[Congressional Record Volume 148, Number 54 (Friday, May 3, 2002)]
[Extensions of Remarks]
[Pages E703-E705]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




ENRON'S PAWNS: HOW PUBLIC INSTITUTIONS BANKROLLED ENRON'S GLOBALIZATION 
                                  GAME

                                 ______
                                 

                               speech of

                        HON. DENNIS J. KUCINICH

                                of ohio

                    in the house of representatives

                         Thursday, May 2, 2002

  Mr. KUCINICH. Mr. Chairman, following are excerpts from ``Enron's 
Pawns: How Public Institutions Bankrolled Enron's Globalization 
Game''--Sustainable Energy & Economy Network, Institute for Policy 
Studies, March 2002.

                            I. Introduction

  Many public officials have described Enron's demise as the product of 
corporate misbehavior. This perspective ignores a vital fact: Enron 
would not have scaled such grand global heights, nor fallen so 
dramatically, without its close financial relationships with government 
agencies.
  Since 1992, at least 21 agencies, representing the U.S. government, 
multilateral development banks, and other national governments, helped 
leverage Enron's global reach by approving $7.219 billion in public 
financing toward 38 projects in 29 countries.
  The now-fallen giant, until recently the country's seventh largest 
corporation, marched into risky projects abroad, backed by the ``deep 
pockets'' of government financing and with the firm and at times 
forceful assistance of U.S. officials and their counterparts in 
international organizations. Enron's overseas operations rewarded 
shareholders temporarily but often punished the people and governments 
of foreign countries with price hikes and blackouts worse than what 
California suffered in 2001, causing social unrest and riots that were 
sometimes brutally repressed. For example:
  In the Dominican Republic, eight people were killed when police were 
brought in to quell riots after blackouts lasting up to 20 hours 
followed a power price hike that Enron and other private firms 
initiated. The local population was further enraged by allegations that 
a local affiliate of Arthur Andersen had undervalued the newly 
privatized utility by almost $1 billion, reaping enormous profits for 
Enron.
  In India, police hired by the power consortium of which Enron was a 
part beat non-violent protesters who challenged the $30 billion 
agreement--the largest deal in Indian history--struck between local 
politicians and Enron.
  The president of Guatemala tried to dissolve the Congress and declare 
martial law after rioting ensued, following a price hike that the 
government deemed necessary after selling the power sector to Enron.
  In Colombia, two politicians resigned amid accusations that one was 
trying to push a cut-rate deal for Enron on the state-owned power 
company.
  While all this was occurring, the U.S. Government and other public 
agencies continued to advocate on Enron's behalf, threatening poor 
countries like Mozambique with an end to aid if they did not accept 
Enron's bid on a natural gas field. So linked was Enron with the U.S. 
Government in many people's minds that they assumed, as the late 
Croatian strongman Franjo Tjudman did, that pleasing Enron meant 
pleasing the White House. Tjudman hoped that compliance with an over-
priced Enron contract might parlay into an array of political favors, 
from softer treatment at The Hague's War Crimes Tribunal to the entry 
of his country into the World Trade Organization.
  Only when Enron's scandals began to affect Americans did these same 
government officials and institutions hold the corporation at arm's 
length. And only when Enron leadership revealed their greed on home 
turf did it become the biggest corporate scandal in recent U.S. 
history.


                              Key Findings

  After a detailed study of Enron's overseas activities over the past 
decade, Institute for Policy Studies researchers have reached the 
following four conclusions:


    1. U.S. Government agencies were the largest backers of Enron's 
                           activities abroad

  From 1992 to 2001, U.S. Government agencies--the Overseas Private 
Investment Corporation (OPIC), Export-Import Bank, Maritime 
Administration, and Trade and Development Agency--cleared Enron's path 
with $3.68 billion in approved support for 25 projects. OPIC is the 
clear leader in public financing for Enron, approving over $2.6 billion 
in risk insurance for 14 projects. Adding to this the U.S. share of 
financing for multilateral development banks brings the total amount of 
U.S. taxpayer support for Enron's overseas operations to over $4 
billion.


