Re: Trade Mission

Terry was acting with full coordination from Jose. The problem was this:
Daly insisted someone speak on behalf of the group to the press (and
designated Terry to be the one); Terry did not have the updated information
that we were about to meet with the government officials and deliver a
slightly different message (i.e. that we needed to know if the government
planned to really open Petrobras or not -- the implication being that we
would work within either decision but we needed to know one way or the
other); Terry was simply not in possession of this information and no one had
given it to him (probably because they had no reason to assume that Terry
would be thrust in front of the press); moreover, it's hard to see how Terry
could have taken such a position publicly anyway. By my eyes Terry did the
best he could and we had an unavoidable communications bust. I know the
Southern cone team is moving to make it right, but I see absolutely no reason
to come don on anyone about this.

Richard Shapiro
02/17/2000 09:47 PM
To: Steven J Kean/HOU/EES@EES
cc:
Subject: Re: Trade Mission

What was the outcome?

Steven J Kean
02/17/2000 08:13 AM
To: Richard Shapiro/HOU/EES
cc:
Subject: Re: Trade Mission

FYI. I will call Terry and get in touch with Jim/Diomedes
---------------------- Forwarded by Steven J Kean/HOU/EES on 02/17/2000 08:13
AM ---------------------------

Diomedes Christodoulou@ENRON_DEVELOPMENT
02/17/2000 02:42 AM
To: James M Bannantine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J
Kean@EES, Kelly Kimberly/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:
Subject: Re: Trade Mission

Jim/Steve,

How can Terry go out with public statements without knowing a thing of the
dynamics of our negotiations with the Minister on the gas issue? This is
especially damaging given we are depending on the Minister to get approvals
for our two emergency power projects. Let's monitor this but my suggestion is
that Jim needs to call Carraro right away and give some explanation before he
decides to boycot our projects.
---------------------- Forwarded by Diomedes Christodoulou/ENRON_DEVELOPMENT
on 02/17/2000 05:37 AM ---------------------------

Jose Bestard
02/15/2000 05:18 PM
To: Denise M Macedo/ENRON_DEVELOPMENT, James M
Bannantine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Diomedes
Christodoulou/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:

Subject: Re: Trade Mission

See below the messages I had asked Terry to convey in his meetings in the
region. I did ask him to raise the issue of Petrobras through Secretary Daly
with the Brazilians officials as an impediment to the open markets.

It never occurred to me that he would be making Press statements. (or that he
would be quoted in this flavor). This, coupled with the GM ABEGAS) article
will turn up the heat.

Given that Jim's messages are going to be delivered this week (Denise, Jim
will discuss the issue with Carraro. We intend to file a protest in ANP by
Friday due to lack of responsiveness in our request for a transportation
tariff).........

1) I would not go to the press. Let it go..

2) If asked, repeat the vision "regional integration, based on the
principles of open access, greater reliance on competition and customer
choice"

3) Monitor the response. Let me know if you are getting unfavorable reactions
(other than Petrobras).

4) Jim, if you get a call ahead of your meeting, we cannot discredit Terry
(The shadow of Petrobras is an unfortunate quote). Use this in your favor.
Press on with the message "Is Brazil ready to open the gas market to
competition". If so, let's get started.

Jose

---------------------- Forwarded by Jose Bestard/ENRON_DEVELOPMENT on
02/15/2000 01:45 PM ---------------------------

Jose Bestard
02/15/2000 01:45 PM
To: Terence H Thorn/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:

Subject: Re: Trade Mission

Terry.

The Key message for the trip, in regards to energy, should be:

"Achieve regional integration, based on the principles of open access,
greater reliance on competition and customer choice rather than regulated
monopolies"

The vision is that a customer in any of the countries will have choices
"several competing providers"; "different service options", and the providers
will have the flexibility and agility to assemble an attractive package by
combining transactions with other suppliers and customers. This approach
maximizes the utilization of the existing infrastructure (reduces idle or
redundant facilities) and gives customers the ability to more closely tailor
their energy purchases to the their needs.

There are barriers to achieve this vision. It is in the interest of the
governments to work in a common protocol to progress rapidly.

Development of infrastructure .- Still not well developed. Needs to attract
project financing. At this stage, the customers have few alternatives.
Government policy should be to allow access above and beyond what was
initially contracted to justify the financing. Terms of financing have to be
honored. Long term, competing facilities (pipelines, refineries, transmission
lines, power plants) will be fighting for customers.

