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Viewing cable 06LAPAZ627, GOB SEEKS TO GAIN CONTROL OVER PRIVATIZED COMPANIES

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Reference ID Created Released Classification Origin
06LAPAZ627 2006-03-08 21:21 2011-08-25 00:00 UNCLASSIFIED Embassy La Paz
VZCZCXYZ0011
PP RUEHWEB

DE RUEHLP #0627/01 0672121
ZNR UUUUU ZZH
P 082121Z MAR 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 8360
INFO RUEHAC/AMEMBASSY ASUNCION 5662
RUEHBO/AMEMBASSY BOGOTA 2932
RUEHBR/AMEMBASSY BRASILIA 6805
RUEHBU/AMEMBASSY BUENOS AIRES 4036
RUEHCV/AMEMBASSY CARACAS 1367
RUEHPE/AMEMBASSY LIMA 1275
RUEHMN/AMEMBASSY MONTEVIDEO 3615
RUEHQT/AMEMBASSY QUITO 4005
RUEHSG/AMEMBASSY SANTIAGO 8526
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS LA PAZ 000627 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET BL
SUBJECT: GOB SEEKS TO GAIN CONTROL OVER PRIVATIZED COMPANIES 
 
 
1. Summary: According to press reports, the GOB intends to 
gain control over ten companies, which were partially 
privatized in the 1990s, by persuading or compelling private 
investors to sell their shares.  Four of these companies are 
majority owned by U.S. investors, and none has received 
official notification from the government about this plan. 
Company representatives believe implementation of the GOB's 
plan will be difficult, if not impossible, as it will require 
amending three laws, revising Bolivia's pension system, 
negotiating with the companies and their shareholders, and, 
not least, coming up with around USD 1.5 billion.  End 
summary. 
 
Background on Capitalization 
---------------------------- 
2. Between 1993 and 1997, the GOB capitalized (partially 
privatized) five important state enterprises in the 
hydrocarbons, transportation, and telecommunications sectors 
to form ten new "private" companies.  Private investors 
acquired approximately 50% of the new companies' shares, a 
collective capitalization fund that administers pension 
payments received roughly 45%, and state company workers got 
the remaining 5%.  U.S. investors purchased the shares of 
four of these companies:  Corani SA (electricity 
generator)/Duke Electric, Ferroviaria Oriental 
(railroad)/Genesee and Wyoming Inc., Chaco SA 
(hydrocarbons)/Pan-American Energy, and Transredes (pipeline 
operator)/Prisma Energy. 
 
Press Announces GOB Plan to Regain Control of the Companies 
--------------------------------------------- ------------- 
3. The press announced on March 5 that the GOB intends to 
seek control of these ten "capitalized" companies by 
acquiring 51% of their shares.  It will reportedly do this by 
persuading shareholders to sell or by compelling them to do 
so if they prove unwilling.  (Comment: It is unclear how the 
government might force shareholders to relinquish their 
property, but some believe it will challenge the legality or 
legitimacy of the process whereby the shares were originally 
acquired.  End Comment.)  According to press reports, 
Development Planning Minister Carlos Villegas announced that 
the GOB plans to take over the shares of the collective 
capitalization fund and the workers, in addition to 
purchasing roughly 1% of the shares from the private 
investors in order to gain control over important decisions, 
such as investments, salaries, and board member appointments. 
 This goal will reportedly be included in the GOB's 5-year 
development plan to be presented on April 15. 
 
U.S. Companies Say Process Will Be Neither Quick nor Easy 
--------------------------------------------- ------------ 
4. Representatives of the companies with significant U.S. 
investment -- Chaco, Corani, and Transredes -- all said that 
they had received no official notification from the GOB about 
the plan.  Chaco's Vice-President, Jana Drakic, told us that 
YPFB (the Bolivian state oil company) held a meeting with the 
managers of the collective capitalization fund on March 6 to 
discuss transferring shares to the government, but that the 
GOB has not contacted the private companies themselves. 
Drakic stated that the state would not necessarily gain 
control over key decisions were it to acquire majority 
ownership of the businesses.  This control, she explained, 
was determined by regulations and laws.  The General Manager 
of Corani, Jose LaFuente, concurred, stating that the GOB 
would have to modify three laws dealing with capitalization 
and pensions and negotiate with the companies, which would 
have to seek share-holder buy-in, in order to enact its plan. 
 He added that 3% of the ex-workers of Corani had sold their 
shares on the stock market, so the GOB would have to purchase 
4% to 5% of Duke's shares, not 1%, in order to hold 51%. 
 
Nor Possible? 
------------- 
5. The President of Transredes, Ernesto Blanco, told us the 
GOB plan was not, in his view, economically feasible.  He 
estimated that obtaining 51% ownership of the ten capitalized 
companies would cost around USD 1.5 billion, money the GOB 
does not have.  As for Transredes, he explained, 50% of the 
company is owned by Prisma and Shell, while 34% is held by 
the pension fund and 16% by private individuals.  Blanco 
agreed that the GOB might take over the pension fund shares, 
but contended that it would be extremely difficult for the 
GOB to acquire the additional 17% needed for majority 
ownership.  He stated that most companies would prefer to 
sell their entire ownership interest rather than sell the 1% 
that would give away control. 
 
Comment: 
-------- 
6. This reported plan is another example of the GOB's aim to 
revise the "neoliberal economic model."  Although it clearly 
reflects a vision of increased state control over the 
economy, the plan does not go as far as some in the private 
sector had feared, i.e., complete nationalization.  In this 
sense, the GOB seems to realize that it needs private 
business and investment to stimulate economic growth. 
However, it seems unlikely that the GOB can keep existing 
private investors in the capitalized companies happy, 
especially should it gain management control of these 
companies.  End comment. 
GREENLEE