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Enron Mail |
Peggy Banczak called me yesterday to say that the Inter-American Development
Bank ("IADB") had indicated its refusal to fund its loan to the appropriate ENE borrower in connection with the Enron-Vitro Monterry Cogeneration Project ("Project") unless the PPA(s) (and construction contracts?), i.e., those contracts to be concluded between Mexican entities and calling for performance in Mexico, be governed by Mexican law. Peggy explained that after long negotiation, ENE had been able to convince Vitro and Cementos Apasco (and other power purchasers/construction companies?) to agree that their contracts be governed by New York law but that despite this great success, IADB now for policy reasons was insisting that those contracts be governed by Mexican law. Peggy and I talked with Rogelio Lopez-Velarde and Peggy subsequently provided me copies of three memoranda dated August 15, September 18 and September 27, 2000, addressed to Peggy and Robert Stephens of Bracewell & Patterson from Rogelio Lopez-Velarde and Amanada Valdez. In the August 15, 2000, memorandum Rogelio and Ms. Valdez analyzed the enforceability of certain of the provisions of the PPA between Enron Energia Industrial de Mexico, S. de R.L. de C.V. and Apasco should that agreement be governed by Mexican law. They recommended certain changes be made if the agreement were to be governed by Mexican law. In the September 18, 2000, memorandum Rogelio and Ms. Valdez gave their opinion on the enforceability of the "Suspension Remedy" contained in Section 13.5 of the PPA. In their memorandum of September 27, 2000, they opined principally that the provision of Section 13.6 of the PPA specifically denying each "Capacity User" the right to terminate the PPA except in the case of a "Producer Event of Default under Section 132(a) (sic) has occurred and the Project has been Abandoned" was unenforceable. I have reviewed the three memoranda but I have not reviewed the PPA nor any of the other underlying Project documents. As Joe Dilg mentioned to you before we undertook last week our limited review of the Enron-Vitro Amparo matter, we are not Mexican lawyers and therefore we cannot opine on the Lopez Velarde, Heftye, Abogados memoranda and opinions referenced above and we cannot opine on how the application of Mexican law to disputes that could arise under agreements the IADB now insists be governed by Mexican law might affect the enforceability of provisions of those agreements or the agreements themselves. I consider the memoranda provided by the Lopez Velarde, Heftye, Abogados firm, however, to be well reasoned and written. As I have not seen the underlying documents, I am not able to determine whether the August 15, 2000, memorandum addresses all of what the drafters characterize as the "Challengeable Clauses" in the PPA in Section I.2.A. My guess is that the form from which the PPA has been developed is a form that ENE has used on other occasions in circumstances that would permit the agreements to be governed by laws of jurisdictions that have experience considering sophisticated commercial disputes at a minimum and perhaps disputes specifically arising under power purchase agreements. If ENE does agree to subject interpretation of the PPA and other affected contracts to Mexican law, it would be worthwhile to again review the PPA and other affected agreements to be absolutely sure that all of the "Challengable Clauses" are identified and either changed in a manner acceptable to ENE to make them enforceable or if not changed that the risks of leaving the provisions "as is" are fully understood and evaluated by ENE. I do have the following specific comments concerning the August 15, 2000, memorandum: 1. If they already have not been made, is it possible still to convince the Mexican counter parties to make the changes Lopez Velarde, Hefty, Abogados have suggested? Based on the Lopez Velarde, Hefty, Abogados memos, it seems to me that ENE, as a condition to agreeing to accept Mexican law as the governing law, would want to negotiate at least the material changes to the PPA suggested by the Lopez Velarde, Heftye, Abogados firm in the memoranda. 2. If it is not possible to negotiate the changes or is possible only to negotiate some of the changes, with respect to the "Discretionary Performance Prohibition" and the "Discretionary Condition Prohibition" outlined in Sections I.1.1 A. and B, would only the specifically applicable Performance or Condition provision be rendered unenforceable or could the PPA in its entirety be deemed unenforceable if either "performance of portions of the PPA [as opposed to performance of the entire agreement] are left to the unilateral discretion of one of the parties." or "compliance with some [as opposed to all] [of the conditions] rests exclusively in the discretion of the obligor..."? Are there any Performance or Condition Prohibitions that individually could be deemed to render unenforceable the entire PPA? If there are a number of Performance or Condition Prohibitions that are not amended, could they in the aggregate be deemed sufficient to render undenforecable the entire PPA? 3. Is there any other Challengable Clause or other clause in the PPA or other affected agreement that without modification to make enforceable should cause ENE not to entier into the PPA or other affected agreement ? 4. Do the Discretionary Performance or Discretionary Condition Prohibitions constitute events of default, even if the party in whose favor they run do not attempt to enforce them, constitute an event of default that would afford the "innocent party" the right to demand rescission of the PPA? I understand that the PPA and the affected contracts all contain dispute resolution provisions that would subject disputes to international arbitration. Assuming that the dispute resolution provisions are not renegotiated, the fact that Mexican law, if agreed as the governing law, will be interpreted by arbitrators and not Mexican courts is a factor that could result in a more independent consideration and resolution of the interpretation and application of Mexican law to disputes that may arise under the contracts. If you have questions or wish to discuss this matter, please call me at 713-758-2518. William H. Weiland ++++++CONFIDENTIALITY NOTICE+++++ The information in this email may be confidential and/or privileged. This email is intended to be reviewed by only the individual or organization named above. If you are not the intended recipient or an authorized representative of the intended recipient, you are hereby notified that any review, dissemination or copying of this email and its attachments, if any, or the information contained herein is prohibited. If you have received this email in error, please immediately notify the sender by return email and delete this email from your system. Thank You
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