  2. The World Bank Group was an important catalyst of Enron's global 
                               expansion

  The U.S. government wields strong influence over the policies and 
projects of multilateral development banks (MDBs), particularly the 
World Bank Group. Despite some reluctance to support several obviously 
overpriced deals, the Bank did provide $761 million in support for 
Enron-related overseas projects from 1992 to 2001. Beyond direct 
support for specific projects, it also provided Enron an entree to many 
developing countries by pushing its agenda of privatization and 
deregulation of the energy and power sectors as conditions of further 
loans. Other MDBs, particularly the Inter-American Development Bank 
(IDB), also were important financial backers of Enron. The IDB approved 
slightly less financing ($752 million) than the World Bank Group from 
1992 to 2001.


3. When the World Bank or U.S. taxpayer-backed institutions declined to 
 support an Enron project on financial or political grounds, a raft of 
other export credit agencies (ECAs) and regional financial institutions 
                    eagerly stepped into the breach

  Enron-related projects obtained support form national and 
international public institutions that have no ties to U.S. taxpayers. 
This alphabet soup of ECAs and MDBs--obscure and often-secretive 
agencies with acronyms like JBIC, CDC, KfW, SACE, EIB, ADC, OND, 
COFACE, and CIDA--approved $2 billion toward Enron's global expansion.


4. Enron's collapse calls into question the policy of deregulation that 
Enron, together with its partners in the United States Government, the 
 World Trade Organization (WTO), the International Monetary Fund (IMF) 
         and World Bank, and the private sector have advocated

  Prodded by the Reagan administration in the 1980s, the World Bank and 
IMF have

[[Page E704]]

been pursuing deregulation and privatization of the power and energy 
sectors for two decades. Energy deregulation has resulted in the energy 
needs of the vast majority of citizens--the poorest as well as those in 
need of power for businesses, hospitals, schools and other public 
services to function--being routinely sacrificed for private gain. So 
long as the World Bank, IMF, WTO, U.S. Government and corporations 
continue to advance this agenda of energy and power deregulation, all 
signs suggest that future ``Enrons'' will continue to occur, with 
devastating public consequences.
  * * * Brazil pipeline, Enron benefited both from the World Bank's 
capitalization of Bolivian oil and gas fields and from the World Bank's 
support of the pipeline.
  OPIC, a U.S. export credit agency which had approved a $200 million 
credit toward Enron's construction of a 390-mile pipeline and thermal 
power project in Brazil, withdrew its support for the project in late 
February 2002. According to a Bloomberg article, Enron owes OPIC $453 
million in 5 countries in South America, including Bolivia.
  Despite Enron's collapse and OPIC's withdrawal, another public 
institution is considering throwing more money at Transredes. On Feb. 
14, 2002, the Inter-American Development Bank published a project 
abstract for a proposed financing of a gas pipeline extension to the 
fields of southern Bolivia. (See Inventory for further details.)
  A special congressional commission has been formed in Bolivia to 
investigate the legality of Enron's 1994 acquisition of its stake in 
the Bolivian side of the Bolivia-Brazil gas pipeline, as well as the 
consequences for Transredes given Enron's bankruptcy. The commission's 
seven members will hear testimony from current and former executives of 
YPFB as well as government officials, including three former 
presidents, regarding their involvement in the Enron contract. 
Opposition parties are using the case as a political campaign issue 
ahead of June presidential elections.


