Peru puts power sales on ice after protests

June 19, 2002

AREQUIPA, Peru (Reuters) - Seeking to defuse the worst crisis to hit President Alejandro Toledo, Peru's government on Wednesday said it would wait for a court ruling before finalizing the sale of two southern power firms that sparked a week of protests by residents fearing job losses.

To the delight of locals, Vice-President Raul Diez Canseco announced the 11-month-old government's decision to put the sales of southern electricity companies Egasa and Egesur on hold at the end of two days of sometimes tense talks with local leaders in Peru's second biggest city, Arequipa.

Toledo, at record lows in polls, this week declared a 30-day state of emergency and curfew, and sent 1,700 troops and police into the graceful colonial "white city" to restore order after violent protests in which one man died.

But a joint declaration signed by the government and local leaders said the state of siege could be lifted "48 hours after the signing of this declaration if public order is restored."

Local officials had been insisting that Toledo explain why he backtracked on a written pledge not to sell the companies. Several thousand cheering residents, who had feared higher bills, celebrated in Arequipa's main square late on Wednesday.

"This is the first time a government has had to admit it was wrong and has apologized ... to Arequipa," Arequipa Mayor Juan Manuel Guillen told the flag-waving crowd.

Local authorities in Arequipa had also challenged the sales in court. The government says it will appeal if it is declared invalid, but will respect a final legal ruling.

A sympathy strike across southern Peru from the border with Chile to the border with Bolivia, including the tourist capital Cusco, halted public transport on Wednesday, stranding tourists bound for the Inca citadel Machu Picchu or Lake Titicaca.

In a message read by his spokesman in Lima that fell short of an apology, Toledo said a fragile economy had meant he could not fulfill all campaign promises "despite our honest desire."

"The government representatives ... announce their decision to suspend all acts of the privatization process of Egasa and Egesur, including those leading to signing the contract, until there is a definitive ruling from judicial authorities," Diez Canseco said. The sale was to have been signed within days.

Belgian company Tractebel, which won an auction for the two generating companies last Friday with a $167.4 million bid, said it had suspended the sale paperwork. The company is unit of French utility Suez.

AREQUIPA PARTIES, MARKETS COULD FRET

It was not clear how long a final court ruling would take, but economists warned financial markets could fret.

"This change of plans raises questions that other things in the economic plan may also be subject to changes, especially if they involve things that are unpopular," said Jose Cerritelli, analyst at Bear Stearns in New York. The cash-strapped government desperately needs to enact tax reforms to boost revenues, and that could now be more difficult, he added.

In Arequipa, where one man has died, another is brain dead and officials say 200 people have been injured, the mood was jubilant. The government puts the damage since trouble began last Thursday at $100 million, but tension was easing as police and soldiers withdrew from the main square.

Guillen, who said he would now call off a week-old hunger strike to press for a U-turn on the sales, was delighted. "We've got the government to change its position on the privatization of these companies," he said.

The debacle is a bitter blow for Toledo, who promised privatizations "with a human face" and hopes to raise $800 million this year to plug the budget deficit and fund road, power, health and education projects in this poor nation.

Peruvians are already wary of privatizations -- ex-President Alberto Fujimori, who was fired in a corruption scandal in 2000, raised $9 billion by selling state firms in the 1990s but much of the cash was wasted and some jobs lost.

Polls show only one in five Peruvians approve of Toledo, a former shoeshine boy who took office last July, amid widespread frustration that he has failed to deliver promised new jobs.

Slogans daubed on walls in Arequipa read "Shoeshine boy disguised as president" and "Toledo traitor" while posters in Lima appeared saying "We were better off with the Chino," a reference to Fujimori's nickname.

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