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Enron Mail |
Thanks! Our team has been working on the supreme decree for over two years=
=20 and it is gratifying to finally bring this in, given that it will have a=20 significant financial benefit for Enron/Transredes. I have included an=20 executive summary and detailed report below.=20 Executive Summary Through the efforts of the Transredes regulatory team: A presidential Supreme Decree, establishing a new tariff methodology for=20 Bolivian gas transportation, has issued and gone into effect. The recovery mechanism we proposed will allow Transredes to recover over=20 US$100 million, which was at risk. This amount, residing in the gas deferr= ed=20 account, will be recovered over 20 years (instead of 25 under the former=20 regulations) and will take the form of a surcharge on all gas transported b= y=20 any pipeline in Bolivia (instead of being assessed only on Transredes=20 transport volumes, as per the former regulations). In the future, Transredes will be able to fully recover all of its prudentl= y=20 incurred costs, and the full rate of return contemplated by the Hydrocarbon= =20 Law, via tariffs charged for transportation on the domestic and export oil= =20 concessions, and the export gas concession.=20 The mechanism advanced by government to subsidize the transportation tariff= =20 of the domestic gas concession in the future will, in all likelihood, allow= =20 Transredes to receive the full rate of return contemplated by the Hydrocarb= on=20 Law, although the mechanism needs to be fleshed out further. The Supreme Decree will also allow Transredes=01, rate case, financing prog= ram=20 and pending bond issue to move forward.=20 Detailed Report This is a significant development in the Bolivian regulatory arena. The=20 Supreme Decree, establishing a new tariff methodology for natural gas=20 transportation in Bolivia, was signed by President Banzer and was published= =20 in the official gazette on Wednesday. We officially learned about it=20 yesterday upon receipt of a certified copy. The new methodology and=20 regulations are now in effect. =20 The decree provides for full recovery of Transredes' gas deferred account= =20 over the next twenty years via a surcharge on ALL volumes exported from=20 Bolivia, whether transported by Transredes or not. The magnitude of the ga= s=20 deferred account is much greater than anticipated due primarily to severe= =20 export shortfalls as compared to projected export volumes. This is due in= =20 large part to delays in the development of the Brazilian market and to=20 expiration of gas sales and export agreements between Bolivia and Argentina= =20 (in 1999). Please see the attached graph comparing the volumes projected by= =20 the Bolivian government to set transitory tariffs, prior to privatization,= =20 with the actual volumes transported. =20 The gas deferred account is estimated to be approximately US$101 million=20 (plus approximately US$ 60MM for the hydrocarbon liquids deferred account,= =20 giving a total of US$161MM). Please see attached Gas Deferred Account and= =20 Total Deferred Account graphs. These amounts represent the shortfall in=20 revenues experienced due to insufficiently high transitory tariffs, plus th= e=20 cost of capital at 7%. =20 The recovery mechanism for the gas deferred account represents the mitigati= on=20 of a significant exposure that existed at the time we acquired the company:= =20 the transportation concessions are nonexclusive and producers have the=20 explicit right in the Hydrocarbon Law to build their own (bypass) pipelines= ,=20 yet the deferred account recovery mechanism placed the burden of recovery= =20 solely on the transportation tariffs of Transredes. The change in=20 regulations not only secures recovery of these amounts in a commercially=20 viable manner but will dis-incentivize threatened bypasses. In the future, Transredes will also be able to fully recover all of its=20 prudently incurred costs and rate of return via tariffs charged for=20 transportation on the domestic and export oil concessions, and the export g= as=20 concession. We believe that the tariff mechanism for the domestic gas=20 concession may require additional detail work. The mechanism provides for = a=20 ceiling rate of US$0.41 for transportation in the domestic concession and a= =20 surcharge on all export volumes of US$0.03. These tariff components will no= t=20 be sufficient to recover the costs and rate of return contemplated by the= =20 Hydrocarbon Law to be recovered by Transredes. However, there appears to b= e=20 no impediment to collecting the revenue shortfall in the Transredes export= =20 gas tariff. The regulatory team will continue trying to "firm up" this=20 mechanism. =20 The Supreme Decree will also allow Transredes' rate case to move forward. = =20 The rate case filing made in late January kicked off a process that will=20 culminate in the approval of new economic rates to be effective on May 16. = =20 The decree and rate case filing will also allow the Transredes financing=20 program and pending bond issue to move forward. These have been stalled fo= r=20 months due to lender doubts and uncertainty about rates and recovery of the= =20 deferred account. =20 Richard Shapiro 03/22/2001 05:50 PM To: Ray Alvarez/NA/Enron@ENRON cc: Steven J Kean/NA/Enron@Enron, James D Steffes/NA/Enron@Enron=20 Subject: Re: Supreme Decree =20 Congrats!! Ray Alvarez 03/22/2001 04:29 PM To: Richard Shapiro/NA/Enron@Enron cc: =20 Subject: Supreme Decree Rick, I heard from my Bolivia regulatory team that the supreme decree is a= =20 reality and that it is very positive- including full recovery of the $100MM= =20 gas deferred account that we were hanging out on. I will provide more=20 details as soon as I receive them. Ray
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