Economy & Trade, Headlines, Latin America & the Caribbean

VENEZUELA: Second Try at Aluminum Privatisation, at Bargain Price

Estrella Gutierrez

CARACAS, Jul 8 1998 (IPS) - The Venezuelan government will make a second attempt at privatising its four aluminum companies next Wednesday, after slashing the price by 650 million dollars, and with Hungarian-American financier George Soros taking part in the contest.

“We want the two potential buyers to come to the auction with offers representing healthy competition,” Investment Minister Alberto Poletto said Wednesday, explaining the base price of 1.55 billion dollars.

The first attempt at selling the aluminum companies fell flat in March when the four international groups which had qualified for the bid withdrew, arguing that the base price of 2.1 billion dollars was too high, taking into account the conditions accompanying the acquisition.

If the new base price for the ‘Corporacion Aluminios Venezuela’ (CAV) remains unaltered in the auction, the government will take in 207.13 million dollars, Poletto explained, after a long discussion on the question between ministers and aluminum sector authorities.

That figure is due to the fact that what Venezuela is selling is 70 percent of CAV assets, and also because 1.245 billion dollars in debt owed by the four companies as well as other liabilities established in the contract of sale must be discounted from the final price.

The projected sale took a surprising new tack when financier Soros joined the U.S. company Kaiser Aluminum and South Korea’s Daewoo, to create one of the two consortiums remaining in the contest, Venezuela Aluminum Partners.

Kaiser postponed the auction for 15 days in order to add Soros to its consortium and attempt to acquire the bloc of companies whose productive capacity of 650,000 tonnes of raw aluminum accounts for 3.9 percent of global production.

In New York, analysts who closely monitor the footsteps of the world investment “shark” commented that if his consortium wins the auction, Soros will have made an investment that will show high returns within five years, but which is also high-risk.

For the Venezuelan government, Soros’ appearance, whatever his intention, was the best news received in months with respect to the tortuous privatisation of the aluminum sector, due to its need for revenues and especially its urgency in transferring assets whose value is depreciating with every passing day.

The other group that qualified for the auction, Aluminum Consortium Venezuela, is comprised of Britain’s Billiton, Pichiney of France and several Venezuelan companies.

CAV is made up of two smelters of raw aluminum, a company that produces carbon anodes used in producing aluminum and a firm possessing a rich bauxite mine as well as a plant producing alumina, the basic paste from which aluminum is produced.

Of the 30 percent that will not be sold, 20 percent will be transferred to the companies’ 9,800 workers under preferential conditions, and the rest will be opened up to wider participation on the stock market.

CAV enjoys the advantage of close proximity to abundant water and cheap energy, the two elements essential to the competitive production of aluminum, a product concentrated in just 91 companies in the world, which produce a total of 16.3 million tonnes a year.

But the complex requires millions of dollars in investment that the government cannot provide, in order to upgrade installations which have not been touched in over a decade, Pedro Carmona, a special adviser on privatisation designated after March’s failed attempt, explained Wednesday.

“If these companies are not privatised, they will not be able to continue functioning a year from now,” he said, while stressing that nonetheless the state would have to face up to the accumulated debt and the 150 million dollars demanded in investment in environmental measures.

In spite of the calamitous situation, the excess number of workers who cannot be dismissed for a year after the sale and the fact that labour accounts for 23 percent of total costs, Venezuela’s aluminum sector is a key link in the expansion of the concentrated production of the metal.

CAV ranks in eighth place among the 12 producers which account for 60 percent of global production. And building a new plant pushes the cost for each tonne of metal up to 4,000 dollars, compared to 2,400 dollars in an already functioning plant.

Pichiney is the world’s fifth producer with 5.7 percent of the total, while its partner in the Venezuelan adventure, Billiton, ranks number 12, with 1.3 percent of the market. Kaiser, meanwhile, is in eighth place, with 3.2 percent, according to figures confirmed by IPS among various sources.

The world’s two aluminum giants, the U.S. Aluminum Company of America (Alcoa) and Aluminium of Canada (Alcan), accounting for a combined 21.2 percent of the market, withdrew from the bidding process on two occasions, with a clamour that was not considered merely incidental in Venezuela.

In June, Poletto and the president of CAV, Alfredo Rivas, warned the two companies of a possible international lawsuit after they publicised the letter announcing their withdrawal from the auction, which spelled out the riskiness of the purchase.

High-ups in the association of private aluminum concerns and the privatisation process have commented that Alcoa and Alcan are staking their bets on the disappearance of Venezuela as a competitor, because the development of its aluminum sector would hinder their strong control over the market.

Reynolds, another U.S. firm, ranked number three with 6.3 percent of the market, and Norway’s Norsk Hydro, in sixth place with 4.0 percent of the market, followed Alcoa-Alcan’s lead and also withdrew in March, but more quietly.

Next Wednesday’s sale would place the tombstone over one of the most ambitious projects launched during Venezuela’s 40 years of democracy: exploiting the major advantages provided by the confluence of the Caroni and Orinoco rivers to develop a heavy industry in order to alleviate the country’s dependence on oil.

That project was concentrated in the jungle region of Guayana, some 800 kms southeast of Caracas, and included the ‘Siderurgia del Orinoco’ (Sidor), a steelworks sold in December to a Latin American consortium.

Remaining in the hands of the devalued ‘Corporacion Venezolana de Guayana’ are rich, nationalised iron ore mines, the Caroni hydroelectric complex which has a 13,000 megawatt capacity, the world’s largest artificially-planted forest and rich mines of gold and other minerals.

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