                                Colombia

  Although Colombia's energy sector is, for the most part, still 
publicly-owned, Enron was able to build and operate a gas pipeline in 
that country through a special contractual arrangement with the 
government, and with the financial support of the World Bank.
  The World Bank approved a $30 million loan toward the Ballena-
Barrancabermeja gas pipeline in 1994, and an additional $35 million in 
1996. The pipeline's owner and operator is Centragas, a company in 
which Enron has a 50% stake, with the balance held by Tomen Corporation 
(Japan, 25%) and Promigas, S.A. (Colombia, 25%). Through a Build, Own, 
Operate and Transfer (BOOT) mechanism, Enron built a 357-mile pipeline 
that carries gas from the offshore Ballena gas field to a petrochemical 
complex in Barrancabermeja, central Colombia. Ecopetrol, the Colombian 
national oil company, is its sole client.
  To ensure the security of its Colombian assets, Enron has lobbied in 
Washington to increase military and other aid to Colombia through 
Senate Bill 2522, the bill that funded the Plan Colombia.\23a\ This 
bill, later signed into law, designated nearly $1 billion ``to support 
Central and South America and Caribbean counternarcotics activities.'' 
Enron is also a member of the U.S.-Colombia Business Partnership, a 
corporation consortium that promotes U.S. business interests in 
Colombia (other members include Occidental International Corp. and BP 
Amoco).
  According to Colombian government documents, in the early 1990s, the 
energy sector in Colombia was expected to generate a deficit of over $1 
billion for a ten-year period. Privatization sought to generate the 
funds needed to pay the debt (around 39% of all public debt at the 
time) and to finance 50%. of the new investments needed to modernize 
the energy sector. The privatization program began in 1996 with the 
sale of several electric generation facilities, and by 2001, private 
companies made up 62% of generation, 44% of distribution, and 30% of 
new project development. The government hoped to increase that to 75% 
of generation and 80% of distribution with the sale of ISAGEN, the 
largest remaining state-owned electric company.\23c\
  In October 1999, in Houston, Colombian president Adreae Pastrana met 
with the executives of the principal oil and electricity companies in 
the United States, coordinated by then governor of Texas, George W. 
Bush. Pastrana rallied support for Plan Colombia, and promised the 
major oil and gas exploration concessions and the continuation of the 
privatization in the power sector. Enron representatives were present 
at this meeting with President Pastrana and Governor Bush.\23d\
  Two months later, a scandal erupted in the Colombian Congress when 
Senator Hugo Serrano accused the Energy Minister, Luis Carlos 
Valenzuela, of using his political influence to strike a deal with 
Enron. Under this new deal, Colombia would export natural gas to 
Enron's power plant in Panama (Bahia Las Minas). This power plant 
received support from Ex-Im in 1996, the IFC in 1998, and MIGA in 2001.
  The World Bank's MIGA appears to have been careless in its work in 
this case. MIGA earmarked its $3.3 million guarantee for the Bahia Las 
Minas power plant to an investor in the plant named Lloyds TSB Bank of 
Panama, a subsidiary of Lloyds (the London-based insurance and banking 
empire). We can only assume that MIGA officials did not read the 
transcript of the Feb. 2001 U.S. Senate investigation on money 
laundering. One of the banks investigated by Sen. Carl Levin's staff 
was a Lloyd's affiliate named British Bank of Latin America (BBLA), ``a 
small offshore bank that was licensed in the Bahamas but accepted 
clients only from Colombia . . . (and) became a conduit for illegal 
drug money.'' \23e\
  The Senate investigators reported that ``BBLA's account statements 
show a constant stream of large money transfers among BBLA and a 
handful of Lloyds affiliates, including Lloyds banks in Belgium, 
Colombia, Panama, (emphasis added) the UK and the US.'' Indeed, in 
2000, Lloyds shut down BBLA and its ``clients, assets, loans (were) 
redistributed to other Lloyds banks in Bahamas, Colombia, Panama 
(emphasis added) and the US.'' And Footnote 268 in the report contains 
this interesting information: A federal prosecution (United States vs. 
All Funds in Certain Foreign Bank Accounts Representing Proceeds of 
Narcotics Trafficking and Money Laundering, USDC DC Case No. 1:99.CV-
03112) seeks forfeiture of about $295,000 in drug proceeds sent to 
Lloyds TSB Bank and Trust (Panama).
  Presumably, MIGA was unaware of these investigations last year when 
it decided to back the Lloyds affiliate's investment in the Enron power 
plant, and it also must have missed the burgeoning scandal in Colombia 
over Minister Valenzuela's pact to ship gas to the plant. Senator 
Serrano claimed that the deal would also have profited Valenzuela's 
former employer--investment bank and project promoter Corporation 
Financiera del Valle (Corfivalle)--which owned 14% of Promigas. 
Ecopetrol President, Carlons Rodado Noriega, who later resigned over 
the disagreement, refused to sign the Memorandum of Understanding with 
Enron because he felt it was not in the best interest of the country. 
Enron was to receive exclusive rights to Colombia's gas exports at very 
low prices. Colombia would not be able to export gas, other than that 
bought by Enron. Although Valenzuela denied the charges, he resigned 
shortly thereafter.


