Volume 4, Number 27, Page 2

Privatizations Update

Argentina has embarked upon an ambitious privatization program which will generate substantial revenues. The postal service, airports, the National Mortgage Bank and nuclear power plants are among the industries undergoing privatization.

The Postal Service

The debate regarding privatization of the postal service continues as two enterprises that were not selected have brought legal action. Once this legal action is resolved, the privatization should be concluded.

The Airports

Privatization of the airports has been blocked by a recent judicial decision declaring the privatization process unconstitutional. The privatization process has generated considerable interest abroad; Information has been requested by various embassies, and public officials have traveled overseas to confer with prospective investors.

The government believes that ultimately the Supreme Court of Justice will declare that the decree which provides for privatization is indeed constitutional.

The National Mortgage Bank

Congressional approval of the privatization of the National Mortgage Bank is imminent. Three international banks of high standing (Merrill Lynch/JP Morgan, Deustche M. Grenfell/Citibank, and CS-First Boston/Chase) have local support and are competing to raise the funds for the sale.

Apparently, the government is expecting to receive the necessary funds before the upcoming elections in October. The last week in July witnessed a sharp increase in the stock prices of banks which were sold in Argentina—Crédito Argentino, Río de la Plata and Roberts.

Consequently, the government has significantly raised the price of the National Mortgage Bank. The National Mortgage Bank’s expected rate of growth is premised upon statistical evidence which demonstrates that Argentina’s underdeveloped loan market will have to grow exponentially so that interest rates are lowered and credit terms are lengthened. After congressional approval of the Bank privatization, the Argentine government is expected to establish a law dictating the Bank’s statutes and thereafter call for bids.

Nuclear Power Plants

Pursuant to a recently approved law, the nuclear centers Atucha I, II, and Embalse are legally transferable. Prospective investors are carefully analyzing and examining issues of toxic waste pollution and the prevention of possible catastrophes. Furthermore, all issues related to the purchase of heavy water and the sale of industrial plants, heavy water plants, and plants for the enrichment of uranium must be solved because the new law sets higher specifications for the separate sale of these utilities.

The government can expect a minimum of US$250 million from the privatization. Completion of Atucha II should also be assured in a period of six years.

Service Contracts for Radar Systems

The Argentine Air Force is awaiting approval of a bill which will allow the executive branch to borrow US$185 million to acquire a sophisticated radar system to control air space.

An operator will be contracted to design and install all systems under proper supervision of the Air Force. In May, the First Security Seminar (Primeras Jornadas de Seguridad) was organized by the Air Force. During this seminar which lasted 150 days, representatives from aviation enterprises and commercial pilot associations, including members of the Air Force, debated the topic of “flight and airport security.”

Future meetings have been scheduled for the purpose of continuing discussion of topics presented and issues raised at the seminar.

Radioelectric Spectrum Control

In 1994, the Argentine Air Force halted a project to privatize the radioelectric spectrum. This project was reinstituted in 1996. Twelve important national and foreign groups responded to the bid.

The preadjudication had supported the French Thomson CSF for 20 years. The winning enterprise will only monitor, rather than handle, the spectrum; the latter could pose an eventual threat to the sovereignty of Argentina.

Garbage Collection

Eleven consortiums are competing for the garbage collection of Buenos Aires. Pursuant to the tender documents, a bidder’s annual income average for the last two fiscal years must total more than US$25 million, and its net capital must exceed US$12 million. For the Buenos Aires garbage collection service, US$210 million is being paid annually.

The privatization also incorporates a system of garbage collection for subsequent recycling. In addition, the tender documents include a clause which specifies that enterprises will be disqualified from the bid competition process if they give or offer money or grants to public officials.