Distribuidora de Gas del Sur SA

Distressed

Failure

Distribuidora de Gas del Sur SA was one of the eight companies created in 1992 from the distribution assets of Gas del Estado, an Argentine state-owned company. Distribuidora de Gas del Sur was privatized in December 1992, when a 90% equity stake was sold for $144 million to Camuzzi Gazometri SpA (65%) and Sodigas Sur SA (25%). The consortium paid US$14 million in cash and US$134 million in debt papers valued at their market value. The remaining 10% equity stake was reserved to be sold company's employees, at the same price per share that the winning consortium paid. The winning consortium assumed other liabilities that amounted $16 million. The winning consortium was awarded with a 35-year concession period with the option for extension for an additional ten years, as long as service quality indicators and investment obligations stipulated in the contract were met. The company's obligations indicated an investment sufficient to meet the required standards during the first five concession years. The standards were based on US standards but adjusted for conditions in Argentina. The conditions for the extension of concession periods were the same for all privatized gas distribution companies. In March 1996, Sodigas Sur SA sold a 12.5% stake of Distribuidora de Gas del Sur SA. to Sempra Energy International (USA), along with a 12.5% equity stake in Gas Pampeana SA for $48.5 million. In October 2000, Sempra Energy acquired an additional 21.5% stake in Sodigas Sur from Dominion resources (Sempra previously owned another 21.5% stake in the company). In 2002, Sempra filed legal proceedings in an international arbitration tribunal (International Centre for Settlement of Investment Disputes - ICSID) against the Argentinean government for freezing rates. In 2003, the italian Camuzzi also filed legal proceedings in the same tribunal against the Argentinean government, driven by frozen rates and losses with Argentina's currency devaluation. For updates on the international arbitration proceedings, check http://www.worldbank.org/icsid (cases # ARB/02/16 and ARB/03/2). During the period 1993-97, Distribuidora de Gas del Sur invested $49.3 million of which $11.9 million were allocated to improve the security of its distribution facilities. The remaining $37.4 million were invested in expanding its distribution network and improving the quality of its services. In 1998, the company invested US$ 24.8 million; in 1999, it invested US$ 15.5 million; and in 2000, the company invested US$ 20.4 million.

Energy

Argentina

High

World Bank Group

Project

Forest Products and Packaging, Natural Gas, Government, Commercial, Manufacturing (Industrial)