LaGeo-Enel: Chronicle of an energy highjacking

Geothermal energy supplies 26% of El Salvador’s electricity grid, making it the second largest energy source, only after oil. El Salvador’s use of geothermal energy is exceeded only by India and the Philippines and it is Central America’s biggest producer of this environmentally friendly energy. Retaining national sovereignty over such a valuable resource is now at stake.

Elaine Freedman

The New Year ushered in bad news for El Salvador: on January 8, the Paris Court of Appeals upheld an earlier ruling in favor of the Italian company Enel-Green Power on a key issue for El Salvador’s national energy policy. In 2008 Enel-Green Power, a subsidiary of the Italian-based energy multinational Enel, formed that same year to group together all of Enel’s renewable energy interests, had filed suit with the International Court of Arbitration, set up by the International Chamber of Commerce (ICC), against the Río Lempa Hydroelectric Executive Commission (CEL), the Salvadoran state entity in charge of electricity generation. Enel accused CEL’s subsidiary, Inversiones Energéticas (INE), its partner in a joint venture called LaGeo to develop geothermal energy in El Salvador, of violating their 2002 Shareholders’ Agreement. CEL/INE was fighting Enel’s attempt to capitalize its US$127 million investment in LaGeo by subscribing newly issued shares in it, in accord with the rules established in the agreement, making Enel the majority partner in the country’s only geothermal energy generating company. In September 2011, the ICC’s court found in favor of Enel and dismissed INE’s counterclaim against it.

What is the ICC?

That ruling should come as no surprise: the ICC was created in 1919 by a small group of businesspeople from the financial, industrial and commercial sector and today boasts of having “hundreds of thousands of member companies in more than 120 countries… [including] many of the world’s biggest multinationals…” Its activities, in its own words, “cover a broad spectrum from arbitration and dispute resolution to making the case for open trade and the market economy system….”

Acknowledging that “national economies are now so closely interwoven [that] government decisions have far stronger international repercussions than in the past,” the ICC describes itself as offering “an influential and respected channel for supplying business leadership to help governments manage those shifts in a collaborative manner for the benefit of the world economy as a whole.” Its fundamental mission is to “promote trade and investment across frontiers and help businesses meet challenges and opportunities of globalization.” In the Enel-LaGeo case, the CCI is clearly fulfilling its mission. The question with respect to the ruling is: who’s helping the national States and their people deal with the challenges and opportunities of globalization?

Chile was the laboratory

In Latin America, Milton Freedman-style neoliberalism was inaugurated in Chile with the 1973 coup against the elected socialist government of Salvador Allende. That country became the laboratory for the massive privatizations that would be implemented throughout the continent over the following decade at the behest of the World Bank and International Monetary Fund (IMF). The only exception was Nicaragua, where it took the FSLN’s electoral loss in 1990 to make way for the wholesale privatizing of the Somocista and other properties nationalized during the revolutionary decade. In Chile, the privatizations sought to reverse the nationalization processes initiated by Allende’s Popular Unity government in its three years in office. A study by Rafael Pampillón Olmeda shows that Latin America is the region in which most state enterprises have been sold off since Margaret Thatcher began privatizations in Great Britain in the mid-eighties, also on the advice of University of Chicago economist Milton Friedman.

El Salvador’s privatizations
began with Cristiani

In El Salvador, the privatizations were inaugurated by the government of Alfredo Cristiani in 1990 and began with the biggest slice of the pie: banking. It all started in November of that year with the clean-up of the financial system, using state funds to rescue defaulting banks. In less than a month, the now solvent banks were sold off to members of the Salvadoran oligarchy. That was followed by the sale of the National Coffee Institute (INCAFE) responsible for exports of that product; PETROCEL, the oil import company; INAZUCAR, the sugar export company; Hotel Presidente and a number of outside consultancy firms of the Salvadoran Social Security Institute.

