Temas Públicos
Nº 784 -
www.lyd.org- Email:[email protected]
August 18, 2006
The Entrepreneurial State Grows
Through ENAP
The new energy policies of President
Michelle Bachelet’s government have been
while the former attempts just the opposite,
made known during recent months. They inthat is, that the state carry out entrepreneurial
clude using the National Oil Company (ENAP)
activities independently of whether the private
to advance a series of proposals which include
sector has incentives to provide the product or
the operation of an electric
service in question.
power station using liquified
natural gas (LNG) and
The fact that the state takes an
steam, and the development ENAP is expanding into new entrepreneurial role creates a sebusinesses, bringing about the
of biofuels.
ries of problems due to the ineffi-
On the other hand,
since 1990 ENAP has initiated a strategy aimed at internationalizing its exploitation
and exploration activities,
and during the last two years
it has been doing the same
with its refining, logistics and
commercialization activities
through the acquisition of
Shell gas stations in Peru
and Ecuador, all of which
suggests a return to the entrepreneurial State.
revitalization of the
Entrepreneurial State. These
new activities could perfectly
well be carried out by the
private sector without
employing the resources of all
Chileans. In this respect, a
series of questions arise
regarding the achievements of
its 2002-2006 strategic plan, the
legality and the profits of the
company’s investments in
Peru and Ecuador, and the role
of the state in the definition of
the country’s energy matrix.
The Entrepreneurial State
The entrepreneurial state is the opposite
of the subsidiary state. The latter presupposes
that the state acts only in those situations
where The private sector would not intervene,
En esta edición:
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cient allocation of resources.
Three such inefficiencies especially stand out: (1) The implicit
guarantor role of the state which
arises when private enterprises
realize that having the state as a
partner constitutes a relative advantage, because when faced
with adverse situations there is a
greater probability of receiving
state support than in the case of
not having this strategic partner.
(2) Contrasting incentives between maximization of profits and
political considerations, especially
in pre-electoral periods, when
stabilization funds, subsidies and
others, appear more easily. (3)
Lack of accountability, since the
absence of a private owner leads to less control of the efficient use of resources.
Given all this, it would be desirable that
public enterprises do not expand into activities
which the private sector could provide perfectly
El Estado Empresario Crece a Través de ENAP
Mejorar la Gestión: Una Alternativa a la Nueva Corte de
Apelaciones de Santiago
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plore and exploit the hydrocarbon
deposits abroad. .
Figure No. 1
Structure of ENAP
a)
Creation of Value
The Strategic Business Plan
(SBP) for the period 2002-2006
was approved in 2002. This plan is
aimed at increasing the economic
value of the company by 50% and
ensuring that the company transfers 700 million dollars in revenues
to the state during the period.
The SBP would be carried
out through the investment of
1.350 million dollars and would
imply, on one hand, ENAP taking
possession of oil wells in Iran, Argentina, Egypt
and Ecuador, among other places, and, on the
other hand, the entrance of ENAP into the
business of retail distribution of fuels in Peru
(2004) and Ecuador (2005).
Source: ENAP Presentation, January 2006.
well, as is now the case with ENAP, and thus
the state should limit itself to its subsidiary role.
ENAP
The National Oil Company was created
in 1950 by Law Nº 9,618, which basically allows ENAP to explore, exploit or otherwise use
hydrocarbon deposits, whether in the country
or abroad.
According to the company the aims of the
SBP were achieved in advance, as the state
received about 750 million dollars in 2005, and
the value of the company was estimated to be
around 3.183 million dollars3.
The organizational structure of ENAP
comprises Upstream y Downstream activities.
The first refers to all the exploration and production activities, in charge of Sipetrol (abroad)
and the upstream area of ENAP Magallanes
(national), while the second comprises the refining, logistics and commercialization operations, which are in charge of Refinerías S.A.
(which include the Aconcagua, Bío Bío and
Gregorio refineries) (Figure N°1).
This would suggest that in 2002 the value
of ENAP was not more than 2.122 million dollars, but as there is no official data available
the figures are uncertain. That is why it would
be highly positive to make known the study
which estimated the value of ENAP before and
after SBP as also the methodology applied, so
as to allow anyone who is interested in the
subject to question the figures and provide external accountability of the same; which would
allows us to know, for example, if the increase
in the economic value of the company is effectively due to the creation of value or on the
contrary is due to important increases in the
price of the barrel of oil and to increases in the
refining margins.
ENAP’s strategic business plan
ENAP’s original aim was to exploit commercially the deposits discovered in Magallanes. Later, it decided to build a refinery (first
in Concon and later Petrox) and in the following years it devoted to build gas-oil storage and
distribution centers1.
A recent paper4 measuring EVA (Economic Value Added)5 indicates that the annual
value creation of ENAP between 2002 and
2005 was around 38% and not 50% as ENAP
says (Figure N°2), and to achieve the SBP’s
During the following decades ENAP continued
developing the activities already mentioned
until 1990 when Sipetrol2 was created to ex2
uses, it should at least be required that the
associated profits should be greater than
those of the alternative uses. However
Acumulado Promedio
ENAP itself has presented the result of its
2001 2002 2003 2004 2005 2002-2005 2002-2005
investments in refining, logistics and retail
ENAP
8% 7% 11% 10% 11%
38%
10% distribution in Ecuador commenting that
their Net Present Value (1,8 million dollars)
is small in relation to its other investments
Source: Chilean Entrepreneurial Performance, Econsult, Marzo 2006.
and therefore, “this acquisition will allow
ENAP to obtain a strategic position in Ecaim the value creation for 2006 should be
uador”. That is, the funds belonging to every
about 12%, that is the highest since this study
Chilean citizen are being used in an investment
was started in 2001.
