The last and biggest of Latin America's privatization programmes is about to enter its second phase. Brazilian state-owned utility assets worth $30 billion will be put up for sale this year. At least, that's the plan. For what until recently appeared to be a glorious swan song for the continent's privatization story has been infected by the Asian contagion. For the privatization programme to succeed, the international capital markets need to be open for utility companies to raise financing. In today's market that still seems to be some way off.
"One of the key risks [to the privatization programme] is the availability of financing," says Jorge Mariscal, chief strategist for Latin America at Goldman Sachs in New York. "It is a two-tier problem: finding the financing to purchase the assets that are being privatized, and then needing to access the capital markets to fund capital expenditure."
Conservative estimates put the capital expenditure required at $40 billion over the next five years. Many of the utilities being sold have suffered from chronic underinvestment, as well as the ponderous management generally associated with state ownership. "On a historical analysis, investment in these companies has been very low over the last 10 years," says Alexandre Braghetta, utilities analyst at Santander Investment in Sao Paulo.