Electricity Reform Abroad and U.S. Investment

The Industry Restructuring and Privatization Plan

The most recent round of privatizations by Argentina was conducted with guidance from the World Bank.²⁵ Although the World Bank was not directly involved in each individual privatization, Argentina largely adopted the Bank's recommendations in restructuring and privatizing its industries.²⁶

Prior to the Initial Sale

After the passage of industry-specific privatization laws, the companies to be privatized were restructured so that a competitive industry with multiple companies could be created. Regulatory bodies for the newly-privatized industries also were established. Technical specialists defined and structured the assets into viable, independent business units. Legal advisors created charters for new corporations spun off from the privatized entity and prepared bidding documents, contract terms, and conditions consistent with sale objectives ²⁷ and with the government's intent regarding privatization of the sector.²⁸

Financial advisors determined necessary investment and price levels for the viability of the privatized entities. Advisors were paid expenses, an agreed-upon fee, and a bonus linked to the price the government received for the privatization(s) on which they worked.²⁹

The Initial Sale

Privatized companies were sold through auction. The auction method used is known as the "two-envelope" process.³⁰ Firms and consortia were prequalified for an intentionally short list of bidders. Those selected as bidders submitted a two-part bid. The first part of the bid was the technical offer, which had to conform with the requirements established by the bidding documents. Firms not meeting the technical requirements were eliminated. The second part of the remaining companies' bids, which contained the financial offers for the assets, were then examined. Winners either offered the highest price for the concession offered or agreed to provide the minimum level of service at the lowest price.

After the Initial Sale

The initial auction usually resulted in privatization of at least a bare majority (51 percent) of the company. During early privatizations of federal electricity assets, the Argentine government retained no more than 39 percent and set aside at least 10 percent for company employees. However, as much as 90 percent of formerly government- owned companies was sold, with the employees receiving 10 percent of the company and the federal government retaining no ownership ³¹. At least one 1995 sale resulted in the privatization of 98 percent of a relatively small (448 megawatts) hydroelectric company to an Argentine aluminum manufacturer, with the federal government retaining no ownership and only 2 percent retained for the generator's employees.³²

The shares retained by the Argentine government during the initial sale/privatization could be sold later. Depending on how successfully winners of the initial sale operate the privatized company, the value of the government shares may change. However, sometimes the average price hardly changed. For example, in the case of the privatization of the southern distribution company of greater Buenos Aires, $511 million was paid for a 51-percent share in 1992 by a consortium.³³ The federal government's 39-percent share retained after the initial sale was sold in December 1995 for $390 million ³⁴, essentially the same per-share price as in the 1992 sale.

File last modified: October 22, 1997

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