Showdown in Latin America

Fortnightly Magazine - April 1 1998
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PURRED BY FLAT POWER DEMAND AT HOME IN RESIDENTIAL and industrial markets, U.S. utilities are taking huge risks in Latin America. Why? They are enticed by the promise of high-yield returns on generation, distribution and transmission deals.

Yet only some of the companies getting in on the ground floor of privatization or winning concessions in the Latin American energy market stand to make huge profits. Others, too slow to beat competitors, or not savvy enough to skirt political and regulatory land mines, could lose their shirts.

This much is clear: The markets will mature much more rapidly than they did in the United States. As the Latin American market story goes on, risks will rise, potential margins will shrink and ventures will fail. Nowhere is this scenario more true than in the copper mining region of northern Chile, where three utility groups are targeting a growing demand for electricity. Investments range from $440 million to $850 million.

Despite the risks, foreign investment units of U.S. utilities are staking billions in Latin America, long term. They're often more comfortable with the tradition of standard contracts and common languages there in Asia, with its less-robust market.

"The opportunities in Brazil are significant," says Bill Holden of Southern Energy Inc., a $400-million investor in the region. "There are some things that are going to happen in the next year or two that we will be very active at pursuing. There are also opportunities in Chile and Argentina¼ You will see more of an integration of markets in southern South America. You don't see [that] anywhere else in the world where privatization has been conducted on such a scale."

Scale means prolonged growth, analysts confirm.

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