Enersis S.A.

Avenida Santa Rosa 76, Piso 17
Santiago 833-0099
Telephone: +56 2 353 4400
Fax: +56 2 378 4768
Web site: http://www.enersis.cl

Public Subsidiary of Endesa SA
Incorporated: 1921 as Compañia Chilectra de Electricidad SA (Chilectra); 1981 as Chilectra Metropolitana SA; 1988 as Enersis SA
Employees: 11,000
Sales: CLP 271 billion ($4.86 billion) (2004)
Stock Exchanges: Santiago New York
Ticker Symbols: ENE; ENI (ADR)
NAIC: 221122 Electric Power Distribution; 523120 Securities Brokerage; 551112 Offices of Other Holding Companies; 561110 Office Administrative Services

Enersis S.A., of Chile, is one of South America's leading electricity utilities, with operations chiefly focused on the power generation and distribution markets. Enersis's generation operations include its control of Endesa Chile, which is not only Chile's leading electricity producer, but also one of the largest in the continent, with 46 power plants in Chile, Argentina, Brazil, Peru, and Colombia. Endesa Chile's total power generation capacity stood at more than 12,000 MW in 2005. Enersis also operates power distribution subsidiaries, including its flagship Chilectra. That subsidiary provides electricity distribution services to nearly 1.4 million customers in the metropolitan Santiago market. Chilectra also serves as the holding company for Enersis's international power distribution operations, including Edesur, the Argentinean market leader; Coelce, serving the state of Ceará, and Ampla, which holds the Rio de Janeiro concession, in Brazil; Edelnor, focused on the region of northern Peru; and Codensa, which serves Bogota and more than 96 other municipalities in Colombia. Altogether, Enersis serves more than ten million customers. Enersis itself is controlled by Spain's Endesa, which acquired a 65 percent stake in the company at the beginning of the 2000s. Enersis is listed on the Santiago and New York stock exchanges. In 2004, the company posted revenues of CLP 271 billion.

Tramway Origins in the 19th Century

Electricity came to Chile, then under British and German dominance, in the early 1880s, not long after the first electricity networks appeared in the United States and England. The first lighting company started up in Santiago in 1882, and by 1883 had installed a power generation plant featuring seven generators, driven by three steam engines.

Santiago's steady growth into the 1890s created a need for a stable and reliable electricity network. By the early 1890s, the city's population had grown to 300,000. In 1896, the city inaugurated a public lighting grid based on incandescent light. Yet the most important factor in the development of a reliable electricity system was the decision in 1893 to build an electric tramway in the city. Until then, the city was served by Ferrocaril Urbano, which operated more than 300 horse-drawn trams on a network of more than 100 kilometers of track.

The contract for the tramway was awarded to the British group Alfred Parish & Co., which in turn founded Chilean Electric Tramway & Light Company (CETLC) in 1898. Registered in London, CETLC was nonetheless more German in nature—its capital, as well as its chairman and most of its board of directors were from Germany. CETLC created a Chilean subsidiary, Compaia de Tranvias I Alumbrado Eléctricos—the tramway operator was nonetheless known by its English name—then acquired Ferrocaril Urbano. CETLC also brought in Berlin-based Allgemeine Elektricitäts Gesellschaft to convert the city's tramway to electric trams.

By the early 1900s, CETLC had largely completed the first phase of its tramway, with 205 motor cars pulling 40 passenger coaches on nearly 100 kilometers of track. The company expanded greatly in the first half of the decade, and by 1905 boasted a fleet of 225 motor cars and 90 primarily doubledecker coaches.

CETLC was acquired by the German consortium Deutsch-Überseeische Elektricitäts Gesellschaft (DUEG, also known as Compañia Alemana Transatlántica de Electricidad in South America), which already controlled the Valparaiso tramway and which had established extensive tramway holdings in Argentina, Uruguay, and elsewhere. Under DUEG, CETLC extended its tramway beyond Santiago for the first time, inaugurating a suburban line in 1906.