                           Dominican Republic

  In 1990, through the National Electric Sector Development Law (Ley 
14-90), the Dominican Republic opened its doors to independent power 
producers, to help it generate additional power for the country.
  On July 22, 1994, the World Bank's IFC approved a $132.3 million 
loan, and a year later, an additional $1.5 million currency swap, in 
support of a 185-megawatt combined-cycle power facility mounted on a 
barge at Puerto Plata. The barge-mounted power plant was owned by 
Enron's subsidiary, Enron Global Power & Pipelines, which acquired the 
parent company's 50% share in the barge power plant in 1995. `The power 
project is expected to be immediately additive to earnings, cash flow 
and earnings per share in 1996,' trumpeted Rodney Gray, chairman, of 
Enron Global Power & Pipelines.
  In December of 1996, the U.S. Maritime Administration provided a $50 
million guarantee toward two Enron power barges for this project.
  In January 1998, the World Bank's IBRD approved a $20 million loan to 
privatize the country's power sector. The goal, said the World Bank, 
was to open up the power sector to private companies, through reforms 
at the state agency, Corporacion Dominicia de Electricidad (CDE). The 
IBRD wrote: ``The project's overall objective is to support power 
sector reform by establishing a competitive bulk supply market for 
electricity. Specifically, the project seeks to lift transmission 
constraints that hinder open access of publicly as well as privately 
owned power generators.''
  When the government privatized its power sector, Enron (along with 
several other firms) rushed in to buy a stake in the generating 
capacity of the Dominican Republic, while AES and Union Fenosa of Spain 
bought into the distribution networks. The CDE continued to own and 
operate the country's power transmission companies. Shortly after the 
private corporations took over, rates for electricity skyrocketed by 
51-100% or more. Consumers refused to pay the higher rates, and 
ultimately forced the government to absorb most of the tariff increase. 
This resulted in the government paying around $5 million per month to 
the power companies, a sum it was unable to sustain. By October 2001, 
it had accumulated a debt in the power sector of $217 million, of which 
55.3% was owed to private companies. The mounting debts in turn caused 
Enron and others to turn off the power, with blackouts sometimes 
lasting as much as 20 hours, affecting hospitals, businesses, and 
schools. By early 2001, widespread frustration with the situation 
triggered protests, some of which

[[Page E705]]