Between 1994 and 1999 President Armando Calderón Sol continued the privatizations, turning his hand to selling
off the sugar refineries and the office that issues vehicle and drivers’ licenses, which belonged to the Vice Ministry of Transport. The biggest sales of that period were the National Telecommunications Administration (ANTEL), electricity distribution and the pension system.

By the time of Francisco Flores’ government there was little left to privatize, but he still managed to lease out part of the national airport and crown the privatization processes by dollarizing the national currency, thus taking the country’s dollar supply out of the hands of the Central Reserve Bank.

The energy sector:
A case apart

El Salvador’s electricity system got started in 1890. The first small generating plants were brought in that year, with private investment. First was the Electric Lighting Company in San Salvador (CAESS), after which similar small companies gradually started popping up across the country.

Finally, in 1935, the dictator Maximiliano Hernández (1931-1944) declared all electricity generation, transmission and supply works a public utility, while at the same time conceding all existing works to private enterprise for a 50-year period.
Ten years later, with the industrialization of the Salvadoran economy getting underway, the CEL was created to do feasibility studies on hydroelectric generation using the Río Lempa. With the installation of the Council of Revolutionary Government as the result of a coup d’état on December 14, 1948, dam-building was prioritized to diversify the country’s economic base, thus opening more opportunities to the oligarchy and US transnationals.

CEL was made responsible for developing the first dams. It couldn’t have gone any other way: the Water Law, promulgated by the same government, had expanded state ownership of water to underground aquifers. The previous legislation, the 1860 Civil Code, had excluded the rivers located on the property of a single owner from state ownership.

CEL negotiated and signed contracts with two US engineering firms for services related to the country’s first hydroelectric dam: Harza Engineering for the research and J. A. Jones for the construction. The dam, named 5 de Noviembre, was inaugurated in 1954. Thereafter, a new dam was inaugurated each decade: the Guajoyo dam in the sixties, Cerrón Grande in the seventies and 15 de Septiembre in the eighties. These plants began to be held up as a symbol of power, development and progress.

The military governments of the National Conciliation Party era (1961-1979) introduced new branches of energy production: thermal (with fossil fuels); and geothermal, based on steam from the subsoil and volcanoes. In 1975 the first geothermal project was the construction of the Ahuachapán plant, the first of its kind in Central America and only the eighth in the world. Soon afterward they continued with the construction of three other geothermal plants in Berlín, department of Usulután.

The privatizing of
energy distribution

The first step in privatizing the energy sector was to sell the distribution operation. In fact, this important piece of the pie had already passed through the hands of five foreign and mixed companies before the government of Napoleón Duarte nationalized it in 1986 following the expiration of the concession granted in the fifties. During the 11 years of nationalized energy distribution (1986-1997), it was calculatedly decapitalized, which led the Legislative Assembly, in strict compliance with World Bank and the IMF orientations, to approve the Transitory Law for the Management of the Public Electrical Energy Distribution Service in 1994. That law gave CEL the faculty to “transform, merge, modify and/or liquidate the existing public companies dedicated to distributing electrical energy” for the purpose of “selling or transferring the goods or rights that form part of the distributors’ capital wealth and are used to provide the service of distributing electrical energy.” That was complemented by the Law for the Sale of Shares of the Electrical Energy Distribution Companies.

To prepare the system to be turned over to private companies, CEL conducted two exhaustive reconstruction, rehabilitation, conversion, extension and expansion programs during 1996, which involved significant investment. This whole process meant that the companies that had existed before the nationalization of the distribution system and had continued operating in the 1986-97 period as partners in joint ventures in which CEL had 97% of the shares got back control of the market and the business.

The privatization of the energy distribution system was completed by 1997 at a total sale price of US$153 million. While that may seem a juicy amount, it didn’t sound nearly as impressive once the investments made the previous year were subtracted, and considering that in that first year alone the private distributors billed US$157.9 million for the sale of the service, earning them net profits of US$12.1 million annually.

