WSJ: Spanish Energy Firms, Govt Feel Heat After Bolivia’s Asset Grab

May 2, 2012 10:52 am0 commentsViews:

MADRID (Dow Jones)–Bolivia’s move to expropriate the local unit of a Spanish power grid operator, hard on the heels of Argentina’s recent takeover of YPF, sounds a warning to Spanish energy firms in Latin America and is yet another setback for the country’s embattled government, analysts said Wednesday.

The loss is minor for REE, as the unit accounted for only 1.5% of total sales of EUR1.63 billion in 2011, but comes as a painful reminder that crisis-hit Spain is losing diplomatic clout after years in which Spanish companies expanded across the Americas, hailed as new conquistadors.

Bolivian President Evo Morales Tuesday ordered armed forces to take over the facilities owned by Spanish power line monopoly Red Electrica Corp SA (REE.MC)–20%-owned by Spain’s government–after claiming that not enough investment had been made in the country’s power grid.

Spain’s government has criticized the Bolivian move, but at a lower pitch than recent denunciations of Argentina’s expropriation of the much bigger YPF, a gas and oil producer that was a key unit for former Spanish parent Repsol SA (REP.MC). Even the steps taken to punish Argentina, mostly in the shape of trade restrictions, have been widely seen as ineffective.

This trend “opens the hypothesis that attacking Spanish companies is free, that it doesn’t have consequences,” said Lorenzo Bernardo de Quiros, an economist who as a strategic advisor helped Red Electrica purchase the Bolivian utility.

Wednesday, REE shares fell 3% in early trade, a much less negative reaction than Repsol’s after the loss of YPF, as analysts said REE has largely written off the EUR92 million it paid to purchase the Bolivian power grid operator TDE in 2002. In addition, Spain’s government is saying that Bolivia seems open to negotiating compensation for the more than $60 million that Red Electrica invested in its Bolivian operations since 2002.

“The situation is completely different from the one in Argentina,” a top Spanish government official said Wednesday, speaking on condition of anonymity. “The diplomatic channels are open here, and it’s all a matter of discussing a fair price, while in Argentina they wouldn’t even want to meet with us.”

Meanwhile, the European Commission said Wednesday it expects Bolivia to respect its investment agreements with Spain and trusts it will ensure prompt, adequate compensation for REE’s loss–similar comments to those put out in YPF’s case.

Speaking from Brussels, where he’s meeting with his European counterparts, Spanish Finance Minister Luis de Guindos Wednesday called Bolivia’s decision “fundamentally negative.”

De Guindos also said “these kinds of moves” may have “medium-term consequences” for Spanish investments “fulfilling a vital function in terms of the development of [Latin American] countries and for the well-being and prosperity of their citizens.”

In a note to clients, JP Morgan Cazenove analysts called the REE nationalization “virtually a non-event” for the Spanish parent, which is also a relatively small company, with a market value one-fourth that of Repsol’s EUR17 billion. The bank said Bolivia accounted for EUR0.5 out of its EUR50-per-share REE valuation.


-By Alex MacDonald and David Roman, Dow Jones Newswires; +44 (0)7776 200 924 alex.macdonald@dowjones.com

(Ilan Brat contributed to this story.)

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