The Wall Street Journal
da Martin Arostegui and Alex Macdonald
01 / 5 / 2012
Bolivian President Evo Morales seized the local assets of Spanish power grid operator Red Eléctrica Corp. and ordered the armed forces to take over its installations, the latest move against Spanish corporate interests in Latin America.
Mr. Morales announced the move at the local electric company's headquarters in Bolivia's third city of Cochabamba, as part of a televised ceremony to commemorate May 1 International Workers Day. He accused the company of failing to invest enough.
"Long live the First of May and long live nationalization," declared Mr. Morales. Nearby, the company's main building was draped in Bolivian flags and the checked flag of Mr. Morales's indigenous movement.
Red Eléctrica, which owned and operated about 85% of Bolivia's electric power lines, said it would seek compensation from the Bolivian government.
"We regret the Bolivian government's decision, which was based on motives that are unknown to us," said a company spokesman, Antonio Prada. "These actions go against the free market and the rule of law that should govern international investment."
A spokeswoman for the Spanish government, which owns 20% of Red Eléctrica, said Spain is following the situation closely. A senior government official close to the office of Spanish Prime Minister Mariano Rajoy said the Bolivian government has opened communication channels and indicated it is willing to compensate Red Eléctrica.
The expropriation is likely to further strain Spain's relationship with some of its former colonies in Latin America. Spain's corporate expansion in the region has helped diversify its economy at a time when it is struggling with one of its deepest economic crises in decades.
Spain has called on European and other global leaders to enact sanctions against Argentina in a bid to prod the country to fully compensate Repsol for the seizure of its Argentine unit.
Bolivia's move took place on the same day that Repsol Chairman Antonio Brufau was in the country to attend the inauguration of facilities for exporting natural gas to Argentina. A Repsol spokesman declined to comment on the Bolivian decision.
Despite the back-to-back nationalizations in Argentina and Bolivia, much of Latin America has moved on from a recent wave of populism that began with the election of Venezuela's Hugo Chávez in late 1998. While Venezuela, Argentina, Bolivia, Ecuador and Nicaragua are led by left-wing populists, market-oriented governments are in charge in Brazil, Mexico, Colombia, Chile and elsewhere.
"Most of the region is on a different page," said Michael Shifter, the president of the Inter-American Dialogue, a Washington-based think tank.
Mr. Morales, since taking office in 2006, has used May Day celebrations to nationalize different sectors of the economy. Exactly six years ago, he took over natural-gas fields by ordering foreign companies to turn over their production to state-owned firm Yacimientos Petrolíferos Fiscales Bolivianos.
Two years ago, the Morales government assumed control over most of Bolivia's electrical generation by seizing British company Ruralec, which has since filed a suit against Bolivia through international courts.
On May 1, 2011, Mr. Morales suffered a rare setback when angry independent miners stopped his bid to nationalize several mines operated by multinationals.
Mr. Morales, whose popularity in polls has fallen of late, seems to have been emboldened by Argentine President Cristina Kirchner's seizure last month of Repsol's Argentine unit. That moved proved wildly popular with Argentines and gave Ms. Kirchner a big bounce in the polls.
"It's always tempting for Morales to appeal to nationalist sentiment, and that's what he's done," said Mr. Shifter. "He wants to appeal to his base."
Mr. Morales's move also is a response to protests by labor unions and other indigenous groups he is trying to win over, said Moises Naim, a senior associate at Washington's Carnegie Endowment for International Peace. "This is power politics," said Mr. Naim. "It has nothing to do with economic development or energy policy. It's got to do with regime maintenance."
Critics of the Morales government said the move went against Bolivia's national interests. The 2006 nationalization of the natural gas fields raised Bolivia's government revenues, allowing the government to ramp up spending. While the government has managed to increase natural-gas output, many fields are beginning to decline with age, and the country will be hard-pressed to keep expanding output without private investment, say experts.
"At a time in which the government is trying to attract much-needed international investment to expand production in the energy and hydrocarbon sectors, it seems highly counterproductive to take over the share package of TDE," said Alvaro Rios, a former government minister of hydrocarbons, referring to the Bolivian unit, Tranportadora de Electricidad.
Red Eléctrica has a market value of €4.45 billion ($5.89 billion). Its shares, which didn't trade on Tuesday because of the Workers Day holiday, are down about 24% since the beginning of the year.
Red Eléctrica's Bolivian operations represented only 1.5% of the company's annual revenue of more than €1.63 billion ($2.16 billion) in 2011. The company says it has invested more than $60 million in Bolivia since it acquired the Bolivian unit in 2002 for about €92 million.
While Red Eléctrica at the time already had operations in Peru, the expansion into Bolivia widened its international presence.
Jorge Fabra Utray, chairman of Red Eléctrica from the late-1980s through 1997, said that Bolivia is making a mistake. Mr. Fabra, a Spanish economist, said Red Eléctrica helped pioneer methods for lowering electricity costs by implementing a system for ordering higher-cost electricity producers to cede production to lower-cost generators.
"This is total nonsense on the part of Bolivia's government….It's losing a good company," Mr. Fabra said.