Re: Elektro's telecom project

Randy. What do other multinationals operating in Brazil do? JP Morgan or
Citibank? Mark

Randy Young@ENRON
01/10/2001 06:49 AM

To: Sami Arap/SA/Enron@Enron, Robert C
Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,
margalith@elektro.com.br, Rob Walls@ENRON_DEVELOPMENT, John
Novak/SA/Enron@Enron, Mark E Haedicke/HOU/ECT@ECT
Subject: Re: Elektro's telecom project

For what it is worth, I agree with Sami's concern that we may laboring under
a false sense of security in assuming that a foreign arbitration provision in
a Brazilian contract, between Brazilian contracting parties relating to a
Brazilian matter in controversy would be easily enforced by a Brazilian
court. Inevitably, we have to fight hard for these "concessions" in our
negotiations and end up leaving a lot of Enron consideration (not to mention
blood and sweat) on the table to get these provisions inserted in our
contracts. If we are really being "taken" by these crafty Brazilian lawyers
(like the former General Counsel of the Odebrecht Group), I think we should
re-think the policy in this specific instance.

Elektro, because it is the fifth largest electricity LDC in Brazil, has a
long history of litigation in the Sao Paulo courts (we had a number of cases,
you will recall, when we bought it, and have had others since). It is clearly
not the only substantial, high-profile Brazilian company Enron has down here,
making it a little hard for us to negotiate these provisions as "foreigners"
the way we do elsewhere.

By all means we should check with Jose Emilio, but if he shares Sami's (and,
I have to say, my) concerns, I think we should consider making a special rule
for Brazil-to-Brazil contracting transactions. Perhaps we could have the
first position be ICC arbitration in Sao Paulo (in English?), with a forum
savings clause that states that if the arbitration provision is held
unenforceable that the litigation will be in the courts (federal, if
possible) of Sao Paulo. The worst thing that could happen is that we enter
into an arbitration provision, thinking we are safe, and end up in some court
in a smaller city in a backwater part of Brazil where they are a little loose
on the law and perhaps even looser on the concepts of justice, due process,
etc.

If you would like me to be involved in the further discussions, let me know.

Randy

Sami Arap
01/10/2001 06:20 AM
To: Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,
margalith@elektro.com.br, Randy Young@ENRON_DEVELOPMENT, Rob
Walls@ENRON_DEVELOPMENT

Subject: Re: Elektro's telecom project

Thanks again, Bob.

I will call Jos, Emilio to check. I agree that a foreign arbitral award is
enforceable in Brazil (whether international or local aspects are under
discussion) provided that you follow the "exequatur" procedure at the
Brazilian Supreme Court. I have personally participated in the enforcement
of a foreign arbital award against Odebrecht a few years ago.

However, the point I am raising is that in case one of the two Brazilian
contracting entities challenge such foreign arbitration clause and refer the
matter under dispute to a local court, it is most likely that the Brazilian
judge will accept jurisdiction and review the case, in accordance with
Article 88 (I)(II)(III) of the Brazilian Civil Procedure Code. In such
event, if Enron (please note that I am always & only referring to an Enron
Brazilian entity) agrees to a foreign arbitration clause with a Brazilian
counterparty, it may end up resolving its contractual disputes at the
Brazilian courts (and this is exactly what I am trying to avoid by suggesting
ICC arbitration in S?o Paulo for all contracts entered into between two
Brazilian entities).

Even if the two Brazilian contracting entities refer the matter under dispute
to foreign arbitration and, at the same time or at a later stage, one of the
parties decide to challenge the foreign arbitration clause and refer the
matter to the local courts, it is most likely that the Brazilian Supreme
Court will recognize the local courts jurisdiction and decide that the
foreign arbitration clause was null and void.

I will be in Houston on Friday, January 26, and would very much appreciate
the opportunity to discuss this matter in detail with you and possibly with
Rob Walls and/or Jim Derrick.

Regards,

Sami

Robert C Williams@ENRON_DEVELOPMENT
01/09/2001 10:18 PM
To: Sami Arap/SA/Enron@ENRON
cc: Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,
margalith@elektro.com.br@ENRON, Randy Young, Rob Walls

Subject: Re: Elektro's telecom project

Sami,

I agree on the issue of Brazilian law. But on the question of foreign
arbitration, our advice has been that such a clause will be enforced by the
local courts, even if the dispute has no international aspects other than the
parent is foreign (although there was a dissenting opinion from one lawyer on
this issue). Could you check this point with Jose Emilio Pinto at Tozzini
or Fernando Serec? As to local arbitration, we have accepted this where the
dollar amount of the disputes is likely to be less than $500,000. We should
probably also have a cumulative cap of, say, $5 million. On bigger deals,
Rob orJim have resisted local court jurisdiction. The most flexible they
have been to my knowledge where more $ is at stake is to agree to
ICC-administered arbitration in Sao Paulo. In this case, I think we should
propose the local arbitration procedure which would is best calculated to
result in an impartial award, whether that be ad hoc, ICC, FIESP, or
Canadian-Brazilian C of C. Jose Emilio would have a view on this, too. Hope
this is helpful.

