Fenosa sells distributors back to govt.

Spanish power company Union Fenosa has agreed to sell its 50% stakes in two Dominican Republic distributors back to the government, Fenosa said in a statement Thursday, adding that it will take a 160mn euro (US$179mn) hit on the deal. The 384mn euro agreement takes effect on September 30 and will see Fenosa receive 13.3mn euros, along with the creation of a new company - Distribuidora Dominicana de Electricidad (Diodel) - that through a usufruct agreement will own the assets of Fenosa's Edesur and Edenorte distributors. Diodel will rent out the infrastructure to Edenorte and Edesur for 12 years, using sales income as a guarantee. The distributor's sales incomes cover 115% of their costs. At a later date, the government and Fenosa will decide how the monthly payments will be calculated, Fenosa spokesperson Claudio Vallejo told BNamericas. Fenosa will use part of the funds generated from the usufruct agreement to pay Edesur and Edenorte's 101mn euro debts to generators Palamar and La Vega (which Fenosa owns) and 170mn euro debts to the Inter-American Development Bank (IDB) and other financial institutions. Fenosa guarantees these loans. Fenosa will also receive 100mn euros as partial compensation for the company's total 300mn euro investment in the country. The 160mn euro hit will not impact Fenosa's net result this year, as the company made a provision in its 2003 earnings forecast, Vallejo said. Fenosa bought the distributors in a 1999 privatization, but the utilities have been losing money hand over fist as a result of the combination of dollar-linked rates with a fast-depreciating Dominican peso. "We are collecting money in pesos and we have to pay for the energy in dollars three months later, so there's a rates imbalance that is extremely negative for our business," Vallejo said. In addition, Union Fenosa has had to pass high international oil prices on to its customers "which means it is really difficult to collect from our customers," Vallejo said. "The main problem is a structural problem with the Domincian Republic's electricity sector - that's the main reason why Union Fenosa is leaving the country," Vallejo said, adding, "We cannot do our job there." "As if that wasn't enough, we have the problems with the Dominican Republic energy system, which means there is a serious lack of electricity in the north of the country," Vallejo said.