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Enron Mail |
Cc: james.steffes@enron.com, richard.shapiro@enron.com
Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: james.steffes@enron.com, richard.shapiro@enron.com X-From: Jose Bestard X-To: Amr Ibrahim X-cc: James D Steffes, Richard Shapiro X-bcc: X-Folder: \Richard_Shapiro_June2001\Notes Folders\All documents X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf I am quite involved and there are lots of regulatory/governmental issues. 1) First, a comment about the $$$ requested to complete the project. There is no way to cover the embarrassment factor. Last December a substantial budget increase has requested and approved by the Board. Reportedly on a never-come-back-again basis. However, as it was later discovered, a) it did not included a number of major charges that had been spent but never accounted for and b) had a more optimistic scenario of project completion. 2) Shell has not made a commitment to increase their pro-rata investment. They have until May 15 decide. We may have a dispute eventually leading to Arbitration 3) In order to improve the economics of the project, as of May 4, we are terminating the YPF gas contract, it is a contract right, and renegotiating with YPF and others. This may be going to Arbitration. 4) And, lastly we have a full blown dispute with Furnas, inching each day towards arbitration/litigation before its is finally settled. The root case of the dispute was the interference of government agency (something -like the independent public Attorney's office - the "Ministerio Publico") on the construction of the pipeline and now its was grown into the controversy, involving Aneel, because of the Cuiaba contract was the result of the Bid, under am old regulatory regime, and now Furnas wants us to take the market risks of the new regulatory system. See two files below 5) Last week we finally forced the issue with Furnas getting closer to a legal dispute. We put them on notice of our Contract rights under the Goverment Action/Forece Majure Clauses In parallel we are also launching a lobbying effort to get our story across the government officials. I have a more pesimistic view than Pete about the speed of success. Logically he is correct, "How can the government of Brazil allow this matter to spin out of control if we engage in a legal fight". He is hopeful that using our government levers we can get a quicker resolution. My reading is that the present Brazilian government is very split on energy issues and there are those in the government coalition that would welcome a dispute to stop the privatization efforts. I believe that we have to launch the lobbying effort for PR purposes; but that it will not produce results until we take Furnas to court (not prevent a legal dispute) and there is a clear reading that we are correct. The center piece of the dispute will be our claim of government interference and the analysis of our project management effort during this period of Force Majeure. In other words, can we collect part of the bubget overrun from Furnas? Our detailed analysis will be ready at the end of May. 6) On the bright side, due to the Brazilian energy crisis, Aneel called me last Tuesday to let me know that it had been decided that they will extend the current diesel subsidy for half the plant output to December (R$24 million per month) and expand the diesel coverage to the whole plant through Furnas, where Furnas would pay for the diesel in the other half of the power plant another R$24 million per month). I will have to negotiate a Contract Amendment, Jose From: Amr Ibrahim on 04/27/2001 11:18 AM To: Jose Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: James D Steffes/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron Subject: Cuiaba - Additional Cost over-run - RAC Meeting of April 27, 2001 Jose: I have learnt from the RAC meeting today that a DASH for $128.4 million for additional cost over-runs will be put in front of the Board Monday 30th. I am sure that you are involved in this specific issue, but I am erring on the conservative side. Is there any regulatory issue that we should raise or point out from this end (e.g., whether the regulatory regimen allows these cost over-runs to be rolled into the rate base, hence the revenue requirement,or not). Of course, let me know if I could be of any help, or you need a follow up action from Houston side. Best regards AI 713-853-3038
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