Honduras: Bargaining Away the State Power Company

The main topic of discussion yesterday afternoon between members of the International Monetary Fund team and representatives of the Honduran government negotiating terms for a possible IMF credit package of up to $220 million was the financially-strapped National Electric Energy Company.
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The main topic of discussion yesterday afternoon between members of the International Monetary Fund (IMF) team and representatives of the Honduran government negotiating terms for a possible IMF credit package of up to US$220 million was the financially-strapped National Electric Energy Company (Enee), which reported losses of Lps 8 billion (US$380.9 million) in 2013 -- more than double what it was a decade ago. In a TV interview last month with journalist Eduardo Maldonado of HCH News, the President of the Central Bank of Honduras, Marlon Tabora, confirmed that the Enee loses US$1 million daily. Minister Tabora said that the Enee alone accounts for 30 percent of the government's annual budget deficit.

One of the main problems seems to be that the Enee has consistently been managed like a child's corner lemonade stand. This is evident, given Enee general manager Emit Hawit's recent admission that "the Enee, over three decades, has not had credible accounting, financial data, or a real list of billing accounts". It is clear that the main roadblock to any deal with the IMF is going to be the status of the Enee, because there is no way the Hernández administration can hope to meet the IMF's conditions for reducing public spending without taking dramatic action with regard to the Enee. According to Minister of Finance Wilfredo Cerrato, the government has already implemented measures to try and rescue the Enee, including a revision of the salary structure for Enee employees. He also noted that contracts with thermal energy generating companies have been renegotiated, and that this would result in savings of Lps 1.8 billion (US$85.7 million) over the next three and a half years. Sounds like lot of money, but it's really only a drop in the bucket when you're losing Lps 8 billion a year. Lastly, Mr. Cerrato said that salaries for employees who do not work would be revised because it is "illegal and unjust". Novel concept... won't get paid unless you actually work. Hmm. Mr. Cerrato estimates that by November the Enee's budget problems should noticeably improve. But you'd be hard-pressed to find someone in Honduras who honestly shares this optimism. Of course, there is always the option of charging customers more for electricity, but that would be tricky, given the already horrendous service being provided by the Enee. Imagine going without electricity every day for 3-4 hours, and then getting a higher bill in the mail (assuming an efficient postal service, which Honduras doesn't have). Then there's the little problem of the mismanaged billing accounts. The question is, "Will the IMF team buy the sell job?" It would be surprising if it did, because anyone can see how dire is the Enee's situation and how inadequate is the Hernández administration's response to it. The Enee is hemorrhaging cash -- US$1 million a day. The US$220 million the IMF might end up loaning the government would cover Enee financial losses for about seven months. In other words, the IMF would merely be providing an extremely short-term subsidy for a state enterprise that appears destined to fail anyway. What's the point. So the Hernández administration can buy a little breathing room? The Honduran people would end up getting strapped with a lot more debt, and thus eventually probably a lot more taxes. Not a good deal.

What does President Juan Orlando Hernández have to say about the whole thing? Here's what he said recently on TV:

"In the case of the Enee, we cannot cease to recognize that its financial situation is one of the biggest problems we have inherited, and which my government must confront. For decades, the Enee was badly administered, and its financial situation continued to decline. This produced a huge deficit, which is affecting the entire country. We are looking for solutions to this situation."

Interestingly, almost everyone appears shy about mentioning privatization (in public) as a likely consequence of the negotiations with the IMF. Yeah, it's a scary word. Lots of Enee employees would lose their jobs or have their pay reduced. The Hernández administration is aware of the political backlash from the labor unions and from organizations such as the National Front for Popular Resistance (FNRP) and the Libre Party. It would mean endless labor strikes and chaos on the streets of Honduran cities and towns. The Hernández administration has its hands full at the moment. Thus, the need to stall... or at least make it look as if the government is being strong-armed into privatizing the Enee.

The World Bank has been pushing for the privatization of the Enee for years. But the IMF may soon insist on this as well. If so, the Hernández administration might try to deflect criticism by attempting to shift the blame. Either way, as the first Law of holes says, "If you find yourself in a hole, stop digging."

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