When an earthquake devastated Venezuela's capital in 1967, La Electricidad de Caracas engineer Hector Cedillo stayed at his post in the seventh-floor control room of company headquarters. Although the building shook, Cedillo was steady as he shut off damaged power stations and turned on alternate power stations. The lights in Caracas did not go off.
Now, La Electricidad, Venezuela's only private power company and one of the country's oldest and most respected firms, is fighting, like many other Venezuelan private companies, to survive the effects of a man-made disaster: the financial storm into which the country plunged almost two years ago.
Caught by a downcurrent in the oil market -- oil provides Venezuela with more than 95 percent of its foreign exchange income -- and the pressures of the country's $34 billion foreign debt, Venezuela's high-flying and overvalued currency, the bolivar, crashed. Venezuela was forced to clamp on strict exchange controls to allocate scarce dollars, and the bolivar suffered a sharp de facto devaluation.
The financial crisis caught La Electricidad with the largest foreign debt of any private company in the country -- $723 million, more than 10 percent of Venezuela's estimated $6 billion to $7 billion private debt to 64 foreign banks.
Generally considered a well-managed, if conservatively, run company, La Electricidad went heavily into debt to finance an addition to its Tacoa power plant, without which electricity demand in Caracas would have far outstripped supply.
La Electricidad, along with private firms, faces a crushing burden in the increased cost of servicing that debt now that the bolivar, once the strongest currency in Latin America, has plummeted to about 13 per dollar on the free market (from its predevaluation rate of 4.3 per dollar). Companies are caught between the government's strict price-control policy and the need to generate more income to pay doubled debt-servicing costs.
In La Electricidad's case, the government, under strong union pressure, rejected a request for a 40 percent electric rate increase, the minimum the company calculated it needed to avoid bankruptcy.
After considering the idea of nationalizing the company -- a suggestion that almost drove irate stockholders into the street demanding the head of the development minister -- the government arrived at a compromise solution that ensures the company's survival, at least for the short term.
The government granted a 20 percent utility rate increase, half of what the company had requested, but it kicked in a $270 million low-interest loan, which presumably will be used by La Electricidad to service its debt.
In addition, the government is expected to approve a "zero coupon bond" debt payment plan for La Electricidad that would help the company stretch out its payment period for 10 years instead of seven and lower its debt-servicing costs.
Under this plan, debtors would buy dollar-denominated noninterest-bearing bonds from the central bank at the 4.3 bolivar rate up to a maximum of 30 percent of their recognized debt, banking sources said. The bonds, maturing in 10 years, guarantee principal payment to creditors by the central bank.
The plan has the added advantage of allowing debtors to use the remaining 70 percent of their 4.3 dollars to pay part of their interest costs.
"The government has half-solved and half-postponed the problem," said Francisco Aguerrevere, La Electricidad president.
But La Electricidad is in a privileged position compared with other companies. "You can name a number of companies that are dead if they don't get their debt recognized and some relief on prices," said one representative from a major North American bank, who now spends days shepherding applications for debt payment dollars from some of these companies through Recadi, the government exchange controls agency.
Not all Venezuelan firms are in such dire straits. Pedro Palma, an economist who for a while served on Venezuela's debt negotiating committee, notes that the private sector can be held responsible for most of the estimated $25 billion that left the country in the four years leading up to the 1983 financial debacle. "Some firms will undoubtedly have problems if their debt is not recognized, but others have access to a lot of dollars abroad," Palma said.
To get cheap dollars at the government-subsidized rate of 4.3 bolivars, companies, including La Electricidad, must register their debt and have it pass scrutiny at Recadi. If the debt is deemed legitimate, the company can get the cheap dollars to pay principal only on debts that have been rescheduled over seven years. However, private firms must pay interest at the 7.5 bolivar rate that under Venezuela's exchange controls system is used to pay for most imports.
That's the way the system is supposed to work in theory. The reality is something else again. Private companies have piled up a backbill of about $1 billion in interest arrears while waiting for Recadi to authorize payments. So far, only a few companies, including La Electricidad, have had their debt fully registered, and fewer have obtained from the central bank the dollars for debt payment.
Recadi says the painfully slow progress in registering and authorizing debt payment is the result of the close scrutiny it must give to often inflated or false debt claims -- claims that at one point swelled estimates of the country's private debt to $14 billion.
However, for U.S. bankers watching their profits plummet as they are forced to put multimillion-dollar loans on nonaccrual status, the process of collecting on private-sector debt is a bureaucratic nightmare that government explanations have done little to dispell.
Slow payment of overdue private-sector interest has turned into the biggest obstacle holding up a final agreement on rescheduling $20.75 billion of Venezuela's $27 billion public-sector debt.
Venezuela has adopted procedures suggested by the banks to streamline the whole private debt process, and bankers hope the trickle of interest payments will turn into a steady flow soon.
Banks recognize that their signature on a final public-sector debt agreement is the only lever they have to exert pressure on the private debt. Such a signature, bankers insist, will come only if they are satisfied that the Venezuelan government is serious about paying the private debt.