Bob

Sami Arap@ENRON
01/09/2001 04:48 PM
To: Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Robert C
Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: margalith@elektro.com.br

Subject: Re: Elektro's telecom project

Michelle and Bob;

Thanks for the reply. The issue here is when Brazilian entities (only) are
entering into a contract which obligations will only be performed in Brazil
and such agreement is governed by Brazilian laws. My understanding of the
Enron arbitration policy (and please correct me if I am wrong) is that when
Enron (as a foreign company) is dealing with foreign governments,
governmental agencies or government-owned companies, or private companies
from the host company, we must follow our internal policy by choosing
preferred arbitration rules, preferred place of arbitration and preferred
governing law.

In case of Elektro, as well as any other Brazilian Enron entity (EAS, ECE
etc), entering into a contract with another Brazilian party with obligations
to be performed in Brazil, such contract will most likely be governed by
Brazilian laws. Although the parties are in principle able to select a
foreign law in Brazil, the contracting parties must comply with local public
policy. I strongly advise that two or more Brazilian parties contracting
obligations in Brazil agree that the respective contract be governed by the
laws of Brazil.

With respect to the dispute resolution mechanism, we are all aware of Enron's
policy to avoid referring disputes to the Brazilian courts. In case of the
above mentioned Elektro deal, the idea is to submit all contract
controversies to arbitration under ICC rules in S?o Paulo. To me, the
question is whether we use "ad hoc" arbitration OR institutional arbitration
(i.e. submit the matter to FIESP or the Canadian-Brazilian Chamber of
Commerce to act as the "arbitration administrator").

FYI since I joined Enron, I've been told that all of Enron's Brazilian
entities should use foreign arbitration as their contracts' dispute
resolution mechanism. In my opinion, this concept may not work the way Enron
wants. If the local Enron entity is dealing with another Brazilian party and
(suppose) both parties have agreed to use ICC arbitration in NY, it is most
likely that, in case the Brazilian counterparty decides to refer the matter
under dispute to the Brazilian courts, the local judge will accept
jurisdiction and review the case. You may ask "why". The reason is because
there are two Brazilian parties contracting obligations to be performed in
Brazil under the laws of Brazil; as a consequence a local judge will accept
jurisdiction.

I'd very much like to emphasize that, while working as General Counsel of the
Odebrecht Group, I use to accept foreign arbitration clauses in contracts
entered with Affiliates of foreign companies because I knew that, at the end
of the day, I could always challenge the dispute resolution mechanism agreed
in the contract and refer the matter to the local courts. Since Odebrecht's
counterparties did not do their homework properly ...

Arbitration was first introduced in Brazil through the Federal Constitution
of 1824. The Civil Code of 1916 ractified the use of arbitration, however,
it obliged the arbitral award to be reviewed by the local courts. Only in
1996, with the issuance of the Brazilian Arbitration Act (Law 9307), it was
recognized the use of arbitration as a definitive dispute resolution
mechanism without having to submit the final arbitral award to the review of
the local courts.

With respect to enforceability, please note that the arbitral award is final,
binding and enforceable towards the contracting parties. Only in case a
Party decides not to comply with the final arbital award, the other Party may
refer the arbitral award to a local judge to obtain an "exequatur".

Please feel free to contact me at the earliest possible convenience to
continue to discuss this arbitration matter.

Rgds,

Sami

Robert C Williams@ENRON_DEVELOPMENT
01/09/2001 03:55 PM
To: Michelle Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Sami Arap/SA/Enron@ENRON

Subject: Re: Elektro's telecom project

There was a concern at one point that FIESP would favor big, "homegrown"
companies. I'm sure Sami knows more about this than I do, though.

Michelle Blaine
01/09/2001 12:37 PM
To: Sami Arap/SA/Enron@ENRON
cc: Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT

Subject: Re: Elektro's telecom project

Definitely we do not want to submit to the local courts. Do suggest ICC
arbitration but I am only vaguely familiar with FIESP. I think that is fine,
but please remind me what it is. I am going to call you from my cell in a
little bit because I have to leave the office.

Sami Arap@ENRON
01/09/2001 11:47 AM
To: Robert C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Michelle
Blaine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:

Subject: Elektro's telecom project

Elektro is participating in the negotiation of a telecom project to form a
SPC among Elektro and four other LDCs (Bandeirante, CPFL, CTEEP and EPTE).
The SPC will be named "SP Telecom". SP Telecom will develop
telecommunication services using the LDCs' infra-structure. After SP
Telecom's formation, an investor will be selected to purchase the majority of
the company's shares. Elektro will have a 5% participation in SP Telecom and
this deal will generate approximately US$10MM in revenues for Elektro.

The Parties have been discussing a draft MOU for several months, however,
this matter came to my attention only a few weeks ago. The MOU has been
reviewed by all Parties and is currently on final rounds of negotiation.

There is one pending issue which I need to discuss with you before I get Jim
Derrick's sign-off. CTEEP and EPTE (state and private owned LDCs) have
requested that the MOU, as well as any other SP Telecom project agreement,
includes a dispute resolution mechanism through the courts of S?o Paulo. I
have discussed this matter with Jose Margalith (Elektro's in-house counsel)
and Randy Young, and have suggest Margalith to offer ICC arbitration at FIESP
(the S?o Paulo State Industries Federation) as an alternative.

Orlando Gonzalez asked me to assist him to resolve this pending issue at the
earliest possible convenience. Any thoughts or ideas ? Please feel free to
call me (55-11-5503-1226).

Tks for your assistance to this matter.

Sami Arap