Next the Legislative Assembly passed the General Electricity Law, whose main objective was to “promote a competitive electricity market in El Salvador.” It also established an “open competition scheme” to develop thermoelectric generation in El Salvador, ensuring that it wouldn’t require legislative branch approval, but just registration with the Superintendence of Electricity and Telecommunications (SIGET).

With this legal framework the sale and resale process continued. By the end of it, the market for electrical energy distribution in El Salvador was concentrated in two transnational corporations: AES de El Salvador Ltd. (US-owned) and Electricidad de Centroamérica S.A. de C.V. (Chilean-owned). The business had mushroomed in few years: this sale was valued at US$586 million.

The privatization of
thermal energy

Given that energy is a strategic resource for the country’s development, it was assumed that the incursions of privatization had come to an end with this sale. Wrong. Decree 578 was approved in 1999, giving CEL the right to sell off thermal generation, the country’s main energy source.

The thermal power stations currently functioning are: Duke Energy; Nejapa Power; CESSA; Inversiones Energéticas (INE); Textufil; GECSA; Energía Borealis; Hilcasa Energy; El Ángel sugar refinery; La Cabaña; and Compañía Azucarera Salvadoreña (CASSA), which owns the country’s largest sugar refinery, the Izalco station and the Chaparrastique Sugar refinery. Talnique is the only thermal generator that still belongs to CEL although CEL refers to INE as a subsidiary. Taken together, these centers account for 45% of the country’s installed electricity generation capacity.

Thermoectrc generation is the most contaminating. Thermoelectric projects are considered an important source of harmful atmospheric emissions, affecting the quality of both local and regional air, with important repercussions on human health. In addition, combustion produced by these projects emits particulates that can contain minor metals directly linked to climate change and a serious threat to the reproduction of life. Moreover, thermal generation is the most expensive process, given that it is based on imported oil. Nejapa Power has often been the loudest advocate of keeping overall energy prices artificially high to finance its oil imports.

The valuable geothermal energy

Salvadoran geothermal energy supplies 26% of the country’s energy grid and is second in importance only to oil-generated energy. El Salvador ranks third in the world in use of geothermic energy, behind India and the Philippines.

Geothermal energy is an abundant, low-cost and renewable energy source that has a minimal and easily preventable or mitigable impact on the environment. It does‘ot produce toxic gases such as the greenhouse effect-producing CO2 as it doesn’t burn fossil fuels that produce global warming. According to some studies, it could cover 40% of the country’s energy grid by 2020.

For all these reasons, keeping geothermal energy as a state resource is an important consideration for El Salvador’s future. But that wasn’t what the Salvadoran rulers were thinking about in the late nineties. In 1998 Geotérmica Salvadoreña (GESAL) was created as a state company, and later became LaGeo. It was part of an incipient design to seek a strategic partner for geothermal exploitation, which had so far been spared privatization to avoid violating article 103 of the Constitution, which establishes that “the subsoil belongs to the State, which may grant concessions for its exploitation”… but not sell it.

At the end of 2001, LaGeo was proving highly profitable. Its sales had reached US$55.1 million and it had profits of over US$11.75 million, according to the auditing reports. By then, its assets included concessions for the exploitation of two geothermal areas, with one generating plant in Cuyanausul, Ahuachapán, and the other in Berlín, as well as a complex of administrative offices that included an internationally recognized and equipped laboratory for geology and geochemistry research. It executed 90% of the geothermy engineering required in El Salvador and had 269 permanent employees.

The search for a strategic partner

Who would be in charge of the search for a strategic partner? Deutsche Bank was contracted for this work in 1998, just as it had been before, when the process of selling the shares of the electrical distributors had opened. According to Carlos Dada, a journalist with the digital newspaper El Faro and employee of Jorge Siman Zablah, LaGeo’s president at the time the agreement with Enel-Green Power was signed, Deutsche Bank offered a “guarantee for transparency in the country.” This appraisal contradicts that of Gonzalo Sánchez in his book Honduras, el sueño liberador convertido en pesadilla opresora (Honduras, the liberating dream turned oppressive nightmare), who when identifying the promoters of the 2009 coup in Honduras spotlights the role played by the Deutsche Bank as a member of the PRISA Group, together with media tycoon and former Italian prime minister Silvio Berlusconi and Mexican business magnate Carlos Slim. Sánchez comments that while the news daily El País—owned by the PRISA Group—was downplaying the coup and legitimizing the new government of Porfirio Lobo, the PRISA Group was already investing in the construction sector, which would later be privatized by the Lobo government in 2010.

