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----- Forwarded by Richard B Sanders/HOU/ECT on 02/12/2001 01:14 PM ----- Robert C Williams@ENRON_DEVELOPMENT 02/05/2001 02:54 PM To: Richard B Sanders/HOU/ECT@ECT cc: Subject: Re: Cuiaba Call--legal issues I didn't talk to them expressly but Rob told me at my review that Jim wanted him to tell me that I was "on the line" for the International litigation until you and Mark told him that I was "relieved of duty." So I have sort of reverted back to feeling primarily responsible for it since I know you are leading the charge in California. But whenever you and Mark are ready to relieve me I'm ready to be relieved. From: Richard B Sanders@ECT on 02/04/2001 09:08 AM To: Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Re: Cuiaba Call--legal issues Thanks for your help. Did you ever talk to Jim/ Rob about how to handle international? Should we set up a meeting like we discussed? Robert C Williams@ENRON_DEVELOPMENT 02/02/2001 09:34 AM To: Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: jgardine@skadden.com, drosenbl@skadden.com, John Novak/SA/Enron@Enron, Bruce Lundstrom/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Richard B Sanders@ECT Subject: Re: Cuiaba Call--legal issues I want to get involved in this. Michelle will bring me up-to-date. I don't understand why we are considering Brazilian court versus ICC arbitration. Michelle Blaine 02/01/2001 07:36 PM To: jgardine@skadden.com, drosenbl@skadden.com cc: John Novak/SA/Enron@Enron, Bruce Lundstrom/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Richard B Sanders@ECT, Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Cuiaba Call--legal issues 1. Consent Issue: Jose Bestard (he's the main developer who did this deal) reported that he met with Furnas this week. Furnas had not received EPE's letter addressing the consent issue. Furnas continues to link its failure to sign the consent to commercial exposure to the high price from the MAE. There are initials on the original consent and no one (including Furnas) knows whose they are. John Novak told me he's not sure of the significance, but it is not uncommon in Brazil to initial documents. Nevertheless, we need to ask our Brazilian lawyers whether there is any significance under Brazilian law. Keep in mind also that consent document was between EPE and the assignor, Electronorte. 2. Arbitration considerations: Bestard has a meeting planned with the ambassador. He consulted Enron's financial/business consultant in Brazil, Winston Fernino (sp?) who advised that we should exhaust all political avenues before resorting to litigation or arbitration. What concerns me, however, is his advice that, politically, it is not the time to seek assistance fromthe president for the consent, that there is a political battle in the senate, and that we should wait until the end of February to seek political assistance. My view on that is, to wait 4 more weeks to progress with this notice of default, when the 90 day cure period has expired, plus the 30 day extension which has also expired, sends the wrong message and weakens our position. Thus, it is my recommendation that we proceed immediately with a notice to terminate under Clause 27, paragraph 2 of the PPA, which then requires a 30day consultation period (paragraph3) at the end of which we have the option to terminate. This buys us a little time, but keeps the pressure on, at the end of which we can initiate proceedings to compel the consent or to terminate. I'm not sure what reaction the notice to terminate could bring about from Furnas. I'm not sure how that plays out in our settlement with Siemans. Consider also that the commercial people are not comfortable with termination yet. I am not sure what rights, if any, we waive by waiting around doing nothing or how that may affect our position in arbitration or litigation (something we need to look at under the contract, although I cannot immediately recall any deadlines or express waivers related to timing in this regard). I committed that we would advise the team on the next call (next Thursday) our recommendation with respect to arbitration/litigation. I want to make sure they understand every possibility so they can make an informed decision. You have the matrix developed already if you want to expand on that, or handle that your own way. Bestard opines that Furnas will fight hard, that they have traditionally been very adversarial and uncooperative. I'll find out who represents them. 3. Force Majeure: Furnas is also taking a very strong position that EPE does not have a valid force majeure claim. Based on my reading of the contract, our facts appear to fit squarely under Clause 95©. However, I'm told we did not comply strictly to the notice terms. We'll need to show that we were not negligent as a cause for the attorney general's action. Laine Powell, President of the Cuiaba companies will gather the information on our force majeure claim and we need to consider the legal issues related to our position. Note that if FM lasts more than 12 consecutive months, both parties have the right to terminate. No one buys the plant and we're stuck. I'll find out the date of our last FM notice. There have been several. 4. Budget: Lets consider what it will cost to nail down this arbitration concern and give initial advice on how to proceed over the next week, what it will cost to prepare for arbitration and, the cost of the arbitration. Darren I'll call you tomorrow and we can break that out. We may want to consider the litigation route. We'll need to put together some kind of proposed or potential time line, and what will happen in each stage and tie a number to it. I've done this with Pete before and he seems to like it. It needs to be subject to review as we go along. 5.NEXT: Prep for the call and get a recommended strategy in place. I'm going to get together all our opinions on the Brazilian state of arbitration and get a conference call with one of these experts so we can get the best advice. We certainly have some conflicting views. Our experience in the Brazilian courts is that nothing happens and we could be stuck for years, so I am inclined to take our chances with arbitration and we may get stuck in the court anyway. If we go to court, perhaps Furnas would take the position that we must arbitrate, that is what Fernando Serec said. Who knows. Please give me your comments or just call me. I'm open to any suggestions. John Novak will be able to tell us about all the competing concerns that I may be unaware of with any strategic plan. Regards, Michelle
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