Posted on 14-4-2002
Enron's
Empire
By Daphne Wysham* and Jim Vallette from CorpWatch.org
A Chronology of Enron's Empire. Showcasing Enron's ability to
leverage $7.2
billion dollars in public financing. (Excerpted from the full
report,
available at www.seen.org)
The US public is only just beginning to comprehend the devastating
domestic
impact of Enron's financial machinations and dirty deals. However,
the part
of the story that has been eclipsed until now, is that Enron's
international empire, which was fraught with charges of human
rights and
environmental abuses, was built on a foundation of about $7
billion in
taxpayer money. This $7 billion came from institutions whose
mandates range
from poverty alleviation to promoting the US Merchant Marines
or German
exports, yet Enron convinced each that it was in their interest
to promote
the capitalization of Enron.
Since Enron's inception in 1992, at least 20 agencies, representing
the
U.S. Government (leading the way with over $3 billion), the
British,
Italian, French, German, and Japanese governments, as well as
the
Inter-American Development Bank, the European Union and the
World Bank,
approved $7 billion in financing toward overseas projects in
which Enron
had substantial involvement. Enron leveraged this public finance
into a
worldwide web of power and energy projects with an array of
political
interventions from local politicians to the Vice President of
the United
States. Enron's overseas operations rewarded shareholders temporarily
but
often punished the people and governments of foreign countries
it targeted
with price hikes and blackouts worse than those suffered by
Californians in
2001.
In desperately poor countries where Enron operated, these hardships
sparked
protests or riots. Local government leaders were, in many cases,
implicated
in the scandals or in the violent suppression of dissent.
For example:
* In the Dominican Republic, nine people were killed when police
were
brought in to quell riots after blackouts lasting up to 20 hours
followed
an Enron-initiated power price hike. Among the complaints of
protesters was
the allegation that Enron had purchased the local power plant
at a vastly
undervalued price. The auditor: a local subsidiary of Arthur
Andersen.
* In India, police hired by Enron beat non-violent protesters
who
challenged the $30 billion power purchasing 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 followed an Enron-maneuvered price
hike.
* In Panama, the man who negotiated the asking price for Enron's
stake
in power production was the brother-in-law of the head of the
country's
state-owned power company. Rioting followed suspicions of corruption
and
Enron's price hikes and power outages there, too.
* 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 US Government and other public
agencies
continued to advocate for Enron, threatening poor countries
like Mozambique
with an end to aid if they did not accept Enron's bid on a natural
gas
field. Enron was so intertwined with the US 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. For Tjudman,
he hoped
that compliance with an overpriced 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
became the biggest corporate scandal in recent US history.
The World Bank and Enron: A Converging Agenda
The history of Enron's rise and fall would be incomplete without
some
background on the public agencies that assisted the corporation
in its
global expansion. It is important to begin with the World Bank,
this
institution more than any other often creates an agenda that
other
bilateral and multilateral development banks follow.
The World Bank began investing in oil and gas following on the
heels of the
Organization of Petroleum Exporting Countries (OPEC) oil embargo
and oil
price shocks of the 1970s. The rationale for this investment
was clear: The
US, an oil- and gas-dependent nation with limited indigenous
sources of
oil, needed to diversify its sources of non-OPEC oil and gas.
Administration officials were concerned that OPEC had a virtual
monopoly on
the fuels, and could raise prices at whim, sending shockwaves
throughout
the global economy. The secondary concern, particularly for
Northern
investors, was the fact that, as oil prices rose, so, too, did
developing
countries' inability to service their debt. The U.S. worried
that these
countries, already strapped for cash, would default on their
loans.
And so it was just days after former President Ronald Reagan
assumed office
in January 1981 that their administration began dismantling
World Bank
conventions and initiatives. One of the first areas to which
the Reagan
administration turned its attention was the World Bank's investment
in the
energy sector. The Bank had revealed its intention to increase
investments
in energy, but the US Treasury wrote that, without deregulation
and
privatization of the oil and gas industry abroad, such investment
would
support regimes that were not friendly to private investors
and
multinational oil companies.
In a report entitled, An Examination of The World Bank Energy
Lending
Program, the office of the US Treasury's Assistant Secretary
prescribed
measures the World Bank should take to encourage private investment
in oil
and gas development. The report's authors noted that the World
Bank,
perceived as a neutral third party, would be more successful
in advancing
this agenda than the US, at little or no cost.
