want to see war institutionalized?
Here`s how it works
They borrow money because it is easier than earning it, they don`t pay because they know they can get away with it, then they get debt forgiveness because everybody knows they can`t pay even if they wanted to and nobody wants them to sink into another pointless civil war. A Latin American tradition since the 1820s.
PS: the war in Vietnam was started and expanded by Democrats--Truman, Kennedy, and Johnson. A Republican, Nixon, gets most of the credit for (slowly) ending it.
"You can avoid reality, but you cannot avoid the consequences of avoiding reality." Ayn Rand
So true
And realizing that 'they' are the elite feudal overlords. The peasants, the majority, are mostly clueless, though they suspect the worst.
True enough about Vietnam, and had the Republican Goldwater gotten elected, he might have ended it even sooner (NOT with little girls holding flowers). Although I blame the French & the beyond-(ho ho)-politics CIA for getting us into that quagmire.
And, I guess you could say, a Democrat president got us into WW 2, and a new Democrat administration got us out. The first Republican 'starting' the Civil war probably doesn't count.
My point was that it was the change in administrations that makes 'dodge-the-debt' an easy game to play.
By the bye, Armies & Navies are institutions of war. Changing the name to Department of Defence was an Orwellian touch.
Glad you added the CIA
To interject a bit of Nicaraguan history here ( :-) ) President Carter seemed to think that he was in charge of the government and fired some CIA players. The result was a privately-run enterprise (the word used) of ex-CIA agents which, ultimately, we know as The Iran-Contra Affair.
My point is that labeling which party did or did not do something seems much less important than what the CIA/NSA/... decided to do, at least since WWII.
Good start
Like most simple explanations, a big piece is missing. That is, "why it was easier to borrow than earn". The good news is that John Perkins, a person with first hand knowledge, explains that is his book Confessions of an Economic Hit Man
It's an inexpensive book which will tell you the who and why these just borrow sequences. While Perkins doesn't have first hand knowledge of this process in Nicaragua, he does have it in both Panama and Bolivia.
The Facts Behind the 'Confessions'
. . . by Sebastian Mallaby, WaPo, Feb 27, 2006
"Last week I appeared on a radio show with an author named John Perkins. This man is a frothing conspiracy theorist, a vainglorious peddler of nonsense, and yet his book, "Confessions of an Economic Hit Man," is a runaway bestseller. So now, out of concern for thousands of sufferers across this great nation, I offer up a Perkins antidote. If you see someone reading him, I want you to be prudent, approach cautiously and wait until the victim's fevers cool. Then administer these arguments." See,
http://www.washingtonpost.com/wp-dyn/content/article/2006/02/26/AR200602...
My local library has a copy of Perkins' book. I'll check it out and judge for myself.
Good question
I have been watching what might better be called "reverse privatarization" efforts. I pick that because what we are seeing are re-nationalizations of things that were put into private hands by either IMF pressure or downright government corruption. In Nicaragua, electricity and communications was privatized. Water was supposed to be but that got stopped.
The argument, of course, is that essential services should be in government hands. There are many places (and I don't mean the third world) where this is the norm. Los Angeles California has city-run electricity and water service. The same is true for Seattle and Tacoma Washington. In most of eastern Washington state electrical distribution is through consumer cooperatives.
Has Union Finosa been a good thing for Nicaragua/the Nicaraguan people? While I was ot here pre-UF, the people I talk to say no. Generation continues to be government-run (that includes the government buying privately generated electricity). On the consumer end, Union Finosa seems to be little more than a billing agency. All the work crews are private contractors -- many staffed by ex-UF employees. Thus, it is not clear what UF actually does other than offering another level of overhead.
The typical argument on the positive side is that the service has expanded under UF. While that is technically true, grid expansion is almost always done with public money and grants. Once again, UF seems to just be overhead.
No conclusion here as to what will happen but it is not clear to me what UF really offers other than a way to help Spain pay its bills.
I see it as simple theft
In modern industrialized countries the copper wire, generators and engineering needed to properly install an electric utility are readily available. It's costly, but municipalities, counties, &c. float bonds (coops get loans). They have a dependable revenue-base to draw from, plus taxes that will certainly get paid.
In small, poor, third world countries the where-with-all just isn't there and few care to loan unstable/undependable governments enough money to buy the material & technical expertise to install utilities. So in Latin America they contract with a Spanish company that has the know-how & the equipment to do the job. If the costs become unbearable, they nationalize it, after the job is done, of course, when it's a paying concern. Certainly the Spaniards know with whom they are dealing, so they must be prepared to minimize losses when a take-over happens.
(Big American companies that got screwed out of contracted agreements in Latin America had the nasty habit of getting their government involved in reprisals. A century ago they landed the Marines; for the last few decades it was covert-ops. Now it's direct financial muscle.)
Another perspective
Business Insider offers a different perspective.
Ideology vs. Reality
UF is a Spanish Company run by Spaniards out of Managua. They employ some Nicaraguans directly but most are contract workers. The Spaniards are the technical people who are keeping the worst electric grid in the Americas functioning. When a transformer blows in Jinotega they send a Spaniard and crew from Managua to fix the problem hopefully within a few days.
