Directory of Innovative Financing: Bolivia

Bolivia

Project Title: Capitalization Program

Project Costs: At least $1.5 billion (estimated)

Sector: Power generation, telecommunications, mining, railroad, oil and gas, airline.

Status: First of six transactions completed in July, 1995; others will follow in coming months.

Sponsor: Bolivian Ministry of Capitalization.

Customer: Bolivian state-owned enterprises undergoing privatization through international tenders -- ENDE (power generation), ENTEL (telecommunications), EMV (mining), ENFE (railroad), YPFB (oil and gas), and LAB (airline).

Financing Package: To be negotiated separately in each transaction; the government will get no revenues from the sales.

Innovation: This unprecedented program, seeks to meet two priority economic policy objectives: transfer of the country's largest companies to private sector control, and creation of a private pension fund system to increase domestic savings and, in turn, spur local capital market development. Independent auditors are setting a minimum valuation for a 50% stake in each of the enterprises targeted for sale. The foreign investors who purchase these stakes for at least that much will then "capitalize" the companies and obtain management control. Proceeds of the sale are to stay with the company, and to finance their modernization through new investment.

The remaining 50% of each enterprise will initially be valued at an amount equal to its winning investor's bid. Shares worth that amount will then temporarily be held in custody by a trust affiliate of Citibank. Those funds will then be collectively disbursed to all 3.2 million Bolivians over the age of 21 via vouchers that will be held by newChilean-style private pension fund management companies. If successful, the program may emerge as a new landmark of privatization in low-income countries.

Brief: The IDB, along with IDA, is providing US$120 million in assistance for the program with 40 year maturities. As well, the IDB is providing technical assistance for US$12 million for work on the power sector, oil and financial sector reforms, which will underpin the capitalization program.

The first transaction was successfully completed in July of 1995 when ENDE was split into three new companies - Corani, Guarachi and Valle Hermoso - in which different US companies bought 50% stakes for a total of $139 million. Dominion Energy Inc. invested $58.7 million in Corani, Energy Initiatives Inc. put $47 million into Guarachi, and Constellation Energy paid $33.3 million for Valle Hermoso.

Adviser Morgan Grenfell set a minimum $208 million valuation for the capitalization of ENTEL that was sold to STET of Italy Sept. 28. LAB is expected to follow in October at a valuation of at least $100 million. The largest revenues will be generated by the sale of YPFB, which may generate more than $1billion when it occurs sometime in 1996.

Bolivia has yet to set up the necessary legal environment governing the new private pension funds. Implementation barriers to the distribution of the vouchers to Bolivia's largely rural population are considered formidable.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07