SPECIAL REPORT: ENDESA
Enersis:
Borja Prado, Endesa’s President
Capital Increase or Asset Transfer
CROSSING A MINEFIELD Environmental activism is getting tough on energy projects in Chile BY TOM AZZOPARDI
T
hey said it would be hard to do and so it has proved. Six years after Endesa Chile and Colbun formed HidroAysen - a joint venture to build a series of hydroelectric projects in the far-south Patagonia region - their goal still seems tantalizingly out of reach. More than a year has passed since environmental regulators granted a permit for the five dams – the result of a three-year assessment process. The companies sat tight as huge protests opposed the project, as surveys claimed three out of four Chileans opposed it, and as legal challenges made their way through the courts. They were eventually quashed by the country’s Supreme Court. In the meantime, the cost of the project has skyrocketed from $6 billion four years ago to an estimated $10 billion today, although neither firm has published updated figures. But with power prices in Chile still amongst the highest in the world, thanks to a reliance on diesel to cover shortfalls in
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dry years, it remains “a very attractive project which Endesa still wants to develop,” says Tomas Gonzalez, an energy industry analyst at Chilean investment bank Celfin. The companies are now facing perhaps the biggest challenge: finding a way to transfer the electricity produced on the raging Baker and Pascua rivers to the main consumption areas in Santiago and the mining-dependent north. With their license to build in hand, the transmission line still poses a hurdle. Their preference is for a dedicated direct current transmission line to run the 2,000 kilometers between Aysen – a thinly populated town with little industry – and Santiago. But this implies tortuous negotiations for access rights and permits with eight regions, dozen of municipalities and thousands of landowners, including indigenous communities and U.S. entrepreneur and environmentalist Douglas Tompkins. The co-founder of The North Face outdoor clothing company, Tompkins has spent millions of dollars of
Energy group Enersis, Endesa Chile’s parent company, unveiled a capital increase of $8 billion on July 25— an influx that promised to be the biggest in Chilean history. The move confirmed the ambitions of controlling shareholder Endesa Espana, in turn owned by Italian utility Enel, despite troubles at home. But rather than the popping of champagne corks, the announcement was met with angry murmurs in Chilean markets that turned to full-scale revolt. At the center of it all were Chile’s pension fund administrators (AFPs). Together, they represent the second largest shareholder in Enersis. They complained that Enersis had offered a murky explanation as to why a share issue was necessary. But it was the terms of the transaction that sent Chilean investors into a state of apoplexy. Minority shareholders would have to buy the new shares with cash, but Endesa Espana would make its contributions in the form of assets– largely minority stakes in power plants and distribution firms not yet bundled into the Enersis structure. Critics also questioned the valuation of these assets, which had been set by an independent expert, hired by Enersis. The company put a price tag of $4.8 billion on the combined assets, but local investors believe the value is much lower. Investment bank LarrainVial suggested $3.6 billion would be closer to the mark. In one example, Enersis accounts assigned a book value of zero for Argentinean distribution firm Edesur, citing recent losses and regulatory troubles. But the valuation conducted for the capital increase puts the company at $230 million. This is not the first time that Chile’s AFPs have felt themselves on the sharp end of dealings with Enersis’ masters. Fifteen years ago, when Enersis’ Chilean owners sold their controlling stake to the Spaniards, they managed to negotiate much better terms than those offered to minority shareholders, including the AFPs. What had been first dubbed the
PHOTO: MARIO RUIZ
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