Indecopi authorizes acquisition of Luz del Sur but with conditions

This Indecopi release was published using machine translation.

The Indecopi Free Competition Defense Commission (CLC) decided to authorize, but under certain conditions, the acquisition of Luz del Sur SAA and Inland Energy SAC by the economic group China Three Gorges Corporation (CTG).

This, in order to guarantee competition between electricity generation companies for the supply of regulated users and, therefore, to avoid that the rates of public electricity service of said users are increased in the future, as a result of less competition.

The decision, adopted on March 27 last, is that Luz del Sur will not be able to source energy from its related companies without the existence of a tender administered by the Supervisory Agency for Investment in Energy and Mining (Osinergmin) in accordance with Law No. 28832 or, alternatively, carry out a transparent and competitive contest, which must be previously informed to Indecopi.

As is known, in October of last year, the CTG group asked the CLC for authorization to acquire certain companies in the electricity sector, as provided for in the current legal framework. The CTG group currently already owns a hydroelectric plant and is planning another plant that will come into operation in the following years. The proposed operation implies that the Chinese company acquires control of Luz del Sur and new hydroelectric plants in operation or in project, so that its market share will increase.

When analyzing the operation, the CLC identified possible risks to competition that would materialize when Luz del Sur buys energy to supply its regulated users, which are explained below:

• A distribution company such as Luz del Sur purchases electricity from generating companies (hydroelectric or thermal plants) to meet the need for electricity from its regulated users.
• The operation would allow the CTG group to add new hydroelectric plants to its property and to venture into the distribution of electrical energy.
• The operation could generate Luz del Sur privileging the contracting of energy with the companies of its CTG group, excluding the participation of other companies in the market not related to it that could offer lower prices.

Precisely for this reason, the CLC decided to condition the operation on compliance with certain rules that Luz del Sur must observe when it has to contract electricity to attend to the electricity supply of its regulated customers, which are mainly the homes located in its concession area in Lime.

It should be noted that the power of the CLC to evaluate certain mergers in the electricity sector has existed since 1997. The analysis carried out by the Commission may lead to denying, accepting or authorizing the operation with conditions.

This is not the first time that the CLC has approved an operation with conditions. In 1999, for example, it approved a purchase of shares in the electricity sector conditional on the distribution company Edelnor SAA tendering its acquisitions of electrical energy among all existing generators, as the contracts it had with generators expired, having to public domain the procedure and results of each tender.

Finally, it is reported that the text of the CLC resolution can only be accessed once said document is final, which will happen in case the applicant company does not appeal the decision before the Indecopi Court, in accordance with the current legal framework.

Glossary

Regulated users : Consumers who make use of the electric energy service and pay a regulated rate for said consumption (electricity bill). It includes, for example, small industries, warehouses and homes.

Generator: Company that produces electrical energy through hydroelectric, thermal or wind power plants, among other sources.

Distributor: Company that distributes electrical energy to regulated users.

Economic group: Set of companies that are controlled by the same company or person.

Control: Ability to decisively influence the interior of a company.

Current legal framework: Law 26876, antitrust and anti-oligopoly law of the electricity sector; and its regulations, approved by Supreme Decree 017-98-itinci.