The government’s national plan for promotion of investment includes
ambitious targets for privatization. The electricity,
telecommunications, postal and water companies will all be sold;
roads, ports, airports and customs operations will be put out to
private tender.
The need is pressing. According to a recent United Nations report
on investment in the country, “Ecuador is one of the countries with
poorest potable water and sewage systems in Latin America … All
organizations that have analyzed the problem – the World Bank,
World Health Organization and Panamerican Health Organization –
described the situation as disastrous.”
Despite the government plan, however, there is little prospect in
the near term that water services will benefit from private
investment. The UN report notes that local or foreign investment
will not be forthcoming without the introduction of a stable
regulatory framework, including the setting of tariffs and a system
of concessions, which does not yet exist.
In other areas progress is being made, but has been dogged by
delays. Privatization of the electricity industry was first
proposed in 1992 after severe shortages. The industry remains in
desperate need of investment to keep pace with demand. According to
CONAM, the national modernization council which is responsible for
privatization, the sector received investments of just $400 million
between 1995 and 2000. Antonio Peré, executive director of CONAM,
says the industry requires investment of between $2 billion and
$2.8 billion over the next six years.
Peré identifies political interference, poor management,
overstaffing and high levels of power losses as other pressing
reasons for privatization. “The state does not have the resources
needed for investment in the sector,” he says. Without
modernization, he adds, the industry will simply collapse.
The first stage of privatization should be at hand. Seventeen
electricity distribution companies were due to have been sold last
October, but the sale was postponed after the Constitutional
Tribunal questioned the legality of the sale. According to Carlos
Julio Emanuel, finance and economy minister, the Tribunal “was
commenting on the form, not the essence,” of the sale, and it will
take place during the first quarter.
Trade unions and other opposition groups have promised permanent
protest if the sale does go ahead. Nevertheless, three foreign
companies – AES of the US, Unión Fenosa of Spain, and Pérez Companc
of Argentina – have qualified to take part. No minimum price had
been set as this report went to press, but the companies’
collective book value was approximately $766 million.
Privatizing the telecommunications sector is no less urgent. At
about 9 lines per 1,000 people, Ecuador has one of the lowest
density rates in Latin America. The public sector companies running
fixed line services, says Antonio Peré at CONAM, “have not reached
the necessary levels of efficiency and serve the country in a
deficient manner.” Nevertheless, the fixed line services remain in
state hands, despite legislation to allow for privatization passed
in 1995. There has been some progress in other areas. BellSouth of
the US and Telmex of Mexico both have interests in mobile
telephony; other private companies provide data and internet
services. New legislation is now in preparation to establish a
regulatory framework for privatization of the fixed services, but
it will remain for the next government to decide whether to proceed
with the sale.