Global Insight Perspective | |
Significance | Bolivia has decreed the nationalisation of the country's biggest telephony operator, 50% owned by the Italian incumbent, seeking to increase its level of control over key sectors of the economy. |
Implications | The Bolivian government will compensate Telecom Italia for taking over its assets; no price has been put forward as yet. |
Outlook | This is bad news for other foreign investors, who fear repercussions in other industries or privately-held entities within the telecoms sector. |
President Evo Morales also announced yesterday (1 May) that the government is in the process of purchasing majority stakes in local affiliates of foreign oil companies operating in the country. The companies are Chaco, owned by British Petroleu; Transredes, owned by Ashmore Energy; the CLHB company; and Repsol-YPF. "Basic services—call them energy, water or communications—cannot be in the hands of private business. They're public services," Morales proclaimed and added that "today we are nationalising Entel, and starting today Entel returns to the hands of the Bolivian people."
The nationalisation was sealed by Presidential Decree No. 29544. Public Works Minister Oscar Coca said that the Bolivian government would later name the price it intended to pay Telecom Italia for its shares, and that the transfer will take place within 60 days.
Italian incumbent Telecom Italia owns 50% of Entel's shares through local subsidiary Euro Telecom International. Entel was privatised in 1996 by then head-of-state Gonzalo Sánchez de Lozada. A 50% stake in Entel was acquired by ETI-Stet International in November 1995 for a total sum of US$610 million. Stet then merged with Telecom Italia, which became the main stakeholder in the telco. Entel now claims to be the country's biggest telco with operations in the fixed and mobile telephony segments, broadband internet and data services. It controls 68% of Bolivia's long-distance market, 67% of the wireless market through its mobile arm, Entel Móvil, and 90% of the internet market, which has the highest growth rate, although the penetration rate is still one of the lowest on the American continent.
Outlook and Implications
President Morales’ rhetoric is typically more radical than his action, and yet there is no doubt that investment risks have increased under his watch. He uses May Day pronouncements to rally support from traditional circles. This year the declarations served to challenge right-wing provincial opponents, particularly in Santa Cruz, which is scheduled to hold a referendum on devolution this Sunday (4 May). They also came two years after the May Day 2006 move to place much of the country's energy industry under state control.
His keenness to exert greater control over the country’s key economic sectors, and in particular telecoms, is by no means a new feature of his organisation. Last year, the government pushed Telecom Italia to come to an agreement for a state takeover, accusing the company of violating its privatisation plan, which forced Telecom Italia to double Entel's value by investing US$610 million (see Bolivia: 4 April 2007: Bolivian Government Forms Commission to Plan Nationalisation of Incumbent Operator Entel). According to the results of a recent audit by Pozo & Asociados for the years between 2002 and 2005, the company had invested some US$144 million less than the US$720 million the telco had stated. As a result of this, the Italian incumbent filed an arbitration suit at the World Bank's International Centre for Settlement of Investment Disputes (ICSID) in October 2007, which did not come into effect as the country withdrew from the organisation (see Bolivia:2 November 2007: Bolivian Government Rejects Telecom Italia's Arbitration Suit). In the meantime, the telco received a series of regulatory fines for non-fulfilment of standards in various types of services and was accused of owing US$60 million in unpaid taxes and fines.
Morales' left-wing revolution is not unique in Latin America. Together with Venezuela, Cuba and Nicaragua, it forms the Bolivarian Alternative for the People of Our America (ALBA), an alternative to the Free Trade Area proposed by the United States, and has supporters in other regional nations, like Rafael Correa's Ecuador. Correa this week announced the nationalisation of América Móvil's local unit, Porta, following the rejection of its latest economic offer for the renewal of its concession agreement for another 15 years (see Ecuador: 30 April 2008: Ecuador Rejects América Móvil Offer). This was preceded last year by the nationalisation of Venezuela's incumbent operator, CANTV, which was concluded in May 2008 with the transfer of 86.2% stake to the state (see Venezuela: 9 January 2007: Venezuelan President Calls for Further Nationalisation). This is all bad news for other foreign investors, who fear repercussions in other industries or privately-held entities within the telecoms sector.