Peter Howard Wertheim
OGJ Correspondent
RIO DE JANEIRO, May 27 -- The Brazilian press is widely reporting alleged collusion between AES Corp. of Arlington, Va., and Houston-based energy trader Enron Corp., in the manipulation in 1998 of the auction of Eletropaulo, Latin America's largest power distributor.
According to a 5-month investigation by the UK's Financial Times, AES and Enron allegedly reached a deal in April 1998 under which Enron agreed not to bid for Eletropaulo, which was then being privatized by the São Paulo government. In return, AES allegedly guaranteed Enron lucrative contracts to supply gas to an electric power plant AES and Enron would build to generate electricity for Eletropaulo.
Eletropaulo was snapped up for $1.78 billion by a consortium headed by Rio de Janeiro energy distributor Luz. Other consortium participants were AES, Electricité de France (EdF), Houston Industries, and steel maker Companhia Siderúrgica Nacional (CSN).
São Paulo had been advised it could have fetched several hundred million dollars more for Eletropaulo, which serves about 14% of all Brazilian consumers, FT's report said.
Luiz David Travesso, who acted as AES's representative in Brazil in 1998, released a statement in which he denies "any illicit dealings" involving Eletropaulo's privatization. Andrea Matarazzo, then São Paulo's energy secretary, said that analysts doubted Enron's capacity to get in the race for Eletropaulo because it had already paid a hefty premium on local utility Elektro.
AES Pres. Paul Hanrahan told FT that the company has launched an internal investigation. He said: "AES does not tolerate illegal or unethical behavior in any form. Any AES people involved in such behavior will be dealt with promptly and in a manner consistent with our commitment to conduct ourselves in accordance with the highest ethical standards."
Brazil's Energy Minister Dilma Rousseff said officials would study whether the country had been harmed in the sale, and take action if necessary.
DOJ joins investigation
A spokesman for the US Department of Justice told the local press that "the US will give full cooperation to Brazil in getting to the bottom of this issue."
Separately, the Brazilian Economic and Social Development Bank (BNDES) said that it would analyze a proposal by AES to restructure $1.2 billion in debts owed by AES to the bank. AES Elpa, a local unit of AES, took the loan from BNDES to acquire Eletropaulo. AES Elpa, however, has defaulted on some $420 million in debt payments to the bank so far this year.
BNDES Pres. Carlos Lessa said that AES's proposal, which was submitted to the bank last week, hasn't as yet been analyzed because key bank directors are on an official visit to Argentina. Lessa declined to unveil details of AES's proposal. AES has said Brazilian regulators won't let Eletropaulo charge enough for power to meet debt payments.
São Paulo's state government has no interest in repurchasing the Eletropaulo utility, said Gov. Geraldo Alkmin. The new owners of the utility, a group led by AES, have failed to make payments to official Brazilian banks this year.
The financial difficulties have given rise to speculation that the state might attempt to buy back the utility. But Alkmin said such a possibility was "ruled out." He also denied reports that the state might seek to annul the 1998 privatization auction.