DUEG was forced to withdraw from the Latin American market at the end of World War I. CETLC was then taken over by a multinational consortium, including British, Spanish, and Belgian partners. That consortium's control proved shortlived, however. In 1921, a new major shareholder, Whitehall Electric Investment Ltd. of England, led a merger between CETLC and Compañia Nacional de Fuerza Electrica, founded in 1919 in order to produce and distribute electricity for northern Chile. The newly enlarged company adopted the name of Compañia Chilena de Electricidad, or CCE. Whitehall's share of the company stood at 86 percent.

By then, CCE's fleet numbered more than 500 passenger trams, and its network had been extended to 153 kilometers. Yet the fleet and track were in poor repair, and a refurbishment of the line was hampered by the city of Santiago's refusal to allow CCE to raise its fares. CCE was additionally hurt by the appearance of the city's first bus service in 1922. During this period, however, CCE's electricity generation and distribution operations grew strongly, in part due to the decision to convert much of Chile's railroad network to electricity. As a result, CCE was able to carry out an extensive renovation of its Santiago tramway network into the late 1920s. The company also acquired a shuttle service operator, Tranvias Electricos Pedros de Valdivisa in 1925. CCE then formed a new subsidiary for its tramway interests, Compañia de Traccion y Alumbrado de Santiago.

CCE was acquired by a U.S.-based holding company, Electric Bond & Share, in 1929, which expanded the company's fleet again in the early 1930s. Yet the economic crisis of the 1930s brought CCE into financial turmoil. By 1936, the Chilean government pushed through a consolidation of the country's electrical industry. This process began with the formation of South American Power Co. (SAP), which acquired the operations of most of the electrical companies operating in Chile's central region. The companies continued to operate as autonomous units into the middle of the decade.

By the mid-1930s, the state had begun to exert more control over the electricity industry. In 1936, the state engineered a merger of the SAP companies into CCE. The company nonetheless remained a private corporation, still largely under U.S. control. Over the next several decades, CCE acquired most of the electrical companies in operation in its region, establishing a near-monopoly by the early 1960s. Yet CCE gradually lost its own independence, as the Chilean government increased its stake in the business. By 1960, the government's stake had grown to 15 percent.

The massive nationalization of Chile's industries under the Allende government at the beginning of the 1970s removed CCE from the private sphere as well. CCE's nationalization took place in August 1970. Under the Pinochet government, which gained control in 1973, however, the country began a process of re-privatization of many of the formerly private businesses taken over by the state. Nonetheless, the government continued to exert control over a number of industries, including electricity, gas, coal, mining, and others.

Privatizing in the 1980s

The Pinochet government nonetheless began preparations to privatize the electricity industry in the early 1980s. In 1981, the CCE was divided into three parts. The first bundled its power generation operations, which grew into Endesa Chile during the decade; the second became Chilquinta SA, which took over the CCE's power distribution business in Chile's Region V. The third part, which included the CCE's power distribution operations in the Santiago metropolitan region, became Compañia Chilena Metropolitana de Distribucion Electrica SA, or Chilectra.

Chilectra started off as a money loser, riddled by debt and inefficient operations. In 1983, however, Jose Yuraszeck was named as head of Chilectra and charged with restructuring its operations toward its future privatization. Yuraszeck had served in the government's Odeplan, the supervisory body for the free-market reform program instituted by the Pinochet government, before joining Chilectra.

As part of the move toward privatization—and in order to help lower employee resistance—Yuraszeck enacted a program of issuing shares in the company at discounted prices to employees. Another block of shares were sold to a newly created group of private pension fund management companies, while the rest was to be sold in a public offering.

