Municipality blocks Ecuador utility sale

14 Mar 2002 – Ecuador’s plan to sell off 51 per cent stakes in 17 of its state-owned electricity distribution companies is in jeopardy following the decision by the Quito Municipality, which holds 34 per cent of Empresa Electrica Quito (EEQ), not to sell its stake.

Since it is legally necessary for a majority of 75 per cent of the company’s paid-up share capital to approve an increase in company equity or to change its legal status, a 51 per cent stakeholder would still be unable to run the company.

Shares in the 17 distributors are being sold in two packages with no one company being able to hold shares in both so as to avoid a dominant position arising.

Ricardo Noboa, the president of the National Modernization Council, or Conam, the agency in charge of the privatizations, warned that if EEQ’s statutes were not reformed the auction of the Group A (utilities) would be impeded. “This will lead to the loss of competitiveness because the firms will stay in the hands of the state and there won’t be new investments,” he said.

Group A comprises, in addition to EEQ, Bolivar, Centro Sur, Cotopaxi, Ambato, Regional Sur, Emelnorte, Sucumbios, Sto Domingo y Riobamba, and all the utilities of la Sierra. The base price for the sale of the Group A utilities is $288.6m.

To enhance the attractiveness of the utilities to interested investors, the state will assume $190m in debt belonging to the utilities. Between January of 2001 and March of this year, the state has already assumed almost $500m in their debt.

According to Conam, since 1999, the utilities have posted accumulated losses of about $390m.

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