Re: Purchase of Certificate from Alcan

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Idel

Congratulaions for Enron's active presence in this secondary market for
energy quotas.

Now that Enron (and most of our potential clients in the future) is helping
creating a [healthy] appetite for trading, let's make sure that some
government bureaucrats do not screw up, and step away from market forces.
(Particularly Mauro Arce, who has never been comfortable with economic
signals - please refer to his interview in the press in the second week of
May, where he was the first government official to publicly defend rolling
black-outs as opposed to quotas with MAE prices). Industry players will
likely put pressure on Aneel to have retail competition thresholds reduced to
50 kW in 2003. So far, distribution companies have bitterly opposed to to it,
under the [moot] assumption that most of the new PPAs will become stranded.

I am particularly concerned with Plan B, or whatever they call it in case 20%
is not achieved/sufficient, which is being prepared by Mauro Arce. Let's keep
an eye to make sure that Plan B is indeed perceived as a continuation, as
opposed to a repudiation of market forces. If necessary, let's reduce quotas
and increase the cost of deficit to R$ 2350/MWh (David Rosenberg has great
ideas on this), with a corresponding increase in the penalties for all
customers. The savings Brazil has achieved so far are far greater than what
PROCEL has achieved in 20 years. This is not a criticism on PROCEL, but
simply a testimony that market signals [in our particular case in tandem with
perception of crises, instilled only on May 03] do work. I had chance to
exchange some ideas with A IBRD comission last week. They are on the very
same boat to use economic signals, not only in 2001 but also throughout
2002. They even advocate to set quotas below the target rationing, to reduce
the regulated segment of the market.

The recent success on the hydro auction program also illustrates the point.
Large customers have perceived that the old-fashioned strategy of keeping
subsidies in the system is not sustainable. They would rather make the
investment themselves and have the badly needed energy in place. The threat
of high energy prices in 2003, when the initial contracts start to scale
downand the prices are expected to skyrocket, is a great incentive for
people (including customers) to invest in new generation (therefore reducing
the impact of the crisis). For this to happen, it is key that the government
maintains the initial contracts, with NO regulated bulk tariffs after 2003.
Bill of Law 2905 want to re-regulate energy. It is an over-reaction to the
California syndrom and it would be a bad incentive for new contracting and
expansion. The only way to make the self-fulfilling prophecy wrong is by
giving NOW all the right incentives for expansion. The allegation of
"protecting" the customer does not hold.

Clear regulatory incentives, and no expectations of being bailed out is key
for this to happen. It is part of the "virtuous circle".

FYI, please find enclosed a recent presentation on "virtuous contracting"-
(and the maintenance of Initial Contracts is part of it), recently delivered
at the Institute of the Americas. (Pedro Parente agrees with the concepts in
there)...

... as well as a position paper from Abraceel (my last one) on why there
should NOT be regulated tariffs after 2003 in excess to what is proposed by
the Initial Contracts. This paper is to be sent early next week to Deputy
Aleluia, and Gazeta Mercantil will publish an article on Monday.

LM

Idel Metzger
06/27/2001 07:00 PM
To: Orlando Gonzalez/SA/Enron@Enron, Joe Kishkill/SA/Enron@Enron, Brett R
Wiggs/SA/Enron@Enron, Joao Carlos Albuquerque/SA/Enron@Enron, Ricardo
Mucci/SA/Enron@Enron, Ricardo D Cunha/SA/Enron@Enron, Luis
Henriques/SA/Enron@Enron, Luis Berti/SA/Enron@Enron, Antonio
Duarte/SA/Enron@Enron, Luiz Baccaro/SA/Enron@Enron, Bernardo
Andrews/SA/Enron@Enron, Federico Cerisoli/SA/Enron@Enron, Joca
Paciello/SA/Enron@Enron, Erwin Landivar/SA/Enron@Enron, Roberto
Hukai/SA/Enron@Enron, Marcelo Parodi/SA/Enron@Enron, Maria Ines
Granado/SA/Enron@Enron, Roberto Schloesser/SA/Enron@Enron, Ricardo
Szlejf/SA/Enron@Enron, Eduardo Cancian/SA/Enron@Enron, Paulo
Squariz/SA/Enron@Enron, Murilo Hyai/SA/Enron@Enron, Diego
Hollweck/SA/Enron@Enron, Roderick Blackham/SA/Enron@Enron, Karla
Azevedo/SA/Enron@Enron, Sami Arap/SA/Enron@Enron, Luiz
Watanabe/SA/Enron@Enron, Remi Collonges/SA/Enron@Enron, David M
Rosenberg/SA/Enron@Enron, Guy Ishikawa/SA/Enron@Enron, Ricardo
Lisboa/SA/Enron@Enron, Ricardo Sassatani/SA/Enron@Enron, Breno
Nogueira/SA/Enron@Enron, Cecilia Mercio/SA/Enron@Enron, Jose Lucio
Reis/SA/Enron@Enron, Luiz Maurer/SA/Enron@Enron, Fred Sampaio/SA/Enron@Enron,
Jose Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Debora
Klinger/SA/Enron@Enron, Luiz Maurer/SA/Enron@Enron, Rubens
Parreira/SA/Enron@Enron
cc:

Subject: Purchase of Certificate from Alcan

We (Rubens Parreira and Idel) closed verbally, today our first purchase of
1000MWh of Certificates from Alcan in the Nordeast for July.
Congratulations to Rubens and the trading team for the competent work
Idel