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Enron Mail |
Rick
I took a quick look at the numbers for rationing and what has been achieved. Orlando's statement that the impact on EBITDA was US$ 63 million is very misleading. For a simple reason that we are exchanging a U$ 75 million credit (Annex V) for a LOAN. Obviously, on an EBITDA basis, it may look terrific (this metrics does not take into consideration the payment of the loan). It assumes that the loan is free. Let's for a second give the benefit of the doubt and assume that the loan is indeed free - because it would be repaid with tariff increases over next 36 months which would not be granted otherwise. In that case, the "credit" becomes the loan (I only have the overall figure, but I assume that Elektro's share will be around US$ 40 million. If that is the case, the result of the negotiation resulted in a U$ 35 million reduction (by excusing Annex V). If one assumes that the tariff increases would happen anyway, the loss is US$ 75 minus the benefit of a subsidized loan. If the latter is U$ 5 million (10% interest and 18% discount rate), the loss would be US 75 million - 5 = US$ 70 million To summarize. Orlando states that negotiations on rationing losses resulted on a benefit of U$ 63 million I challenge that excusing Annex V has costed us something between US$ 35 to 70 million I am not sure what we should do with those numbers. I am not naive to think that Annex V would be a piece of cake either. I just want to note that the good news is not indeed good news: Enron will lose money by foregiving Annex V. If that is a conscious decision made by Enron Corp., that is fine for me. But it has to be a well informed decision. LM P.S. As you know, press news are not reliable at all, but there was a news today saying that generators will be gaining up twice. -----Original Message----- From: Maurer, Luiz Sent: Tuesday, November 13, 2001 4:54 PM To: Shapiro, Richard Subject: RE: ESA government negotiations/ corrected My initial reaction: 1) Rationing Losses I was afraid of this outcome. At least on the surface, I do not like it. I have the impression that it washes away Elektro's initial long position as Elektro as it puts and end to Annex V discussions. I would have to see the numbers to check that this solution is equivalent to Annex V (for Enron). It depends on how one defines "rationing losses". This solution is perfect for companies like AES, who were both short in the generation and in the distribution businesses. They win on both sides. How are they going to treat Annex V provisions when load curtailment reduces to 10% and Annex V becomes a liability for Elektro? What is going to happen with Annex V? (It may be part of the agreement - it is not clear though) From an elecric sector perspective, this solution corroborates the bail out and the lack of contract sanctity. Bad for future investments. It would be much more acceptable to increase bulk tariff for generators and allow full pass-through. 2) OK 3) This had already been achieved. It was an MP (Law) enacted by Minister Parente. The only way we were able to get it was to take Aneel to court (here comes my point again - why not being equally bold regarding Annex V? Perhaps AES influence on Abradee?) What are the terms of final settlement? Will they have any provision regarding Annex V? " By solving the pending issues for the rationing losses, thus eliminating the Annex 5 controversy the MAE should function normally, allowing us to operate Eletrobolt and settle against the pool" Three comments: 1) Technically not correct - MAE recently stopped because of a legal injunction of Itaipu energy. 2) It is key to have a functioning MAE for Eletrobolt. Why has Abradee voted in favor or procrastinating MAE operation three times in the recent past and Enron has not exercised a dissenting vote? " Our team has led the sector negotiations for months since the rationing, and have been instrumental in convincing the government of the need for implementing these changes" I would rather not comment on this statement -----Original Message----- From: Shapiro, Richard Sent: Tuesday, November 13, 2001 4:20 PM To: Maurer, Luiz Subject: FW: ESA government negotiations/ corrected -----Original Message----- From: Gonzalez, Orlando Sent: Tuesday, November 13, 2001 4:18 PM To: James A Hughes/ENRON_DEVELOPMENT@ENRON; Lavorato, John; Horton, Stanley; Shapiro, Richard; Mark E Haedicke/HOU/ECT@ENRON Cc: Assad, Sergio; Wiggs, Brett; Joao.Carlos.Albuquerque@enron.com; Soares, Britaldo; Novak, John Subject: ESA government negotiations/ corrected Disegard previous e-mail. We reached a conceptual agreement with the government representatives on Sunday night. The main points are: 1. Rationing losses: Defined methodology giving distribution companies recovery over the next 36 months of rationing losses realised from June 01 until the end of rationing in 02. Recovery includes financial compensation. Immediate funding of 80% through BNDES, with Brazilian government funds. Loans liquidated over the 3 year period as tariff increases are realised. Funding scheduled by December 15th. Elektro Ebitda impact of approximately R$163 million or US$ 63 million. Corrected numbers in second email 2. April/May MAE settlement : Market will settle under current rules due to pre-rationing conditions, confirming the procedures used on Elektro's books. Impact of approximately R$ 18 million or US$ 7 million. 3. Parcel "A" for the future: All non-controlable costs to which LDC's are subjected to including power purchases, sector charges, are passed through to final tariffs either using a tracking account mechanism or by aligning adjustment dates with the LDC tariff revision date. Tracking account will be subject to financial compensation from the date costs are incurred until the effective pass through and collection , eliminating a major risk for the distribution sector. Elektro Ebitda impact 2002 forward of R$ 60 million or US$ 19 million, as had been considered in the 2002 plan. This methodology represents major risk mitigation going forward, as the initial power supply contracts are renewed starting in 2003. 4. Parcel A from the past: Min Parente has agreed to the concept recovering non controllable that were not passed through to tariffs since late 1999 using the same methodology agreed to for future recoveries and has a dedicated team from the Federal Attorney General's office targeting a final solution in ten days. Elektro impact is R$145 million or US$ 55 million in 2001. The proposed mechanism for recovery is after the 36 months for the rationing losses. We are currently finalising a memo of understanding and the government team is winding up the settlement with the generators in order to finalize the terms of the overall agreement. Min Parente has committed to resolving the open issues affecting investors in the power sector. These agreements represent a major step forward, significantly improving the value of our businesses. By solving the pending issues for the rationing losses, thus eliminating the Annex 5 controversy the MAE should function normally, allowing us to operate Eletrobolt and settle against the pool. Total amounts for the sector represent about R$ 10 billion or US$3.8 billion at the current rates. Our team has led the sector negotiations for months since the rationing, and have been instrumental in convincing the government of the need for implementing these changes.
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