Here is how it worked: The World Bank would issue loans for
privatization
of the energy or the power sector in a developing country or
make this a
condition of further loans, and Enron would be amongst the first,
and often
the most successful, bidders to enter the country's newly privatized
or
deregulated energy markets. The US Commerce Department, State
Department,
or Energy Department would then send officials to meet with
politicians in
the targeted country. After meeting with these officials, deals
would
mysteriously turn in Enron's favor. Sometimes suspicions would
be raised by
the amazing deals Enron would strike -- purchasing power plants
or buying
shares in a gas field at vastly undervalued prices. Perhaps
a politician or
two would be exposed and be forced to resign. But soon thereafter
the
public finance would begin to flow -- from US and other export
credit
agencies, multilateral development banks, and private financiers.
And
another project would be on its way.
The Dominican Republic
One specific case in point is the Dominican Republic. In the
early 1990s,
the Dominican Republic opened its doors to independent power
producers, to
help the cash-strapped country produce power for its citizens.
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 1995.1
In December of 1996, the U.S. Maritime Administration (MARAD)
provided a
$50 million guarantee toward two Enron power barges for this
project.2 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 Dominica de Electricidad (CDE).
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. Shortly after the private companies took
over, power
rates 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.
As a result, the government paid around $5 million per month
to the power
companies, with an accumulated debt of more than US $135 million.
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 turned violent after
police
clashed with demonstrators. At least nine people died in the
protests,
including a 14-year-old boy.
In June 2001, the President of the Dominican Republic announced
that the
contracts awarded during the privatization of the power sector
would be
investigated. In a situation with similarities to California's
2001 energy
debacle, shortages were originally blamed on private power generators,
which at the time of the crisis were only supplying a little
less than half
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.3
Officials of the current and previous administration have been
publicly
trading responsibility for the chaos in the electricity sector.
Meanwhile a
familiar name has turned up in a report done for the Dominican
Republic's
Senate. The Senate report claimed that the assets of the CDE
had been
undervalued by $2.1 billion. It questioned whether the payment
from the
private companies had ever entered the country. The auditor
who valued
these public assets at such fire sale prices? A local subsidiary
of Arthur
Andersen.
Some Lessons
After a detailed study of Enron's overseas activities over the
past decade
in 27 countries, Institute for Policy Studies researchers have
reached the
following 4 conclusions:
1. Using taxpayer monies, US Government agencies were the largest
backers
of Enron's activities abroad.
Although Enron-related projects obtained more than $7 billion
in public
financing from all over the world from 1992 to 2001, US Government
agencies
(the US Overseas Private Investment Corporation, Export-Import
Bank, the US
Maritime Administration Trade and Development Agency) lead the
way with
$3.4 billion in support of Enron-related projects abroad. This
assistance,
and other, less tangible favors, was provided by US officials
and
institutions despite widespread evidence of Enron's involvement
in fraud,
corruption, and human rights abuses.
2. The World Bank was the second largest supporter of Enron
projects abroad.
Despite some reluctance to support several deals obviously favorable
to
Enron, the World Bank did provide $745 million in support for
Enron-related
overseas projects from 1992 to 2001. Beyond direct support for
specific
projects, it also provided Enron an entre to many developing
countries by
pushing its agenda of privatization and deregulation of the
energy and
power sectors as conditions on further loans.
3. When the World Bank or US agencies decided Enron's projects
were
financially or politically untenable, other export credit agencies
and
regional financial institutions eagerly stepped into the breach.
A host of development and aid agencies -- from the multilateral
European
Investment Bank and the Inter-American Development Bank to the
bilateral
Commonwealth Development Corporation of the UK -- provided over
$3 billion
in financing for 19 Enron-related projects, adding non-US Government
taxpayer support to Enron's risky ventures abroad.
4. Enron's collapse calls into question the policy of energy
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 have advocated domestically and worldwide.
The World Bank and IMF have 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, US 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.
Endnotes
1. For further details on the ownership struggle at the Puerto
Plata
plant, see court case: Smith/Enron Cogeneration Ltd Partnership,
Enron
International, et al., vs. Smith Cogeneration International
Inc., United
States Court of Appeals for the Second Circuit, Docket No. 99-7101,
Argued
Sept. 15, 1999, Decided Dec. 8, 1999.
2. MARAD approved guarantees to build three power barges for
this
project. In 1994, MARAD approved a $34.3 million guarantee for
McDermott's
construction of one barge mounted power plant for the Puerto
Plata project.
In 1996, MARAD approved a $50 million guarantee toward the construction
of
two Smith-Enron barge mounted power barges constructed (TK)
by Trinity
Marine of Beaumont, Texas.
3. PSIRU Enron Report, June 2001
* Daphne Wysham is the director of the Sustainable Energy and
Economy
Network (SEEN), a project of the Institute for Policy Studies
and the
Transnational Institute. Jim Vallette is the research director
at SEEN.
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