With respect to LaGeo, the terms of reference established the association’s purpose as “the expansion of the Berlín geothermic field and the development of the Cuyanausul geothermic field.” According to its logic, the strategic partner’s investment in these two projects would increase LaGeo’s capital, which would benefit the Salvadoran State. A LaGeo official noted that this goal is at odds with the results of a 2000 study that claimed “a partner was not needed… LaGeo had enough money and the Salvadorans had the competencies, knowledge and expertise.”

According to an investigation by writer Berne Ayala, Deutsche Bank’s consultant defined the following parameters: 1) the State, through its subsidiary LaGeo, had to give shares in return for megawatts that exceed the productivity at the time of the pact; 2) If the project in Cuyanausul failed, the State would recognize part of the strategic partner’s costs; 3) A limit would be set on the strategic partner’s participation through its contributions in megawatts; 4) As a minority partner, the strategic partner would be protected by a Stockholders’ Agreement on issues such as the naming of administration, administrative decisions and restrictions.

The Italians win the
very attractive conditions

The conditions were highly attractive to any investor. In addition to being exempted from the business risk, adjudicating responsibility to the Salvadoran State for part of its cost, the investor was also allowed disproportionate intervention in state decisions, such as the naming of officials. By April 2002 various transnationals had shown interest in the contract: Enel, Shell and Kyusu Electric Power.

The terms of reference stopped those already participating in electricity generation or distribution in El Salvador, whether directly or through affiliates from competing in the bid. That should have included Enel-Green Power, which had shares in an electric street lighting company called the Santa Ana Electricity Company. But through an “interpretation” of the terms of reference, Enel was allowed to participate, and it won the bid on April 18, 2002.

In addition to Enel’s energy investments in Europe, Canada and the United States, it has 34 generating plants of different types in Mexico, Brazil, Chile, Costa Rica, Panama, Guatemala, Nicaragua and El Salvador. And its investments have been very profitable; in 2010 alone it recorded earnings of US$609 million.

A hardly transparent process

In the three months prior to the final signing of the Shareholders’ Agreement, which took place on June 4, 2002, the original agreement with which Enel had won the bidding was modified several times. It was even altered again only hours before being signed, which left no time to announce, much less study, the changes. They were said to be only superficial variations in form, but they actually changed the logic of the terms of reference. In the end, they allowed Enel to take over El Salvador’s geothermic exploitation by gaining control of the majority of LaGeo shares for life, and without paying a single cent for use of the steam. According to LaGeo lawyer Juan Pablo Córdoba, “the Italian gentlemen know the geothermal rules everywhere in the world and in all places use of the steam must be paid for.”

The hardly “superficial” modifications appear in articles 3 and 6 of the final version of the agreement. The first one says: “During the extraordinary General Shareholders Board meeting, CEL renounced in favor of the Strategic Partner the preferential right to subscribe the Shares corresponding to it as a result of the agreed-upon capital increase.” The second one says: “CEL declares that there are no restrictions on the Strategic Partner, by virtue of the investments referred to in the above paragraph, becoming the majority shareholder of GESAL [now known as LaGeo] through their capitalization. In these cases, CEL will renounce in favor of the Strategic Partner the preferential right to subscribe the Shares that would have corresponded to it in the agreed-upon capital increases.”

The Salvadoran State
scores an own goal

With that, according to the court rulings, the Salvadoran State effectively scored an own goal, condemning itself to becoming a minority partner in a transnational corporation. Logically, at some point the Salvadoran State’s proportion of the shares could cease to have any weight at all.

