Nationalizations could represent a "high cost"
Saturday, September 20, 2008

In the case of Cantv, concerned about the decline of investments, as the consultant Ecoanalítica said that during the first half of 2008 saw a decrease of 32.3%, with respect to investments in 2006.

Maria Ramirez Cabello
mramirez@...


The two companies reduced earnings in the first half between 2006 and the same period of 2008

The nationalization of CANTV, like that of the Electricity of Caracas (EDC), generated high expectations from the economic point of view. The possibility of a deterioration of service caused uncertainty among the population, and after two years of nationalized, the numbers seem to point to this because according to the consulting Ecoanalítica, the nationalizations were not "positive".

It all began in 2007 when the president expressed his intention to nationalize those "strategic" sectors for the development of the nation.

Thus, in February 2007, Petroleos de Venezuela (PDVSA) signed a memorandum of understanding with companies AES Corp. in an amount reached 1,020 million dollars.

Three months later, in May 2007, a new company joins the list of so-called "strategic", CANTV, so that the executive branch through the Ministry of Telecommunications signed a memorandum of understanding for 28.5% of capital stock in the hands of Verizon, for a total of 572.2 million dollars. Following the calculations as to payment of American Depositary Share (ADS), the figure stood at no less than $ 2 billion.

After two years of contentious negotiations, the numbers displayed in terms of low income and investment deals.

In the former case, the consultant said that the nationalization of Electricidad de Caracas has not been as favorable in terms of their financial results, as operating revenue earned by this company during the first half of 2008 (1S08) were 777.0 million strong bolivars, a figure well below the Bs.F. 829.4 million earned during the first half of 2006 (1H06), reflecting an actual decline of 38.9%.

"It should be noted that the main source of income for the EDC is the sale of electricity, whose price has been frozen in nominal terms during the last three years."

However, operating expenses showed an actual decline of 23.4% between the first semester of 2008 and the same period in 2006, to be located in Bs.F. 496.7 million for first half of this year.

"Given that the reduction in costs was not significant to offset the drop in income, these findings resulted in a marked decline in operating income from the EDC," the report said, emphasizing that the usefulness of the power company is ranked Bs.F. 280.4 million in the first half of this year, accumulating a real decline of 55.1% from the first half of 2006.

Low investment in CANTV
For their part, the numbers show Cantv for the 1S08 that "the operating revenues of the company were located in Bs.F. 4540 million, an increase of 49.7% when compared with revenue of 1S06, when it was still in the hands of the U.S. Verizon. "

According to the report in the first half of 2006, most of the revenue came from fixed telephony. However, between the first half of 2006 and the same period of 2008, revenue from cellular telephony increased by 11.1%, while those from fixed telephony decreased by 16.7%. "

Ecoanalítica attributes the increased revenue to attract new customers through the plans "solidarity" implemented by Movilnet, which managed to attract 2.2 million new subscribers between 2007 and the current year.

Despite the increase in revenue, Ecoanalítica expressed concern about the decline of investments, as is 1S08 during the recorded a low of 32.3%, with respect to investments in 2006.

"A Ecoanalítica seemed very worrying this fall in investment since the Telecommunications is a capital intensive sector, where the dynamic technology implies a high investment cycle as to maintain quality levels. A telecommunications company that is not maintaining adequate levels of investment, will go out of their technological level, which in the long run will be reflected in the quality of service provided, "explained the consultant.

Also stressed that operating income reflects a drop of 12.5%, while net income, which takes into account other income and expenses unrelated to the strict operational activity, stood at Bs.F. 655.4 million, implying a growth of 52.8% between 1H06 and the 1S08.

High cost
In the view of the signature, the government could incur a high cost, thus ensuring that the process of nationalization of non-oil sector is not going to bring neither economic nor political benefits.

On the contrary, they argue that "the government must understand that they are more socialist enterprises, they must be managed with efficiency criteria to maintain its profitability. Additionally, this process of nationalization of oil companies does not mean that the Venezuelan State will invest around U.S. $ 9,000 million, or without creating a new job. "

In figures

In a comparison between the results of the first half of 2006 and the same period of 2008, the EDC has a real decline of 38.9% in operating revenues and a 55.1% drop in operating income.

In the case of Cantv, operating income fell 2.4%, while operating income declined 12.5%.

Investments Limited

The Venezuelan State has nationalized sectors deemed "strategic". However, the lack of definition of that term creates uncertainty in investors to ignore the future of the activity being carried out.

In that sense, the economic consulting firm noted in its report that "by not defining its concept of strategic property rights in any sector (agro-industry, tourism or any other) are threatened, limiting investment, the creation productive employment, and hence the growth in real wages. Additionally, sooner rather than later, Venezuelans will have to re-pay the costs that brings back to implement a state capitalism ".

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