Threat. Control of these facilities: Petrobras through the BBPL; YPF in
Argentina

Cross-border Licensing.- Very time consuming, bureaucratic delays to grant,
export, import, re-export permitting. Present regime cannot accommodate the
rapid transaction scenario which will be required to support real integration.

Cuiaba Power plant,- As of today we have not received all the permits. Latest
issue is the Bolivian-Argentina border dispute due to YPF denial to
accommodate a transaction of Bolivian gas into Argentina.

Operationally, the plant will receive daily instructions from Brasilia. The
gas supply from Argentina/Bolivia, including spot market transaction has to
be nominated within 48 hours notice. There are no mechanisms to change
quickly the approved volumes.

Commercial entities need to be given the opportunity to export/import to
aggregate the requirements of different suppliers various customers.

Taxation.- Transfer taxes (i.e. receipt taxes ,stamp taxes) for each step
down the chain needs to be eliminated for commercial entities, particularly
for export transactions.

These commercial entities buy pieces of the services on behalf of the
ultimate customer (act as their agent) and package the final offer. The
objective to reduce the cost of the product, which would not be met by
adding a further taxable event. There should not be more, nor any less taxes
because of the services of the middle company, except for the larger amount
of income taxes generated by increase commercial activity.

Money Transfers.- Central Bank Controls to authorize the transfer of
currency needs to be made more agile. Currently these procedures are very
time consuming and cumbersome (Brazil -- I am not as familiar with the other
countries)

This is affecting us in Cuiaba. The Central Bank has not approved the gas
contract, specifically the Take-or-pay provision that has a one-year make up
period. They want a longer make-up period, but that was negotiated with YPF
as part of the larger agreement. YPF may agree but at a higher price. The
Central Bank does not want to send US$ out of the country, so they view TOP
as a devise of paying for a commodity never received. So they are meddling in
contract negotiations.

Below are other notes

Thanks

Jose

Terence H Thorn
02/09/2000 09:22 AM
To: Jose Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Richard Shapiro@EES

Subject: Trade Mission

I have forwarded to you the final schedule of meetings for Daly's trade
mission. I am very comfortable with issues for Argentina and think we need
to focus mainly on the stamp tax issue. Secondly, I would raise the issue of
open access pipelines, especially allowing Bolivian gas to flow to
Argentina. The question I have on this latter issue is whether this is a
matter of changing the law, changing policy or pressuring YPF to allow the
gas to flow on it's section of pipe which I understand is not under the
jurisdiction of Enargas. What can the government do?

JB.- I am not familiar with the genesis of this situation, how these
pipelines escaped the jurisdiction of the regulator. If it is determined
that they are not part of the regulated pipeline network, in time a bypass
pipeline may be built. But an immediate solution needs to be developed.

In Brazil, I am not sure what to raise. On Monday we have meetings with the
Minister of Development, Industry and Commerce and the Secretary of Energy
and Mines. What do I need to have Daly raise with them in private? Myself
in public? or the Minister of External Affairs?

JB.- For background, the Brazilians have rising concerns of the rising
dollarization of their economy, "desnacionaliza?ao". Their concern is not the
US$, it is control. It is that the Old-boys network in Brazil
Government/Industry, has been disturbed by the New-boys taking control of
high visibility sectors, Banking, telecommunications, energy.

Malan, Finance is criticized by the clique that wants the government to be
active in direct investment and support of big projects.
Complaints about BNDES (Brazilian development bank) lending to foreigners for
privatization (Recent AES incident)
Tourinho, Mines and Energy-- pushing a new privatization model -- sale of
stock at the market, not sale of control to a given company. This allows the
existing management to stay in place.
If it is the Secretary of Energy, Carraro, his big mission is to coordinate
the developement of emergengy thermal plants. Big Picture Governement Porgram
-- Petrobras provides that gas; Eletrobras buys and remarkets the electric
energy; BNDES provides the financing --- All within the family.

Foreign companies will not play by the rules of the old network. Enron has
been actively complaining about the gas policy under Petrobras control.

The One Issue I would raise is the lack of competition in the gas sector.
Petrobras control of the BBPL and national gas. There cannot be true
competition in the energy sector because the marginal power plants, price
setters, gas power plants.

As a note, there was a commitment with the World Bank to sell the part of 51%
control of the Brazilian part of the BBPL pipeline. What Petrobras is doing
is locking-up the capacity long term, and building a second pipeline.

