Light's Out.


A string of bad decisions blows a fuse at Rio's privatized power utility.

WHEN THREE FOREIGN COMPANIES bought the decaying public electric company in Rio, many in this tropical metropolis thought privatization would bring an end to the constant blackouts, burned-out appliances and indifferent service that marked public efforts to supply power. Investors were giddy over the prospect of fat annual dividends. So far, both sides have been disappointed.

Customers are angry over repeated blackouts that force schools to let students out early, movie theaters to dole out rainchecks, motorists to crawl to a halt at non-functioning traffic lights, and thousands to be trapped in elevators and subway cars on a regular basis. "There are more blackouts and power surges since the foreigners took over," says nanny Alzira Rangel. "Almost every day, I reset my clock radio because of voltage highs and lows." Regulators cited Rio power company, Light Servicos de Electricidade, for 32 violations and fined the company US$1.6 million, one of just two fines levied by the agency against Brazil's 74 energy firms during 1998. "Light's treatment of Rio has been less than ideal," chief power regulator Jose Mario Miranda Abdo told reporters at the time. "The company's directors are going to have to sweat through their shirts to get service back to decent levels."

Executives are sweating, and not just over technical glitches. Light's net income sank 40% from $281 million in 1997 to $160 million in 1998. This year promises to be worse as income shrinks further, down to an estimated $70 million in 1999 as devaluation escalates the cost of the company's $2.7 billion debt, most of it short term, that chews through profits. Company officials dump the blame for dismal performance on the worst summer heat wave in 50 years and obsolete equipment that they inherited from the state.

The fact is, the buyers gambled that the Brazilian currency, the real, would remain strong against the dollar. So far, this bet is a loser. Analysts say the company faces grim options--hawking shares on a bearish stock market at bargain-basement prices, if it can be done at all, or pulling off a miraculous refinancing of its mostly dollar-denominated debt.

All bets are off. Customers are not the only ones disillusioned with Light; many investors also have dumped the power company's stock due to poor financial performance. Light's share price plunged 68% last year in dollar terms, the worst performance...

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