The Ortega company already is milking the cow as they grabbed a piece of UF (17%) in 2007 so they won't take UF to slaughter anytime soon. In exchange the Ortega company passed a law making electrical theft a crime for which no one I know of has been charged with this crime so far. Maybe I heard of one Gringo a few years ago?
UF is just distribution as they purchase all power from 10 or so companies. Ironically the shift in last years has been to renewable energy suppliers but the grid has not been improved.
If UF pulled out of Nicaragua would be a disaster. Nicaragua would have to turn to Venezuela or Russia or hire army of consultants. Rates would rise substantially as there is no power generation revenues to subsidize the grid.
Nicaragua is producing more energy than ever before in history. Maybe Ortega should wait a few years until the private power generation companies have reached peak investment then Nationalize Power Generation along with UF and combine operations.
When a transformer blows in Jinotega
...the guys who come fix it come in Disnorte-Dissur trucks and have jackets or shirts that say they're contractors. I've got photographs. They fixed it in about two or three days.
The word between expats is that if you have a power problem, find the Disnorte guys in the truck and make them aware of the problem. They fixed one outage for me apparently without a work order from the useless people at Union Fenosa.
The transformer had to be brought to town, but there had been power problems earlier that may have used up any spare stock in Jinotega and Matagalpa.
I had a week without electricity but that outage only affected my house (me and the neighbors), and required me going to the guys in the truck to see if they had a work order (they didn't) and starting to rave about me pobre padre viejo, impossible habar con me padre viejo con Skype, which seemed to impress people a bit. The guys fixed the line around 5:30 (have photo of that, too).
Nicaraguans run the power plant, the water purification facility, and do the repairs on the lines in town. Union Fenosa hires office help who just don't care (or are too badly trained or motivated to care) -- at least that's the impression we have in Jinotega.
Rebecca Brown
Can i blame spain?
Because Enecal can`t fix the water leak on my street? After a month, I`m starting to think proactive-- should I buy a submersible pump and water my yard with it? During the dry season this would have been a real money saver.
"You can avoid reality, but you cannot avoid the consequences of avoiding reality." Ayn Rand
March 2012 was when the deal was finalized
Gas Natural (still known to most Nicaragua as Union Fenosa) has finally signed off on the 3 year old deal that gives the Government of Nicaragua 16% of the shares of Disnorte-Dissur, the electricity distribution division and a wholly owned subsidiary of Gas Natural. They also get a chair on the board with one Director.
This settles a $ US 11.5 million debt that Gas Natural had with Government of Nicaragua. (mostly performance related penalties).
Disnorte-Dissur has 18 years left of a 30 year contract to sell electricity in Nicaragua.
You also remember
You also remember the rolling blackouts around 2007. UF wasn't investing in the grid because they were afraid of what might happen when Ortega came to power. As I recall, he was kind of threatening with them. It seems a 17% acquisition might go a long way to giving them some confidence.
Since then, there has been a lot of investment in the system. The emergency thermal plants, the refurbishment of the two largest substations last year, the SIEPAC lines went in, the grid has been expanded, the power metering pilot project, the law on stealing power, the wind project in Rivas, and the San Jacinto geothermal plant expansion with more to come this year. Some is grid, some is power generation, some is law - And they're all mentioned on this site. But there is still lots to do and still ongoing projects.
Going Forward
Much has been done but with only one distributor can only go so far.
Without confiscation or expropriation a bold move would be break up UF into 4 independent regional distribution companies and marry to each power generation capability from the 10 current suppliers. Much like a US style utility this is vertical model commonly used today and yesterday for example when TVA brought power to rural America for first time.
After the short term ill effects of such a move were forgotten these 4 independent companies would be free to buy & sell excess energy from each other and to other Countries, and compete much in the way geography plays a role in buying a house in USA for its schools. TN lured BMW because it installed backbone that also allows residents to get T3 internet for $30 a month.
They could also partner or contract with private generation companies who would be more interested to invest if they had 4 companies to choose from to sell energy.
Developing a corporate culture over time in each of these companies would be a benefit for Nicaragua and its future. Maybe one company would develop a more wind heavy source and another Geo-thermal etc. I see electrical generation in Nicaragua growing every year for next 10 years at least. This would be the seeds of long term plan that would probably cost 250 Million dollars to do but worth every penny.
Yes, an interesting read
It makes Argentina & Bolivia sound like heros in the battle against corporate greed.
But what I don't understand is, 1, were they forced to sell those energy utilities to the Spanish corporations, and 2, if so, why not stipulate in the sales contract the percentage of profits (& dividends) that must be reinvested? Or, at the very least, include limits in time whereby corporate conduct and, of course, host country conduct are judged to be fair & just?
Needless to say, today international law is effectively toothless. It's still, more or less, at the eye-for-an-eye stage.
Disnorte-Dissur ...
...controls the distribution of electricity in Nicaragua now. Union Fenosa is now 'Gas Natural Fenosa' http://www.gasnaturalfenosa.com/es who sells them e-juice (2.42 GWh in 2010, 22% loss) and managed 808 miles of its wire in 2010. So I guess it's all hunky-dory now. Or is it?