turned violent after police clashed with demonstrators. At least eight 
people died in the protests, including a 14-year-old boy.
  In a situation with similarities to California, shortages were 
originally blamed on private power generators, which at the time of the 
crisis were only supplying 392,000 of the 815,000 kilowatts they were 
capable of producing. The electricity issue also sparked a 
confrontation between the Dominican government and the U.S. Embassy, 
after the former accused the Smith-Enron joint venture of outright 
fraud for failing to deliver its promise to generate at least 175 
megawatts a day. After privatization of the CDE, power rates had more 
than doubled and government payments and subsidies (now to private 
companies) had tripled. After months of negotiation between the 
government and the power companies, an agreement was finally reached in 
October 2001 in Madrid, Spain. However, further privatization of the 
CDE (the remaining transmission companies) has been mentioned as a 
possible option for a cash infusion for the government. In April 2000 
it was reported that CDE, the state power company partially owned by 
Enron, would privatize electricity transmission in order to comply with 
World Bank requirements for assistance.
  Officials of the current and previous administration have been 
publicly trading responsibility for the chaos in the electricity 
sector. In June 2001, the President of the Dominican Republic announced 
that the contracts awarded during the privatization of the power sector 
would be investigated. A report by a special commission for the 
Dominican Senate claimed that the assets of the CDE were undervalued by 
$907 million, resulting in the CDE's sale for 42% of its value. 
Suspiciously, the accounting firm that executed the market value 
appraisal, Ortega & Asociados, is Arthur Andersen's ``local 
representative'' in the Dominican Republic. In January 2002, sparked by 
the allegations surrounding Enron and Arthur Anderson, the Dominican 
newspaper, El Nacional, revealed the connection between the two 
accounting firms. Representatives of Ortega & Asociados were questioned 
about their involvement in the CDE privatization and Enron's 
operations. Although they have denied any wrongdoing, in a letter to 
the newspaper they stated that, ``This job [referring to the CDE 
privatization] was done by our professional Dominican staff, with the 
collaboration of Andersen, given its knowledge and experience in 
privatization and capitalization of public companies in Latin 
America.'' \30\''
  Enron's contract in the Dominican Republic expires in 2015.
  Until 1992, the state-owned Instituto Nacionalede Electricidad (INDE, 
National Institute of Electricity) held more than 83 percent of the 
capacity serving Guatemala's power supply requirements. The remainder 
was owned by the Empresa Electrica de Guatemala S.A. (EEGSA, the 
Guatemala Electricity Company), of which the government was majority 
owner. Transformation of the power sector began in January 1993 when 
EEGSA signed a 15-year power purchase agreement (PPA) with Enron to 
build the 110MW Puerto Quetzal thermal plant that began operations in 
1993. Consisting of two barges loaded with 10 diesel-fired generators, 
the $92 million project was partly financed by the IFC, which approved 
a $20 million direct loan as well as a $51 million syndicated loan 
toward this, the first privately-financed power project in Central 
America. Power from the project is sold to EEGSA.
  The power company, Puerto Quetzal Power Corp., was created by Enron, 
who initially owned 50%, in addition to operating the plant and serving 
as fuel supplier. King Ranch Inc., a U.S. company with energy and 
agribusiness interests, owned the other 50%. In 2000, the U.K.'s 
Commonwealth Development Corporation (CDC) acquired 25% ownership of 
the project. The project also gained support from the U.S. Maritime 
Administration (MARAD), which financed guarantees on the power barge 
construction in 1994 and 2000.
  In addition to the IFC, the U.S. Overseas Private Development 
Corporation (OPIC) in 1992 granted a $73 million guarantee towards this 
project, and in 2000, OPIC extended a loan for $50 million to expand 
the capacity of the plant from 110 MW to 234 MW.
  Shortly after it began operating, the complaints against Enron began. 
According to reports at the time: ``(T)he Attorney General [of 
Guatemala] reported that U.S.-owned Enron Power has not paid any of the 
estimated $14 million it owned the Guatemalan government for its 
electrical generation plant in Puerto Quetzal. The Guatemalan 
government collects less than half the revenues owned it, and it is 
estimated that two-thirds of businesses, like Enron Power, pay no taxes 
at all.'' \31\ In 1996, the IFC extended an additional $700,000 
guarantee to the project. In 1997, Enron's plant was supply 15% of 
Guatemala's energy. In September 2000, Enron requested and was granted 
permission from MARAD to change the registration and flag of the barges 
from Guatemala to Panama, which is known world-wide for its lax and 
favorable terms on vessel registration.
  When the power sector began its transformation process in 1993, 
President Jorge Serrano proposed an increase in electric rates to 
support a market-based electric power industry. The increases in 
consumer rates, which totaled as much as 100 percent for some 
customers, were part of the principal complaints of the demonstrators 
who took to the streets in Guatemala City during the spring of 1993. 
President Serrano responded to the unrest by declaring marital law, and 
attempting to dissolve the Guatemalan Congress. His attempt to take 
control of the government by decree failed when he was unable to win 
the support of the military. President Serrano subsequently fled the 
country, and the rate increases were suspended. \32\ He is currently in 
exile in Panama.
  The privatization process continued, with Guatemala's 1996 
electricity law (Decree 93-96) effectively liberalizing the power 
sector. The law placed no limits on foreign ownership of companies 
interested in providing service in the electricity sector. EEGSA was 
fully privatized in July 1998, when 80 percent of its assets were 
bought by a consortium formed by Teco Power Corporation of the U.S. 
Iberdrola Engeria, S.A. of Spain and Electricidad do Portugal, S.A. of 
Portugal.


                               Mozambique

  In June 1994, the World Bank's IDA provided $30 million toward the 
privatization of Mozambiqe's Pande gas fields. The World Bank began to 
act as a broker, encouraging government officials and private investors 
to develop Pande, claiming that the gas fields were expected to lead to 
gas exports to South Africa worth $150 million annually. The 
privatization deal followed intensive lobbying by U.S. embassy 
officials on behalf of Enron. In October 1994, Enron did in fact beat 
out Sasol (S. Africa) and PlusPetrol (Argentina) for control of the 
Pande gas field. Enron also hoped to invest in another field, Pemane, 
but, according to Africa Energy & Mining, ``the authorities . .  don't 
want the country's entire gas production to fall into the hands of a 
single company.''
  ``Elements of the embassy did a bit of lobbying for the company, 
which I find a bit strange, because this is a commercial agreement,'' 
Mozambique's Minister of Energy Resources, John Kachamila told the New 
York Times. He added that he was ``told that other aid to Mozambique 
might be in jeopardy if this agreement was not signed.''
  ``It was a little more nuanced than that,'' an unnamed Clinton 
administration official reported to the newspaper. ``It is difficult to 
say we should give Mozambique $40 million a year, if it's going to take 
an opportunity for a $700 million project and not do it.''

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