Of equal importance is our meeting with the Sao Paulo Governor. What issues
do we have or what do you want me to say to him regarding our assets in this
area. Even if it's to compliment on something, that's fine.

JB.- The State of Sao Paulo, Mario Covas team are to be congratulated by the
skillful manner that they have conducted the gradual privatization of energy
sector. Covas is very influential. His current battle deals with tax reforms
in Brazil. He is fighting a system of tax-preferences in other states to
attract industries, which ultimately creates a Federal burden and
consequently a Sao Paulo burden.

The Petrobras control issue of the gas sector should have resonance.

I assume we have no key issues in Chile at this time.

JB.- There may be some but I a blissfully unaware of them. I would be
interested on what you pick up

Thanks.

---------------------- Forwarded by Jose Bestard/ENRON_DEVELOPMENT on
02/15/2000 01:45 PM ---------------------------

Denise M Macedo
02/15/2000 06:50 AM
To: Jose Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, James M
Bannantine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Diomedes
Christodoulou/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:

Subject: Gazeta Mercantil - Terry Thorn

Hi guys,

1. Gostaria de saber se esta declara??o faz parte de um projeto consciente da
Enron em enfrentar a Petrobr?s ou se foi um descuido do porta-voz.

2. Caso a imprensa nos procure para repercutir tal declara??o que, suponho,
vai gerar umarea??o extremamente negativada Petrobr?s, existe alguma
estrat,gia,
key messages, etc?

Vocs pretendem falar sobre o assunto? O que ser? dito???Thanks??Denise???04. GAZETA: Energia , o alvo dos empres?rios americanos??BRAS?LIA, 15 de fevereiro de 2000 - Empres?rios norte-americanos que ?acompanharam o secret?rio de Com,rcio, William Daley, destacaram o setor de ?energia ?no Brasil como a principal ?rea para investimentos no Pa?s. Segundo o ?vice-presidente da Enron, Terrence Thorn, por,m, 'o monop?lio exercido pela ?Petrobras? tem que acabar para que o setor se desenvolva. Todos devem competir, ?inclusive a estatal'.?Um dos obst?culos ,, de acordo com ele, 'a sombra que a Petrobras faz sobre o ?mercado de energia no Brasil'. O executivo norte-americano lembra que a ?decis?o do governo brasileiro de estabelecer um pre?o ?nico para o g?s ?natural em todo o pa?s , um claro exemplo de medidas que devem ter seus dias ?contados. 'Ficamos confusos ao saber de tal decis?o'. Terrence Thorn acredita ?que um monop?lio estatal pode ser negativo . concorrncia e que a
privatiza??o
da Petrobras ter? que ocorrer um dia.
Para ele, o processo de privatiza??o de energia no Brasil vem sendo conduzido
de forma eficaz, 'mas o Pa?s ainda n?o concluiu o projeto de desregulamenta??o
(liberalizar o pre?o do g?s natural, por exemplo) e h? muito trabalho pela
frente'. Segundo Thorn, as empresas estrangeiras de energia podem oferecer
servi?os
inovadores para o setor.
'O problema , que o mercado n?o est? preparado'. Ele defende que as novas
fases da desregulamenta??o do setor energ,tico no Pa?s sejam debatidas por
toda
a sociedade.
O interesse dos norte-americanos pelo setor p"de ser visto na pr?pria
composi??o da miss?o de empres?rios ao Brasil. Das 20 empresas que viajaram
com
Daley, dez eram do setor de energia. O representante da Agncia de ?Desenvolvimento e Com,rcio dos Estados Unidos (USTR), Albert Angulo, ainda ?informou? que o ?rg?o est? analisando cinco oportunidades de investimentos dos EUA no ?mercado de energia do Brasil. 'Realizamos estudos de viabilidade para que? empresa venham ao Pa?s, mas o certo , que uma maior desregulamenta??o do ?setor energ,tico seria muito positivo para as empresas norte-americanas', diz.?A vice-presidente da empresa Energy Conversion Devices, Nancy Bacon, defende ?que o governo brasileiro deixe de gastar recursos com a gera??o de energia ?em locais distantes e passe a comprar tecnologias alternativas dos ?norte-americanos. 'Para locais de dif?cil acesso, como a Amaz"nia, a ?tecnologia de fotoc,lulas? , a grande solu??o para suprir o d,ficit energ,tico do Brasil'. (Gazeta ?Mercantil/P?gina A4) (Jamil Chade)????????????