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PRIVATISATION

PRIVATISATION. Privatisation process is not finished when the sale is completed. This is a sale process case of a group of enterprises in the electric sector in Chile during 1980s, from which still there are consequences remaining. Chile - electric sector

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PRIVATISATION

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  1. PRIVATISATION

  2. Privatisation process is not finished when the sale is completed ... • This is a sale process case of a group of enterprises in the electric sector in Chile during 1980s, from which still there are consequences remaining. • Chile - electric sector • as you know Chile is a very long and narrow country, for that reason there was monopoly in the electric transmission sector in the past • This case is about the sale of ENDESA, an electric generator enterprise which occupies over 50% of the main part of the country

  3. Privatisation process is not finished when the sale is completed ... • ENDESA has a branch - TRANSELEC, which is the only transmitter of the system • the other enterprise sold was CHILECTRA - a power distributor in the metropolitan area (40% of the country’s consumers) • The privatisation left consequences that ENDESA, TRANSELEC and CHILECTRA are now controlled by the same group, without the existence of regulations to protect the consumers and promote competition in the electric generating sector, could operate.

  4. Chile - electric sector • Even though there has been a better efficiency, bigger investment, cost reduction, and better price of the company, there were deficiencies. So that in this occasion, we want to emphasize this issue during this meeting. • What we are going to comment in this case is about the manner in which the shares were sold that have had consequences until now and affecting in no controlling shareholders.

  5. Chile - electric sector • How it was sold? • Partial sales announcement were made - ENDESA and CHILECTRA (firstly they announced only 30% was going to be sold, then 60% and then 100%). This was not a sound information for the privatisation process of those enterprises.

  6. Chile - electric sector • Shares were sold to the workers, in the stock markets, and to institutional investors. Everything in small packages. • It was allowed that the executive officers that participate in the sale could buy shares as workers. • The executive officers created a incentive system in order that the workers become members of an investment society to represent them all. • This investment society has two kinds of shares: • 1st for the executive officers - with full rights to control the investment society, though they have very few shares. • 2nd for the workers which had passive role.

  7. Chile - electric sector • Chile - electric sector (continued) • What happened? ENDESA TRANSELEC Investment society Exe- cutive officers’ shares Shares of the rest workers ENERSIS CHILECTRA A B OTHERS Shares class A: control the investment society Shares class B: majority of shares but have passive role

  8. Chile - electric sector • The investment society created ENERSIS which had the investment society plus others as shareholders • As there was capital increase, the investment society controlled ENERSIS without being majority and through ENERSIS the investment society being a minority controlling ENDESA and CHILECTRA. • This provides a privatisation process that allowed a minority group to control 3 enterprises: ENDESA, CHILECTRA and TRANSELEC, on the basis that the workers had accepted their control over the investment society.

  9. Chile - electric sector • And that the minority and institutional shareholders back them up in ENERSIS, CHILECTRA and TRANSELEC. • Finally ENDESA- Spain had as an objective the control of ENDESA - Chile, and for that went to negotiate with the A class shareholders of the investment society. As the confidence of the minority and the institutional shareholders in ENDESA and ENERSIS was based on the executive officers of this companies are not necessarily in ENDESA - Spain that wanted to buy.

  10. Chile - electric sector So ENDESA - Spain negotiated with the owners of class A, the price of those shares, the buying price of the class B shares to a public offer and the buying price of the minority shares of ENDESA and ENERSIS so they could control both enterprises. • But this negotiation included a different price for the class A shares depending if ENDESA - Spain finished controlling ENDESA - Chile and ENERSIS. • This agreement included other pacts that were secretive, and where in the benefit of class A shareholders of the investment society.

  11. Chile - electric sector • The price of the A class shares, if ENDESA- Spain could control ENDESA- Chile and ENERSIS, was about 10 times the price of the class B shares. We are speaking about an operation that cost about USD 1.6 billion

  12. Chile - electric sector • And that the minority and institutional shareholders back them up in ENERSIS, CHILECTRA and TRANSELEC. • All this started with a group of executives of the companies that are going to be sold buying shares with their indemnities and small amount of private capital. • This case created a bad publication of a a privatisation process.

  13. Chile - electric sector • Conclusion: • Transparency in the sale and in the relations between shareholders • The parties once involved in the sale can not buy • Clear signal of what percentage of the enterprises will be sold • Access to information for the minority shareholders about the negotiations in the enterprise

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