SPAIN PLANS TARIFF OVERHAUL FOR POWER UTILITIES
Spain's socialist government is aiming to
restore confidence of foreign banks in its power generation
sector by pushing through a complete reform of the industry's
tariff structure, a senior government official said.
    Most foreign banks have been refusing to extend fresh loans
to the mainly privately-owned sector since Fuerzas Electricas
de Catalunya S.A. (FECSA), a major utility, defaulted on two
billion dlrs of foreign currency debt earlier this year.
    Secretary of State for the Economy, Guillermo De la Dehesa,
told Reuters in an interview that a new government-inspired
tariff mechanism providing for automatic increases each year
would guarantee the long term viability of the industry.
    He said a bill would be sent before the Spanish Cortes
(parliament) this summer, enabling tariff increases from next
year to be set under the new system.
    De la Dehesa declined to give technical details of the
scheme, known here as the "Marco Estable" (stable framework), but
said future tariff increases would make up for the failure of
past adjustments to cover rising costs.
    "The utility companies have a captive market and if they are
assured a satisfactory tariff structure they will have the best
of all possible worlds to do business in," De la Dehesa said.
    FECSA's debt crisis has caused concern among foreign and
Spanish bankers who expressed fears that other utility
companies may default for lack of fresh funds unless confidence
in the industry's future is restored.
    Spain's 14 leading power utilities have massive debts, with
short and medium term exposure of 4,377 billion pesetas at the
end of last year. A significant proportion of it is in foreign
currency, bankers say.
    The new tariff plan, currently being discussed with
representatives of the utility industry and Spanish bankers,
would shortly be presented to foreign creditors, De la Dehesa
said.
    FECSA's problems were precipitated in February when the
stock exchange suspended trading in the company's stock on the
grounds that it could not meet its debts.
     "FECSA was a special case," De la Dehesa said, "but the banks
took fright and extended the crisis to the rest of the utility
sector. We really did not expect this."
    Much foreign bank lending to the utility sector has been on
the strength of a government commitment made to international
bankers at a presentation in London in 1983 to support the
industry.
    "I think if foreign banks were lending on the basis of
declarations by our energy authorities in London, they will
have all the more reason to do so when the new tariff system is
passed into law," De la Dehesa said.
     "This is going to be a palpable fact, not just a
declaration," he added.
    De la Dehesa said he believed that once confidence was
restored in the sector as a whole, FECSA's debt problems would
be quickly solved.
    A recently formed steering committee representing FECSA's
foreign creditors is due to meet FECSA managers in Barcelona on
Tuesday for a round of talks on rescheduling the ailing
utility's debt.
    FECSA's General Manager, Jose Zaforteza, told Reuters he
thought the climate of the talks would be greatly improved by
the new tariff proposals.
    "You cannot go far wrong when you are managing an electrical
utility provided the tariffs you charge are sufficient to cover
your costs," Zaforteza said.
    The General Manager of the Madrid branch of a U.S. Bank
which has lent money to FECSA said there would be little
significant progress in the rescheduling talks until details of
the tariff proposals were known.
    "We cannot make any projections about FECSA's ability to pay
its debts unless we know what the tariffs are going to be," he
said.
    "If you make annual increases over a period of years of
four, five or six pct, in each case it's a completely different
ball game," he said.
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