COMMODITIES-VENEZUELA: Sale of Aluminum Ends Privatisation Cycle

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Feb 19 1998 (IPS) - The countdown is on to next month’s sale of Venezuela’s complex of aluminum companies, which will end a cycle of privatisation that began in 1991, and bury the dream of state-led development of an alternative to the nationalised oil industry.

Congress approved the sale of the four firms – total production of raw aluminum 625,000 tonnes a year – which are being disputed by the world’s giants in the sector.

In Wednesday’s vote only two parties opposed the approval of the contract of sale, and the privatisation process in general: the leftist Radical Cause and Fatherland for All, which together account for 18 percent of seats in parliament.

The corporate coordinator of the privatisation of the sector, Waldo Negron, said that thanks to the abundant and cheap electricity available to the group of companies, essential to the production of aluminum, only Germany and Australia could – in theory – compete with Venezuela.

Among the 11 prequalified companies figure the U.S.-based Alcoa and Reynolds, Britain’s Billiton International Metals, and Japan’s Marubeni and Mitsubishi. The rest are firms from Canada, Norway, the United States and Venezuela.

The base price for the group of companies will be higher than 2.3 billion dollars, and the winning bid is expected to be well above three billion dollars, although only 70 percent of shares will be sold.

Finance Minister Freddy Rojas said the government hoped to receive some 1.8 billion dollars in cash, once the sector’s 630 million dollar public debt, to be paid off in five years by the new owners, was discounted.

The 1.8 billion will be added to the 1.2 billion dollars that entered state coffers in January from the sale of Orinoco Steelworks to a consortium of Latin American companies. At that time some 20 plants of raw steel were privatised, located near the aluminum companies in the jungle region of Guayana, 500 kms southeast of Caracas.

Twenty percent of the shares will be sold under preferential conditions to the 9,000 employees of the four aluminum companies, while the remaining 10 percent will be placed on the stock market under a social participation scheme.

The winning bidders will acquire companies with 2.5 billion dollars in assets, a total of 1.23 billion dollars in debt, and a current annual production level of 625,000 tonnes of raw aluminum as well as several alloys.

Two of the companies are smelters of other materials. Carbonorca produces 195,000 tonnes a year of carbon anodes, and Bauxilum has the concession for a bauxite deposit and a plant which transforms the mineral into alumina paste, essential to the production of aluminum. Bauxilum uses five million tonnes a year of bauxite and produces two million tonnes of alumina.

The two smelters are located next to the site where the product is loaded for transportation down the Orinoco river to the Atlantic ocean.

But in spite of that advantage and the availability of abundant, cheap energy, poor administration and political favours have led the sector’s production costs to be situated among the world’s most expensive – in the top one-third – when they could be in the lowest 25 percent, said Negron.

The coordinator of the privatisation process played down the possible influence of the Asian crisis on the current interest in purchasing the group of companies, saying its impact on the global aluminum industry would be “extremely slight.” The current price per tonne of aluminum is around 1,500 dollars, after having plunged below 1,000 dollars three years ago.

The companies that qualify for the bidding process are expected to group together in three of four consortiums, and the winner will commit itself to investing a mininum of 300 million dollars in the first four years and making no personnel changes for 18 months.

The winner will also have to supply the internal market at port shipment prices for a five-year period at around 1997 consumption levels, which were equivalent to 30 percent of the 625,000 tonnes produced.

The privatisation of the sector sounds the death knoll for one of the most ambitous projects in 40 years of democracy: exploiting the comparative advantages provided by the confluence of the Caroni and Orinoco rivers to develop heavy industry in an aim to ease the country’s dependence on oil.

The main assets of the Venezuelan Guayana Corporation, which gave rise to “another country” south of the Orinoco river, will be the Caroni Electricity company (Edelca), with a capacity of 13,000 megawatts, the world’s largest artificial forest, and deposits of iron and other minerals.

The hydroelectric complex fed by the tumultuous Caroni river generates more than 70 percent of the country’s electricity. It is not encompassed in the government’s privatisation plans, unlike the pine forest and several industrial companies, while with the exception of iron the mining sector will be administered through concessions.

The privatisation process got underway in 1991 during the troubled second government of Carlos Andres Perez with the sale of the now bankrupt international airline VIASA to Spain’s Iberia.

The programme’s greatest success was the sale of 40 percent of the shares of the monopolistic state-owned telephone company in 1991 for 1.88 billion dollars. The firm’s privatisation was completed by the current government of Rafael Caldera with the placement of 39 percent of the shares in its power for three billion dollars on the New York and Caracas stock markets.

Edelca, the Caracas subway, the nationalised ironworks, and the world’s second largest oil company, ‘Petroleos de Venezuela’, are the only segments not included in the privatisation plan, although the energy sector began to be opened to transnationals in 1996. Nevertheless, there are still some 400 public companies, according to latest figures, distributed this month.