Venezuela and Electric Company Sign Memorandum for Nationalization

Caracas, February 9, 2007 (venezuelanalysis.com)— Venezuela’s state owned oil company PDVSA agreed to purchase a majority stake in EDC, Venezuela’s largest electric company, for $739 million. The agreement was formalized in a memorandum of understanding with AES, the U.S.-based company that currently owned 82.14% of EDC.

The President of AES, Paul Hanrahan, the president of PDVSA, Rafael Ramirez, and the Vice-President of Venezuela, Jorge Rodriguez, presented the agreement to the public yesterday.

Rodriguez praised the agreement by saying, “With [the purchase of] Electricidad de Caracas [EDC] we have exercised sovereignty – the rescue of strategic enterprises of the country, in the areas of electricity, petroleum, and telecommunications.”

Rodriguez referred to the nationalization process as the “Cha-AES” method, in allusion to the government’s effort to find amicable agreements between the Chavez government and private owners. The term was first coined in a deal reached between President Chavez and the land owner Carlos Azpurúa, in negotiations to turn over land as part of the government’s land reform, when the process was referred to as the “Ch-Az” method.

“To the sharks and bloodsuckers that tried to fish in turbulent waters we showed that the government is respectful of its word,” added Rodriguez.

Prior to this negotiation opposition leaders had speculated that Chavez would try to expropriate companies he had said his government would nationalize, which would have violated Venezuela’s law on nationalizations, which states that companies must receive fair compensation in any nationalization.

AES President Hanrahan appeared to be satisfied with the agreement and said, "I think this deal is a fair one,” adding, “We have been in the country for six years, when we made our purchase [of EDC] at the time for 1.6 billion. We have had a good experience in Venezuela and invested $600 million in a strong platform.”

PDVSA President Ramirez also expressed satisfaction with the negotiation, saying that they were “realized in a very short amount of time and attended to the President’s orientation with respect to our strategic and national interest in having control over the entire electrical sector.”

Ramirez assured that the remaining shares, which are mostly held by small investors, including the company’s workers would remain in private hands. "We are preserving the interest of the minority shareholders," said Ramirez.

Vice-President Rodriguez also said that this agreement was the first in a series of agreements yet to come that involve the nationalization of strategic sectors. Chavez had promised to “rescue” strategic enterprises, “controlling electrical, [Orinoco Oil] Belt, and telecommunications companies. In the coming days we will make successive announcements about these transactions,” said Rodriguez.

The Arlington, Virginia based company AES, which had purchased EDC in the year 2000, is one of the world’s largest power companies, with annual sales of $11 billion in 26 countries.

Investors Pleased With Outcome of Negotiations

According to the AP, Luis Gustavo Richard, a financial analyst with local brokerage InterAcciones Casa de Bolsa CA. said, that the deal "turns out very well for the American investors." Even though AES purchased the company for $1.6 billion and is selling it now for $739 million, it made a handsome profit of $1 billion in the six years it owned the company, said Richard. AES shares rose 0.63% on the New york Stock Exchange today.

The final sale price was slightly above EDC’s average trading price of the past few months, before it had dropped significantly when Chavez announced his government’s intent to nationalize the company. PDVSA agreed to purchase EDC at $0.27 per share, which is $0.01 above the company’s closing price on Thursday.

Shares of the telecommunications company CANTV, which Chavez had said would also be nationalized, closed 1.6% higher in Venezuela, following the announcement, as hopes rose that its owners would also benefit from a fair deal. In early January, when Chavez had first announced the nationalization, shares had dropped precipitously.