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Latin America: Enron Fallout is a Hot Issue

Oil Daily
March 4th, 2002

The implications of Enron's dramatic fall extend far beyond US borders. The once-mighty energy giant's murky dealings in Latin America have emerged as a hot political issue throughout the region, where politicians in some countries are using it as an election tool or to take attention away from their own economic or political woes.

Enron played a major role in the privatization wave that pervaded much of Latin America in the 1990s. The now-bankrupt corporation brought -- or promised to bring -- badly needed investment to the region. Now many of its assets there are up for grabs, though companies are reluctant to buy anything while investigations are ongoing.

Enron's presence was felt in Brazil, Bolivia, Venezuela, Colombia, and Argentina and in most cases, it entered the local market by creating the same off-balance-sheet special-purpose entities (SPEs) that are currently the subject of exhaustive probes in the US Congress, due to Enron allegedly using these vehicles to hide losses.

Many of these Enron-backed projects in Latin America never amounted to much, prompting accusations that they too were used as tools for Enron's shadowy accounting practices.

"They abused the mechanism [of setting up SPEs] to hide debt, generate income, and pay commissions that were not always ethical," alleged one source involved with Enron's project negotiations in Colombia and Venezuela.

Enron invested $4 billion in Brazil, where it aggressively sought a leading role in the country's energy market liberalization in 1997. Enron paid $1.5 billion for electricity generator Elektro and more than $150 million for Riogas, one of nine gas distribution companies in which it has a stake in the South American country.

Other Enron assets in Brazil include a 7% stake in the Bolivia-Brazil gas pipeline; Eletrobolt, a 350-megawatt thermal power plant; and projects to build two more plants -- the 500 MW Riogen and 480 MW Cuiaba.

Some analysts question why Enron spent so much money in Brazil, particularly considering that many of the investments -- such as seven of the nine gas distributors -- made no money. Brazilian oil giant Petrobras has showed interest in buying two of Enron's gas distribution companies, CEG and CEG Rio (OD Nov.30,p4), but two devaluations of the Brazilian currency in 1999 and 2000 mean Enron will probably not get back as much as it put into the companies.

In Bolivia and Colombia, politicians accuse Enron of reneging on its pledge to past governments to make financial contributions to local communities and for environmental protection.

Enron's entrance in Colombia in 1999 was mired by a political scandal that led to the resignation of then-president of state oil concern Ecopetrol, Carlos Rodado Noriega. Rodado accused Enron of trying to coerce him into signing a contract for a pipeline to export Colombian gas to Panama at floating prices. Enron holds a 43% stake in Colombian gas distribution company Promigas.

A special congressional committee has been formed in Bolivia to investigate the legality of Enron's 1994 acquisition of a 30% stake in the Bolivian side of the Bolivia-Brazil gas pipeline. Opposition parties are using the case as a political campaign issue ahead of June presidential elections.

In Venezuela, a much-talked-about liquefied natural gas (LNG) deal in Jose was quietly pushed aside last year.

Argentine opposition senator Rofoldo Terragno noted that President George W. Bush himself lobbied in support of Enron when it wanted to export Argentina's LNG in 1998. The project, which never came to fruition, would have seen Enron setting up project infrastructure in exchange for government-subsidized prices for the gas it would buy under a 20-year contract, according to Terragno, who was infrastructure minister at the time.

Enron has a 35% share of the TGS gas pipeline system in Argentina, which gives it responsibility for 60% of the country's gas consumption. The 4,300-mile pipeline system transports 2.2 billion cubic feet per day of gas from major gas fields to consumption centers.





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