Enron Mail

Subject:Azurix and OPIC
Date:Fri, 1 Sep 2000 03:40:00 -0700 (PDT)

Thisn is very troublesome. We will continue to look at it. Joe
---------------------- Forwarded by Joseph W Sutton/ENRON_DEVELOPMENT on
09/01/2000 09:13 AM ---------------------------

Enron International

From: John Hardy 08/31/2000 03:57 PM

Subject: Azurix and OPIC

I want to give you a heads up on a serious issue that has developed between
Azurix and OPIC. There is no action requested from you but I wanted you to be
aware of this development.

Last spring we encouraged Azurix to look to OPIC and IDB for funding support
for the financing needed for their Argentinian concession for the province of
Buenos Aires. For the past several months teams from Azurix and the two
lending agencies have been moving forward with the expectation that we could
go to an OPIC Board vote in September for $100 million and to the IDB Board
in October for $150 million.

Everything was going along great until last friday. Early last week OPIC
had its credit committee review and approve the project, though apparently
some members were concerned about the regulatory risk associated with water
projects. (This would be OPIC's first financing of a water project.) Friday
AM, George Munoz recieved a draft cable from the US Embassy in Argentina
providing their assessment of the project and, on the spot, pulled the
project from Investment Committee and off the calendar for consideration by
the OPIC Board in September. Friday afternoon, OPIC staff informed Azurix
and our office in a meeting that Azurix should be resorting to "Plan B",
implying that the project would not go forward in the foreseeable future.
OPIC would not provide Azurix or us with the cable.

Over the weekend, the cable was formally sent to Washington, though now
reclassified as a classified document so we have not been able to see its
contents. Moreover, the Ambassador has specifically conveyed his directive
to Washington that the cable is not to be shown to anyone outside of the
government, John Garrison has a relationship with the Ambassador but has
not been able to get the Embassy to alter its position, nor would I think
they be inclined to do so now given the fact that they could have
disassociated themselves from the draft on friday but did not.

On the positive side, the InterAmerican Development Bank has stated that
they are prepared to consider increasing the size of the B loan to cover the
additional $100 million. We have met with the IDB and discussed the
situation at OPIC; they seem satisfied at this point.

It appears to me that George Munoz is unwilling to take to the Board the
Azurix project when a damning cable has been circulated around the government
even if the substance of the cable is exaggerated, taken out of context and
distorted. From what we have learned, the cable containes concerns expressed
about the regulatroy framework, labor issues etc., etc., but also comments
from the Argentinian goverment about Azurix and the concession about Bahia
Blanca and the politics of Azurix in Argentina. It is uncompromisingly
negative in its tone.

Azurix is seeking a return of the $250,000 fee and will withdraw its

Hope all is well. John