Will power company pull the plug on Nicaragua?

A source inside Nicaragua’s energy sector is denying reports that Spanish power company Gas Natural Fenosa has sold all its interests in Nicaragua and packed its bags to leave the country.

“Gas Natural has not sold its participation in the distribution of electricity in Nicaragua,” the source told The Nicaragua Dispatch Tuesday evening, on the condition of anonymity. “The negotiations are still open.”

The rumors started Tuesday morning when presidential economic advisor Bayardo Arce told reporters that Gas Natural Fenosa—formally Unión Fenosa— had sold its controlling interests in Nicaragua’s energy distribution market. Arce said the 16% of the shares acquired by the Sandinista government in 2008 would remain in state hands.

“I understand that they have decided to sell everything to another business; it was a deal between private parties, so I don’t know what they agreed on, or how much they sold for,” Arce said.

The source linked to those negotiations says there’s still no deal. The source did, however, say that Gas Natural has been engaged in two sets of parallel negotiations for the past few months. The first set of talks is to try to get the Sandinista government to assume some of the company’s $50 million in annual losses from pirated electricity in the misery belts around Managua and other large cities. The second set of negotiations is with two other Spanish power companies that have shown interest in buying Gas Natural’s share in Nicaragua. The source says neither set of talks has ended in a conclusive agreement.

Arce’s comments today, therefore, would appear to be a government pressure tactic aimed at pushing the negotiations along in a certain direction.

Gas Natural Fenosa has not released any official statement on the situation.

An on-and-off relationship

Since winning a 30-year concession to manage Nicaragua’s electricity distribution market in 2000, the Spanish power company has posted nine consecutive years of losses. While the government has complained that the company has not upheld its end of the bargain by failing to invest sufficient funds in infrastructure and electrification, the company claims all its money has disappeared into losses due to electricity fraud.

After crossing swords in 2006 and 2007, the Spanish power company and the government became partners in 2008. In the agreement, the Sandinista government acquired 16% of the shares—reportedly for $15 million—and Unión Fenosa agreed not to pursue claims for an alleged $70 million in losses.

The electric duo also teamed up to crack down on electricity fraud. As a result, the company’s losses have dropped from 28% to 20% in four years. Still, the company estimates it won’t reach the break-even point until it can get its losses down to 14%.

In 2011, the government and Gas Natural reached another agreement to increase rural electrification to 110,000 new homes over the next five years. The expansion plan would increase rural electrification to 83% of the countryside—a goal that would have benefited 600,000 people, according the distribution company.

But Arce’s comments today seem to suggest the government has again soured on its partnership with the power company and thinks it’s time for them to go.

Others in the energy sector say they hope whatever is negotiated in the coming weeks is done so in a way that doesn’t rock the boat for everyone else.

“The important thing is that the negotiations are done between private companies,” says César Zamora, president of Nicaragua’s leading energy-generation company AEI Nicaragua. “Whatever company is left is going to have to invest in energy sector to reduce losses.”