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Showdown in Latin America

Fortnightly Magazine - April 1 1998

Simmons says. "The form of the financing is completely decided: it will be an Argentine debt capitalization through a floating-rate note structure. To say it has already been financed is irresponsible, but it is very close."

Poblete insists Chilgener stands firm on the completion of its entire project. Owned 49 percent by Chilean pension funds, which have few options for foreign investments, Chilgener is expected by most analysts to forge ahead, regardless of what becomes of the two gas pipeline competitors.

Shareholders Sweat the Risks

Chilgener no longer needs much shareholder support. Last July, the utility issued $488 million in new stock; 80 percent was bought locally and 20 percent through American Depositary Receipts on the New York Stock Exchange. Stock prices tumbled since then, but Chilgener has its war chest ready.

CMS, too, has issued stock and has broad international investment funds. GasAtacama costs are commingled with those funds. Southern Co., which in November made an unspecified financial commitment to the NorAndino project, plans to continue to finance its Latin American projects out of deep U.S. pockets.

Should shareholders be concerned about the impact of the risk of a project like Atacama on a $10 billion U.S. utility?

"Our 1997 earnings were up 12 percent," says Wittbold. "That's a cause for shareholder celebration, not concern."

But no company wants to take the last, hardest hit in this race. Hurd pushes the logic of competitive financing a bit further, suggesting "a third option is the joining of the two pipeline projects. Although this option has been denied by both parties, high-level discussions between Endesa-CMS and Tractebel continue."

Neither CMS nor SEI officials would confirm talks, but one Southern official says, "In a project like this, you don't want to rule anything out."

Another option may be more modest, or staged new generation capacity installations in the SING. Holden notes that public reports coming out of Chile suggest both InterAndes and Atacama are scaling back the amount of capacity they're going to add to the SING, which would take off some of the heat when it comes to overcapacity.

Place your bets.

Charles W. Thurston is a Willow, New York-based freelance writer who covers Latin American infrastructure and finance.

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