Obviously the contract was just a cover-up for a pact to gradually privatize geothermal energy. Although the General Law of Electricity legitimated this process, the Constitution of the Republic invalidates it. Six years later, the Supreme Court’s Constitutional Bench declared that the law violates articles 86, 120 and 131 of the Constitution, which establish that the Legislative Assembly has the power to grant concessions for the exploitation of public goods but that this must be done for a specific period of time. According to this ruling the Agreement with Enel needed Legislative Assembly approval at that time, but far from settling the process, the Assembly wasn’t even apprised of it.

Enel keeps getting
more and more shares

With the shareholders’ agreement signed, Enel entered with 8.5% of the shares. Its request for fewer than 12.5% was one of the variables considered when accepting Enel’s bid. But once it became the strategic partner, Enel quickly began to accumulate shares. It started even before the end of the first year by pressuring the Salvadoran government to authorize shares to bump it up to the maximum 12.5%. Within only a few years it was up to 36.9%.

It’s worth mentioning that not all investments by the Italian transnational even improved the energy generation system. Some have been questionable, while others clearly show that the prevailing interest in the decision-making was Enel’s profits, not LaGeo’s welfare.

Drilling useless wells

Among the first investment projects was the drilling of two wells in Cuyanausul. The first was a failure: at 2,500 meters of depth, there was enough heat but its flow value wasn’t enough to generate electricity. The scientific recommendation was therefore to drill a second one on another site, but this was ignored and the second drilling was done in the same place, unsurprisingly resulting in similar results.

Enel abandoned the field after reporting that it had complied with the agreement to drill two wells. What criteria led it to ignore an obvious scientific recommendation? It’s difficult to understand other than speculating that it was cheaper to drill in the same place. In any event, this wasted investment was converted into shares, allowing Enel to continue increasing its equity in LaGeo.

The drilling of the well in Berlín was a more sure thing given that studies had already confirmed the site and the well built there had the capacity to generate 40 megawatts of electricity. That investment was capitalized into still more shares for Enel.

The Italian machinery

The investment included the purchasing of a machine in Italy, but it was designed to function at sea level—Berlín is 1,200 meters above that—and at colder temperatures than those of El Salvador. Some adjustments were made to the machine so it could work in the new conditions, but they also affected its power. That resulted in wasted steam and the loss of approximately two megawatts, which translated to a loss of US$2 million a year. But the machine business appears to have been more profitable for Enel, providing it with earnings of approximately $60 million, more than compensating for the loss of electricity generation… a loss that the Salvadoran State largely absorbed.

A similar situation occurred with the purchase of paddle blades for a turbine to be used in Berlín. These blades were calibrated for European measurements, not Salvadoran ones so the machine got out of balance. But instead of providing it with the normal maintenance for such a case, Enel requested another motor from Italy, which LaGeo also had to buy.

Suspicious maneuvers

All these maneuvers began to raise suspicions among the energy unions and some LaGeo officials, but other technicians authorized the new motor’s delivery. This investment, questionable from any perspective, was also capitalized and converted into shares for Enel. It is worthy of note that the then project director, who accepted that murky business, was promoted last year to the post of LaGeo general manager, with the transnational’s backing.

Enel proposed a new investment in LaGeo in 2008, this time for US$127 million, that would increase its shares from 36.2% to 53.25%, making it the majority shareholder of the once state-owned company. CEL’s then president, Nicolás Salume, blocked the investment, possibly basing his decision on the observations of an audit by the Accounting Court in 2006, which defined the clauses allowing the strategic partner to become the majority partner as “harmful to the interests of the State.” That’s when Enel-Green Power turned to the ICC’s International Court of Arbitration, a mechanism established in the same Shareholder’s Agreement to arbitrate in relation to the contract.

ARENA politicians
participated in the scam

Since mid-January of this year, Salvadoran President Mauricio Funes has dedicated several slots on his weekly radio program “Talking with the President” to laying out his position on the case and identifying the anomalies and those responsible for them.