In 1986, Yuraszeck created a new holding company, Enersis SA, which took over Chilectra and its assets. Shares in Enersis were also sold to the company's employees, while another block of shares were sold to the public. Yet Yuraszeck and a number of other company executives structured the sale of Enersis's shares in a way that gave them firm control of the company. As part of the new shareholding structure, the company established five investment groups, called Chispas ("sparks"); yet the Chispas' voting rights were transferred to Yuraszeck and a small number of associates. This setup, at the time, earned Yuraszeck praise as Chile's "energy czar."

In 1988, Enersis was floated on the Santiago stock exchange, completing its transfer to the private sector. The following year, the company began buying up shares in Endesa Chile. By 1990, Enersis's more than 12 percent stake in Endesa Chile made it the primary shareholder in the country's largest power generation company. By 1995, Enersis's stake in Endesa Chile had grown to 25.3 percent; the company acquired a controlling share of 60 percent in 1999.

Company Perspectives:

Enersis is one of the principal private electric multinationals in Latin America and it has a direct or indirect participation in the business of generating, transmitting and distributing electric power and related activities in five countries: Argentina, Brazil, Colombia, Chile and Peru.

International Energy Company in the New Century

In the meantime, Enersis had expanded internationally, targeting its neighboring South American markets. This process began in 1992, when the company acquired a stake in Argentina's Empresa Distribuidora Sur SA (Edesur), then in the process of being privatized. By 1995, Enersis had boosted its direct shareholding in Edesur past 39 percent, giving it majority control of that business.

Enersis's attention turned to Peru in 1994, where it purchased 60 percent of Empresa de Distribucion Electrica de Lima Nortes SA (Edelnor). The company then boosted its position to 69 percent of Edelnor. At the same time, Enersis eyed an entry into Brazil, the continent's largest electricity market. That entry came in 1996 when the company joined a consortium, including Spain's Endesa, in the acquisition of Companhia de Eletricidade do Rio de Janeiro (Cerj). Later known as Ampla, the purchase gave Enersis a position as an electricity distributor in the Rio de Janeiro and surrounding market.

In 1997, Enersis traveled to Colombia, once again joining a consortium to acquire Condensa SA, the electricity distributor to the Bogota market, as well as the Cundinamarca department. The following year, Enersis boosted its Brazilian position when, through another consortium, again featuring Endesa, it acquired a controlling stake in Companhia Energetic de Ceará (Coelce). That company's operational sphere included the state of Ceará and elsewhere in northeast Brazil.

Enersis itself became an acquisition target in the late 1990s, as Endesa of Spain began acquiring shares in the company. The Spanish company bought a 32 percent stake in 1997. Then, in 1999, in a deal put together by Yuraszeck, Endesa gained control of another 32 percent, largely represented by the shares held by the five Chispas. Yet the true nature of the deal—which not only gave Endesa control of Enersis but effective control of all of Enersis's multinational markets by limiting Enersis's ability to make acquisitions outside of Chile. Worse, the deal included a number of hidden clauses—most notably a payment to Yuraszeck and associates worth more than $500 million.

The resulting scandal led to Yuraszeck losing his job, and nearly threatened the Endesa purchase altogether. While Endesa finally succeeded in acquiring a majority stake in Enersis, its position in the Chilean company was weakened by a new agreement guaranteeing Enersis's freedom to conduct its own national and international expansion.

One of Enersis's first moves was to acquire an additional 25 percent in Endesa Chile, making it that company's majority shareholder. The stake in Endesa Chile also placed Enersis among the top electricity companies in South America.

Enersis's expansion had saddled the company with a debt of more than $11 billion, however. In 2000, the company began a streamlining exercise in large part in order to raise funds to reduce its debt. In that year, the company sold off its electricity transmission subsidiary, Transelec, to Quebec, Canada's Hydro Quebec International. The company then sold off several other businesses, as well as a number of real estate properties. The company also launched a capital increase of more than $1.6 billion that year.

