Keeping the Power On

Oct 4, 2004

Will the lights go out in Latin America? Maybe not, but the prognosis at LatinFinance's roundtable on infrastructure finance in Brazil, wasn't hopeful.

Economic growth requires more electricity - and railways, roads, ports, pipelines and other costly projects. With governments short of cash, politicians want the private sector to plug the gap even though the mechanisms to make that happen are not in place. Financiers have come up with inventive solutions in the past. They may have to do so again.

Lost Bets The 1994-2002 administration of President Fernando Henrique Cardoso privatized electricity distribution and some generation and transmission. Although regulations were not in place and the privatization unfolded on a piecemeal basis, investors took a gamble. They also carried heavy foreign-exchange risk since they financed the acquisitions and subsequent investments in dollars, while their receivables were in reais. When the real lost one-third of its value in January 1999, those bets went badly wrong. US and European companies lost billions of dollars. The landscape worsened with the energy crisis of 2001,...

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