So far, he has named a number of officials from past governments headed by the Nationalist Republican Alliance (ARENA). First on the list is former CEL president Guillermo Sol Bang, who in that period was also the ARENA party treasurer. He is followed by Jorge José Simán Zablah, president of LaGeo at the time and now owner and commercial director of El Faro. Then there’s José Antonio Rodríguez, who was LaGeo’s manager when the business was being concretized and just happened to be the brother-in-law of the President of El Salvador, Francisco Flores. Also on the list is Miguel Lacayo, minister of the economy in the same period, who has been accused of involvement in other corruption cases while holding that post, including benefiting from agrarian reform lands and granting tax exonerations for the import of raw materials for his battery factory. In addition to Sol Bang, another CEL board member who signed the Shareholders’ Agreement was Honduran-born businessman Tom Hawk, who came to El Salvador in 1986 as a USAID official and ended up national director of ARENA’s business sector; he is currently a member of that party’s recently created Political Commission.

Funes also questioned the current motivations of Edwin Zamora, an ARENA legislative representative and vice president of Hanesbrands El Salvador, a local branch of the US clothing transnational. President Funes referred to a contract by which LaGeo would supply that company electricity at a cut-rate price. Hanesbrands, he charged, “is causing the State losses of over $18 million because LaGeo is selling electricity to it at a price well below what it charges other clients.” According to Funes, this contract was approved by then Salvadoran Vice President and current ARENA Legislative Assembly representative Ana Vilma de Escobar.

Funes further reported that Antonio Saca’s government contracted the consultancy firm Guandique, Segovia and Quintanilla to study the LaGeo-Enel case in 2006. With respect to the clause on investment through capital contribution, the study held that “the agreement does not apply and must be dealt with through negotiations with the strategic partner, opposing the damaging aspects of the agreement due to serious and crude conditions for the State and the inappropriateness to public order of losing its position of majority shareholder in the exploitation of a public good that produces geothermal energy and is a national wealth.” Curiously, the Quintanilla who figures in that consultant firm is former Vice President Carlos Quintanilla Schmidt, during whose administration this swindle against the State was hatched.

National sovereignty is at stake

The LaGeo conflict is a two-headed one, the first of which is the presumed corruption of Flores government officials, involving everyone from the President himself down to second level-functionaries, the majority of whom now hold posts in the ARENA party. This explains ARENA’s virulent reaction in this case, its fierce defense of ENEL’s rights and its insistence on the Salvadoran State’s obligation to respect the ICC ruling. Even Francisco Bertrand Galindo, Enel’s current adviser and spokesperson, was the public security minister during Flores’ administration. Although he hasn’t been accused of participating in the evidently fraudulent process, it is not unusual to see him arguing that the Italian transnational is more loyal to the Salvadoran people’s interests than President Funes is.

The corruption of those who were governing the country then and intend to do so again is a national problem that has to be resolved in-house. Two investigative commissions were organized in February, one in the Attorney General’s Office, at President Funes’ request, and the other in the Legislative Assembly. The Attorney General’s commission obviously has the responsibility to review the case with an eye to possible prosecution of the crime. “We have to look at the part regarding the legality of the whole process,” they have said, “and if there is any indication of penal responsibility we also have to act.”

The Legislative Assembly Commission’s recommendations will be non-binding, but could provide the justice authorities with important elements regarding the case. The commission is made up of representatives from all parties plus one independent: Sigifredo Ochoa Pérez, the last legislative representative to have left ARENA. Ochoa Pérez was also the CEL president in the early nineties, where he earned the nickname “Eight Hours Pérez,” based on never investigated and thus never proven rumors that he sold small electricity generators to well-heeled people for their personal and commercial use so they wouldn’t have to suffer the frequent and prolonged blackouts he ordered while heading CEL.

