More than a decade after Fortis Inc. became the biggest utility owner in Belize, the company is looking for compensation from the Central American government that expropriated its assets earlier this week.
Fortis estimates Belize Electricity Ltd. (BEL) has a book value of $125 million.
The St. John’s-based company aims to submit its compensation claim to the Belize government by the end of next month.
“We are no longer involved with BEL, other than seeking to recover our investment there,” said Barry Perry, vice-president of finance and chief financial officer of Fortis Inc., in an interview.
On Tuesday, the Belize government expropriated BEL and appointed a new management team and board of directors.
Perry said the company’s only recourse is to work with that legislation to get compensation.
“In western democracies, it’s usually based on fair value of the assets.
“We expect that we will be developing our view of valuation for our investment and presenting it to the government.”
Fortis owned 70 per cent of BEL, while 26 per cent was held by the Belize public pension fund known as the Social Security Board.
Other Belize assets
Fortis still holds hydro-generating assets in the Central American country through Belize Electric Company Ltd. (BECOL).
That company is run separately from BEL, has 25 employees and generates 51 megawatts of electricity from its three plants, Mollejon, Chalillo and Vaca. It supplies power to BEL under a 50-year agreement.
“The prime minister has indicated that he has no plans of doing anything in terms expropriation with BECOL,” Perry said.
“That’s what he said publicly, so we’re hopeful that that remains the case.”
BEL rates reduced
The origins of the current dispute started three years ago when the Belize Public Utilities Commission reduced BEL’s rate of return from 12 per cent to 10 per cent.
At the time, Fortis said that effectively disallowed $36 million worth of previously incurred power costs.
An appeal was dismissed by the Supreme Court of Belize in March and BEL was in the midst of further legal proceedings when the company was expropriated.
Earlier this month, the Belize government issued a statement on BEL — saying it would take “whatever steps necessary to maintain a uninterrupted and reliable supply of electricity” to Belize consumers.
The statement also suggested BEL was “facing major difficulties” in paying wholesale electricity suppliers and this could result in power blackouts.
Shrinking BEL profits
BEL is no longer included as part of Fortis’ operating businesses.
Last year, its share of the Fortis bottom line shrank by 85 per cent — contributing $1.5 million in earnings.
“In the course of normal operations, it would be expected to contribute approximately $10 million annually,” according to the company’s 2010 annual report.
“Essentially, we were not able to bill our customers enough to be able to pay for the cost of power purchases, let alone make a profit or cover other operating expenses,” Perry said.
“The government expected us to keep putting money in to take care of that situation and we just couldn’t do that.”
Fortis said BEL is not material to its business, accounting for less than two per cent of the company’s total assets of $12.9 billion.
That works out to less than $250 million.
No stranger to expropriation
“This is a very sad event for us. We thought we were doing a good job in Belize and we liked the jurisdiction. This is not how we would have liked things to end up,” Perry said.
“It is a draconian measure, I think, by any measure. But it does happen throughout the world.”
It happened in Newfoundland in 2008, when the provincial government expropriated AbitibiBowater assets in the province, including its minority stake in the Exploits River Partnership.
Fortis’ stake in the partnership was also affected.
Nalcor Energy is managing that hydro asset and making payments on the $58-million project loan.
In April, the province announced a $32.8-million settlement with Enel Green Power North America, one of the Exploits partners.
Fortis is in similar settlement talks with Nalcor.