May 14, 2006 8:46 pm

May 14: Chile’s gas paradox

Chile is Latin America’s most prosperous economy and its neighbours are energy rich and covetous of export markets. What a paradox then that the government of Michelle Bachelet is turning elsewhere for its fuel requirements.

On Tuesday the president will lay the first stone of a new liquid natural gas re-gasification plant at Quintero near the port of Valparaiso. Engineering studies have still to be completed, but the ceremony will underline official commitment to the project – being developed by BG of the UK together with local partners Enap, Endesa and Metrogas. The plant, which will cost up to $400m and supply about 45 per cent of Chile’s needs, will depend on imported LNG from Indonesia or Africa and the gas it produces will supplement fuel currently sold to Chile by Argentina.

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Of course, it would make more economic sense to pipe gas in from neighbouring Bolivia, the country that has the second largest reserves of gas in South America. That option seemed to be firmly off the agenda even before President Evo Morales spectacularly nationalised the industry two weeks ago. With the sudden shifts in position that took place during last week’s Latin American, Caribbean and European summit in Vienna, it may even re-emerge as a possibility (see here and here). But it’s a remote possibility: even though the War of the Pacific took place 125 years ago, Bolivia’s loss of the province that gave it access to the sea still excites nationalist passions in La Paz.

Add to that the fact that President Néstor Kirchner of Argentina is – at best – an unreliable partner, and Chile had no option but to look elsewhere. Oddly though, the development could ultimately be to the benefit of Mr Morales and his close ally, President Hugo Chávez. Gas industry specialists expect the re-gasified product to be sold at close to international gas prices, providing further ammunition for Mr Morales as he seeks to negotiate higher prices from Brazil, his main market.

Latin America’s ‘new new thing’

First came the impact of the Internet on business, then the outsourcing explosion in India. Now maybe Latin America has “a new new thing” all of its own. Or at least that is the way Washington policymakers would like to portray the impact of the steadily growing volume of earnings from the region’s migrant workers.

US officials rarely miss an opportunity to mention the importance of these flows to Latin America – estimated to have reached $53.6bn in 2005. And for the multilateral banks re-examining their role in the wake of a decline in demand for traditional loans, remittances offer a potentially exciting new line of business. So much so in fact that Luis Alberto Moreno, the new president of the Inter-American Development Bank, has called a special conference next month to look at ways in which these flows can become a source of economic dynamism in the region.

The positive thing is that migrants are not only sending more money to families; they are also paying money transfer companies less for each transaction. A new report by Manuel Orozco of Inter-American Dialogue, the Washington-based policy forum, confirmed that the costs of money transfers have continued to fall as a result of greater competition among providers. Last year the average commission fell to 5.6 per cent compared to 6.4 per cent in 2004 and 8.6 per cent in 2001. Mr Orozco expects the trend to continue despite consolidation in the remittance sector.

The bigger question though is whether the IADB will have any success in its efforts to get notoriously risk-averse Latin American banks and financial institutions to capture more of the flows and turn more of the savings into the kind of credit that is required for small businesses. That is the only way in which remittances will really serve to boost economic growth.

Televisa looks north

Televisa, Mexico’s biggest private broadcaster, has at last shed some light on its plans to build on its 11 per cent stake in Univision, the US-based Spanish-language broadcaster.

In a note to the Securities and Exchange Commission on the weekend, the company said it would form an alliance with Cascade Investment, Bill Gates’ investment vehicle, as well as with four investment funds – Bain Capital, Blackstone Group, Carlyle Group and Kohlberg Kravis Roberts & Co. – to make a formal bid for the Los Angeles-based company, which analysts say could be worth as much as $12bn.

The news finally confirms what the market has known for some time: that Televisa is desperate to sink its teeth into the fast-growing US market of broadcasting in Spanish. But it is also just the latest – if indeed one of the most prominent cases – of highly successful and cash-rich Mexican companies looking to expand into the US market.

Ideally, Televisa would simply have tried to make a direct bid for Univision, by far the most dominant Spanish-language broadcaster in the US and which already uses a lot of Televisa’s productions. But US laws forbid foreign ownership of companies involved in sensitive sectors such as media to exceed 25 per cent.

To get round the problem, Televisa’s plan almost certainly involves trying to raise its existing 11.4 per cent stake to the maximum 25 permitted, and then using its partnership with the four private-equity funds to acquire the rest of the company.

But don’t expect Televisa’s forthcoming bid to go unchallenged – even if initial interest from other potential buyers such as Time Warner and CBS has cooled. The private-equity arm of Goldman Sachs, Thomas H. Lee Partners and Texas Pacific Group are also expected to make an offer in the coming days. Stand by for a bidding war.

End not quite in sight for Varig

The saga of Varig, Brazil’s flag-carrying airline under creditor protection with about R$8bn in debt, is not quite over yet. The airline has come close to collapse in recent months but seemed finally to be safe last week after creditors approved a plan to split the company in two, in either of two possible ways, freeing at least part of its operations from the debts that have threatened to destroy it. (For recent Agenda and other FT coverage, see Varig's creditors agree to rescue package , Bail-out for Varig? and April 16: Tick-tock for Varig.)

But anybody popping champagne corks may have to put them back into the bottles. Last week a Brazilian judge ruled that under the new “judicial recovery” law protecting Varig from its creditors, separating assets and liabilities as planned may not be lawful, and future buyers of Varig’s brand, aircraft and routes may find themselves saddled with its debts, too. Stay tuned.

Notes by Richard Lapper, Adam Thomson and Jonathan Wheatley

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