ARENA, which now finds itself in the eye of the hurricane, tried to expand the legislative commission’s mandate to investigate all possible cases of corruption in CEL, not just those related to the Enel contract, in light of the charge ARENA itself filed at the beginning of February of this year against CEL’s current president. Although it’s always valid to investigate possible cases of corruption, the LaGeo-Enel case merits a very particular and focused examination because the country’s sovereignty and strategic resources are at the crux of the matter.

The other head of the problem is how to recover the geothermal resources for the Salvadoran people. The ICC court has already ruled in favor of one of its members rather than the State or its people and an independent appeals court has upheld that ruling. Nor is there any international court that could arbitrate such cases more neutrally, much less any whose mission is to guarantee justice to the world’s peoples.

The only way out is to
annul the contract

President Funes says he will try to annul or at least renegotiate the contract. The renegotiation scenario seems difficult, as Enel appears unwilling to accept less than what it now has. The Salvadoran government proposed a renegotiation as early as 2008, offering it 50% of the shares and a rotation of the LaGeo board presidency so it would fall to an Enel official every other period. But the Italian transnational rejected this lesser but still very generous offer.

The only way out that would really allow Funes to “defend the capital wealth of the Salvadoran State and avoid losing control of a strategic business such as LaGeo” is to negotiate the contract’s annulment. In such cases, the “affected” company is usually reimbursed for the price of the investments it made—which have now reached about $115 million—and also given some compensation. To be rigorous, one would have to ask whether the $60-70 million in profits that Enel has received over the course of the contract would be subtracted from this amount.

ARENA members and businesspeople affiliated to the Salvadoran Foundation for Economic and Social Development and the National Association of Private Enterprise argue that this solution and the current government’s refusal to follow the course established in 2002 is “bad business” that‘s scaring off foreign investment. That argument is bogus. Foreign investment is scarce in a country like El Salvador because it lacks a significant domestic market. Worse yet is the argument that defending a national resource is “bad business.” This idea would condemn the world’s poor countries and peoples to being eternally hijacked by the most powerful global transnationals, who get richer and more powerful by the day with resources that aren’t theirs.

The problems with Funes’ proposal

The experience with Enel casts a long shadow on President Funes’ statement in 2010 about public-private associations: “They are what we need to get our country moving and surmount the crisis we are facing.” It casts doubt on the thesis that “in a framework of juridical security, the private sector will contribute the economic resources, skills and knowledge required so that, together with the State, it will develop such projects to the benefit of the population.” This thesis is the object of a bill President Funes presented in the Legislative Assembly as recently as January of this year.

The search for a strategic partner for profitable state companies such as LaGeo, independent of whether or not they need it for development purposes, is a classic case of what could happen should the Law of Public Private Associations be approved. The bill establishes that “those [potential partners] whose objective is to promote strategic sectors of the economy by fostering technology, science, higher education, innovation and development” are of general interest. While that definition fits nicely with the priorities of these businesses, Enel and other experiences show that such companies have little interest in promoting such sectors for the country’s development; their only interest is their own profit.

It needs to be borne in mind that even if corruption in the public sphere is totally beheaded, President Funes’ bill offers no guarantee to halt the kind of private sphere corruption widely practiced by Enel, as can be seen in the multiple maneuvers it pulled off during its various investments.

President Funes speaks for the majority of the Salvadoran people when he says: “Only an anti-patriot could favor our losing an important patrimony such as the generation of energy through the steam that comes from the subsoil. The subsoil is the property of Salvadorans and cannot belong to any foreign investor.”

Let it be known by all

If the bill is approved, the protection clauses that guarantee that the State will assume all the risks in private investment would become the norm. The bill also contains no clause restricting the amount of shares that a private company entering into a joint venture with the State can accumulate.

“Those who do not learn from history are condemned to repeat it,” is a wise old saying. For that reason among many others, the history of this case must be taken up in the Legislative Assembly debate on the new bill. But it must also be broadly disseminated among the Salvadoran people. The LaGeo-Enel case must reach all the different spheres in which the organized Salvadoran population is demanding its right to participate in State decisions.

Elaine Freedman is a grassroots educator and the envío correspondent in El Salvador.

Print text

Send text