Endesa to halt LatAm expansion

Spanish power company Endesa will stop expanding operations in Latin America as it tries to obtain returns on recent investments that have brought it control of 10% of the continent's electricity sector, CEO Rafael Miranda told reporters. The company expects to spend 500mn reais a year (US$170mn) in Brazil alone to run operations which include Ceara power distributor Coelce, Rio de Janeiro distributor Cerj, generator Cachoeira Dourada and the Cien transmission line in southern Brazil linking the Brazilian and Argentine grids. Endesa also plans to inject 600mn reais into cash-strapped Cerj, converting the debt that company has with its Chilean subsidiary Enersis, Miranda said. "We want to consolidate our operations in the continent since current maintenance costs are so high," Miranda said, after inaugurating the 310MW, US$250mn gas-fired TermoFortaleza plant in northeast Brazil's Ceara state on January 30. "We invested 1bn reais from 2002-2003 and now it's time to get a return on our investment." Endesa is now focusing investments on Europe, including in France, Italy and Spain itself, he said. Returns on investment will have to compensate for foreign currency volatility risk and capital costs, Miranda said, without mentioning how much the company was expecting back on its investments in Latin America. "We are not looking for an excessive rate of return, but it has to be higher than our capital costs. In Europe, you don't have these risks." The returns would have to cover the company's losses in the region from the 2001-2002 economic crisis that led to an electricity consumption trough, he said. In Brazil, the company also faced a rationing program due to lack of sector-wide planning and poor rainfall, which caused financial difficulties for Cerj and other local distributors. Cerj recorded a net loss of US$166mn in 2003, compared to a US$15mn loss the previous year. Revenues fell 11.2% to US$505mn in 2003 compared to US$569mn in 2002. The capital injections will allow the company to balance its books and tap financing, Endesa International president Luis Rivera said. The decision to capitalize Cerj is an alternative to tapping a US$1bn bailout loan package that national development bank BNDES is offering local distributors. "The BNDES loan is attractive, but it is aimed at companies with financial difficulties, not for us," Rivera said. Endesa has also incurred losses in Brazil as a result of a legal dispute over the Cachoeira Dourada (CDSA) hydro-generator with Goias state-controlled company Celg in the central region of the country. Celg questions an energy supply contract that CDSA wants to uphold. The problems, however, do not take away Endesa's confidence in the Brazilian electricity market, which is forecast to grow at high rates, especially in Ceara state. Consumption expansion is expected to mirror the 3.5% GDP growth projected by the government for this year. "The government has secured macroeconomic stability in the last year, which has raised expectations that things will improve," Miranda said