which is less profitable than other alternative
projects, and furthermore in risky markets, with
Lastly, it would be also interesting to
the sole aim to have a strategic positioning
make available the research and methodology
whose justification nobody knows.
applied to estimate the rate
of commercial exploration
It should also be pointed out that
success of ENAP in the exthe law allows ENAP to carry out
From a legal point of view the
ploitation wells which accordexploration, exploitation or usage
entrepreneurial activity of the
ing to the company reached
of deposits containing hydrocarstate is of a subsidiary and
an average of 24% between
exceptional nature. This means bons within or outside the nation1991 and 2005, and 50% beal territory. On the other hand the
that it can carry out its
tween 2003 and 2005, which
entrepreneurial activity only if law allows it, among other activiare extremely high rates in
ties, to participate, sell or comthe private sector does not
the oil exploitation business6
want or cannot carry out such mercialize oil and gas, and other
business. For a state company similar activities related to hydrob) Retail Distribution
to extend its activities, it must carbons in general, though in the
latter case the law does not specIn 2004, ENAP entered
be authorized to do so by a
ify if these activities are to be carspecial law with qualified
the business of retail distribuquorum. In practice none of ried out abroad or within the
tion of fuels by taking control
of Shell Peru; in 2005 it did these requisites established in country.
Figure N°2
EVA of ENAP 2001-2005
the same in Ecuador. In both
cases the operation was a
joint venture with the Romero
group from Peru.
the Constitution for the
entrepreneurial activity of the
state concur in this case.
A previous study7 concluded that
the activities of ENAP in Peru,
which is also applicable to the
purchase of 61 gas stations in
Ecuador, exceeds the specific
attributions assigned to it by law, so that if it
wishes to carry out this kind of business
abroad, there should be a law of qualified
quorum to authorize it expressly to do so.
Retail distribution is an activity which can be carried out perfectly well by the
private sector and therefore there is no need
for state intervention in this field. Likewise,
there is no valid reason to use the resources of
all Chileans in high risk operations which face
high competition abroad
c) The new businesses of ENAP
For several years ENAP has been investing in related companies. These investments
reached 90 million dollars in 2005. ENAP has
announced new investments for the year 2006
to diversify the Chilean energy matrix. Among
those already announced are: (1) a joint venture with Copec Enterprises and British Gas to
This said, there could be some sort of strategic
or commercial reason (such as economies of
scale) which would make it necessary for the
state to participate in these markets. If this
were the case, and as the capital assigned to
the retail distribution business has alternative
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study the construction of an electric power station which will operate using liquified natural
gas (LNG) and steam; (2) an alliance with
IANSA, the sugar refining company, to study
the joint development of biofuels (such as ethanol and biodiesel); (3) a joint venture with
Endesa, Metrogas, and British Gas to build the
LNG plant in Quintero, and (4) an alliance with
British Gas to develop the Dorado-Riquelme
project in continental Magallanes, in addition to
the current project of ENAP in Lago Mercedes.
Conclusions
ENAP is expanding to new businesses
which are bringing about the revitalization of
the entrepreneurial state. These activities could
perfectly well be carried out by the private sector without risking the resources of all Chileans.
In this respect a series of questions arise regarding the achievements of its 2002-2006
strategic plan, the legality and the profits of the
company’s investments in Peru and Ecuador
and the role of the State in the definition of the
country’s energy matrix. All this could lead us
to question the efficient assignment of the “ever scarce” resources of the country.
The aforementioned announcements beg
a question: why does ENAP have to participate
in the business of the new energy sources
which are unrelated to its core business? This
matter is relevant because these are projects
in which the private sector has incentives to
participate. A reasonable explanation would be
that if a private company went into partnership
with a state corporation there would exist a sort
of “implicit subsidy” which would not be present
otherwise, as the investments of the state enterprise have lower alternative costs than those
of the private enterprises, because there is less
business risk given the commitment of the
state to develop some specific energy sources.
1
ENAP’s Annual Report .
2
Sociedad Internacional Petrolera S.A.
3
ENAP’s 2005 Annual Report, page N°23.
4
Chilean Entrepreneurial Performance 2005. ECONSULT.
The EVA measures the value generated by a company in a given period, calculated as the difference between the profitability reached and the one required. The
profitability reached by a company is more accurately expressed through ROCE (Return
on capital employed) while the one required to a company is known as the cost of capital
measured through the CAPM (Capital Asset Pricing Model). In the case of CAPM, the cost
of capital depends on the business risk and on the market interest rates. Therefore the
value generated by a company within a certain period is measured as ROCE minus the
corresponding cost of capital. On the other hand the ROCE is an operational profit measure taking into account the assets and liabilities required to generate the operational flux of
a company.
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If it were not so, it would be wrong to allow the
state to become an entrepreneur instead of it
being a subsidiary state. And if it is so, why instead of subsidizing specific energy sources
does it not choose a more efficient alternative,
such as delivering a general subsidy to whatever energy sources are considered the most
efficient by the market.
6
According to sources of the energy market reasonable rates would be up to
7
Temas Públicos N°689
10%.
Notwithstanding the above it is necessary
to point out that, from a legal point of view, the
state entrepreneurial activity should be of a
subsidiary and exceptional nature. The former
means that it can carry out its entrepreneurial
activity only if the private sector does not want
or cannot carry out such business. The latter
means that every authorization to extend the
scope of a state enterprise must be validated
by a qualified quorum law. In practice none of
these constitutional requirements for the entrepreneurial activity of the state concur in this
case. Thus ENAP has once again gone beyond the limits of the state’s entrepreneurial
activities
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