Spain’s Iberdrola has the gone the way of Repsol (REP.MC) in Latin America, as the Bolivian army seizes its buildings on orders from the government to nationalize the utility.
On the eve of the New Year, Bolivian President Evo Morales ordered the nationalization of four business units owned by Spain’s largest utility, Iberdrola SA (IBE.MC). Hours later, the army and police seized the company’s offices.
According to media reports, the Bolivian government seized two of Iberdrola’s electricity distributors (Electropaz and Elfeo), a serve company and an investment firm.
This is part of Bolivia’s plan to make electricity more affordable and accessible to its population. The nationalization plan also includes telecommunications and water. So far, 15 companies have been nationalized since Morales launched the campaign in 2006.
Will Iberdrola be compensated? According to Morales, yes, but shareholders aren’t optimistic that the government will fairly evaluate the company’s value for an acceptable compensation deal. A compensation deal should be announced within 180 days.
While Iberdrola and its shareholders will disagree—and they were warned in advance--to the people of Bolivia, Morales has a point: Some 66% of rural and 13% of urban residences do not have electricity, and Iberdrola is among the largest distributors. It’s not exactly egalitarian, according to Morales.
Another Spanish company, Red Electrica, was nationalized in 2012. In 2010, Bolivia nationalized the four largest generators owned by GDF Suez (GSZ) of France and Rurelec of the UK. In 2006, Morales moved to takeover oil and gas operators and then nationalized oil and gas reserves to redistribute natural resources wealth. In June 2012, the remaining foreign mining interests were duly warned when commodity giant Glencore lost its tin and zinc assets through its subsidiaries.
The highest-profile nationalization case was in Argentina, though, when the government expropriated YPF—the biggest energy outfit in the country—after accusing Spain’s Repsol of underinvesting in it. While Repsol is fighting this and has taken its case to the World Bank’s arbitrators, Iberdrola cannot pursue this avenue as Bolivia is not a member of the World Bank as of 2007 when it pulled up stakes.
Resource nationalism will be one of the greatest investor risks of 2013. And Bolivia tops the list, along with Venezuela in Latin America, while a few African destinations like Guinea, Zimbabwe and Democratic Republic of Congo should also be highlighted as very high risk.
Where Bolivia is concerned, not only do foreign companies lack the World Bank arbitration net, but the must deal with a president whose executive powers are largely unlimited and often wielded arbitrarily.
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Iberdrola shares dropped 1.3% to 4.08 euros at 9:56 a.m. in Madrid trading on 31 December. While the company will likely meet with the Bolivian government this week over the issue, compensation will regardless take some time, keeping in mind that Red Electrica, seized in May 2012, has still not been compensated.
Morales is under pressure to return the country’s natural resources to the indigenous population that elected him into office in 2006. The question is whether these nationalizations will actually result in a more egalitarian distribution of wealth. If they the effects are not visible soon, Morales will continue to be under pressure from his electorate, but is likely to end up dealing with a worse economic crisis if the nationalized companies fail to operate at the level expected.
How are things going so far? If one is to believe Morales there is visible economic progress in the wake of hydrocarbon nationalization, but 2013 will spell this out more clearly.
By. Charles Kennedy of Oilprice.com