Into the mid-2000s, Enersis focused its efforts on building capacity. In 2002, for example, the company built a new hydroelectric plant at Ralco, in the eight region, and the Fortaleza thermal plant in Ceará, Brazil. In 2005, the company launched construction on two more plants in San Isidro and Palmucho, in a combined investment of more than $223 million, which would add some 600 MW to the group's total capacity by 2007. With a customer base of more than ten million, Enersis had grown into South America's electricity giant.

Key Dates:

Chilean Electric Tramway & Light Company (CETLC) is formed to install electric tramway in Santiago.
Deutsch-Überseeische Elektricitäts Gesellschaft (DUEG) acquires CETLC.
CETLC merges with Compañia Nacional de Fuerza Electrica, becoming Compañia Chilena de Electricidad (CCE).
Chilean government engineers merger of South American Power into CCE, which remains nominally privately controlled.
Allende government nationalizes CCE.
CCE is broken up into three parts, including Chilectra, as part of privatization process.
Enersis is formed as a holding company for Chilectra and other electric power interests.
Enersis is privatized and listed on the Santiago exchange.
Enersis acquires first stake in Endesa Chile.
Company begins internationalization effort with acquisition of stake in Empresa Distribuidora Sur SA (Edesur) of Argentina.
Company acquires 60 percent of Empresa de Distribucion Electrica de Lima Nortes SA (Edelnor) in Peru.
Company enters Brazil with stake in Companhia de Eletricidade do Rio de Janeiro (Cerjm later Ampla).
Company acquires stake in Condensa (Colombia); Endesa acquires 32 percent of Enersis.
Company acquires stake in Companhia Energetic de Ceará (Coelce); Endesa acquires majority control of Enersis.
Enersis launches streamlining and capital expansion in order to streamline debt.
Enersis builds new hydroelectric plant at Ralco, in the eight region, and the Fortaleza thermal plant in Ceará, Brazil.
Company begins construction on two new power plants in San Isidro and Palmucho.

Principal Subsidiaries

Central Costanera S.A. (Argentina); Central Hidroeléctrica de Betania S.A. (Colombia); Chilectra S.A.; Compañía Eléctrica San Isidro S.A.; Compañía Eléctrica Tarapacá S.A.; Compañía Gasoducto Atacama; Edegel S.A. (Peru); Edelnor (Peru); Edesur S.A. (Argentina); Electrogas S.A.; Emgesa S.A. (Colombia); Empresa Eléctrica Pangue S.A.; Empresa Eléctrica Pehuenche S.A.; Endesa Chile; Endesa Fortaleza (Brazil); Hidroeléctrica El Chocón S.A. (Argentina).

Principal Competitors

National Power Corp.; Autoridad de Energia Electrica de Puerto Rico; Centrais Eletricas Brasileiras S.A. Eletrobras; Corporacion Dominicana de Electricidad; Instituto de Recursos Hidraulicos y Electrificacion; EEB S.A.; Electricidad De Caracas C.A.; Corporacion Autonoma Regional del Cauca CVC.

Further Reading

"Endesa Restructures Its Brazilian Shareholdings," Business Wire , May 25, 2005.

"Enersis Profits Rise After Restructuring," Latin American Power Watch , August 18, 2003, p. 7.

"Enersis Unveils Investment Plan," Latin American Power Watch , August 18, 2003, p. 6.

"A Gargantuan Refinancing," Latin Finance , February 2004, p. 51.

Kandell, Jonathan, "Fall from Grace," Institutional Investor , February 1998, p. 63.

Loft, Kurt, "Endesa Spain Reshapes Enersis-Chile?" America's Intelligence Wire , June 30, 2003.

Romans, Christine, and Greg Clarkin, "Enersis to Focus on Distribution Assets from 2004," America's Intelligence Wire , November 4, 2003.

"Spain's Endesa Will Invest $140m in Brazil Through Its Chilean Subsidiary, Enersis," Petroleum Economist , May 2004, p. 45.

—M.L. Cohen

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