Posted on 6-8-2002

Public Agencies Next Into Vortex?
By Jim Vallette, Special to CorpWatch August 1, 2002 corpwatch.org

WASHINGTON -- Senators continue to grill private financial institutions
over their roles in Enron's rise and fall. However, the investigation could
soon spill from the private to the public sector, where U.S.
taxpayer-financed institutions engage in a dangerous tango with Enron's
overseas ambitions. These public financial institutions have doled out over
$7 billion towards Enron-related projects since 1992. And some who have
examined the scope and structure of Enron's overseas operations say that
federal agencies, and even the World Bank, could soon face the
congressional inquisitors.

At Tuesday's hearing of the Senate Governmental Affairs Subcommittee for
Investigations, Senator Carl Levin (D-Mich.) concluded a long session with
a Merrill Lynch official with a warning to those financial institutions
that "helped to raise the money that helped Enron to cook the books," and
called upon them to "to acknowledge the problems, step up, and make the
changes that are needed internally."

Levin, subcommittee ranking-member Senator Susan Collins (R-Me.), and
Governmental Affairs Committee chairman Senator Joseph Lieberman (D-Conn.)
are leading the Senate's examination of financial institutional
relationships with Enron. The public hearings have not yet touched upon
Enron's considerable financial ties with government agencies, such as the
Overseas Private Investment Corporation (OPIC) and U.S Export-Import Bank
and the World Bank. But public exposure of these relationships seems
inevitable, as the subcommittee continues its open-ended investigation.

In June, White House officials delivered thousands of documents to
Lieberman's office, responding to a subpoena for Enron-related records. The
subpoena included a demand for OPIC Export-Import Bank communications
dating back to 1992. A March 2002 study by the Institute for Policy Studies
revealed that these two federal agencies, along with the U.S. Maritime
Administration and Trade and Development Agency, provided $3.4 billion in
support of Enron-related projects abroad.

This week, senators probed a case study of how Enron used financial
institutions to help, in Levin's words, "cook its books." The committee
examined a barge-mounted power project near Lagos, Nigeria. The senators
scrutinized Merrill Lynch's role in transferring the Nigeria project's
ownership from Enron to its notorious parallel, the LJM2 partnership. Enron
recorded the transfer as revenue. "Enron was like a poisonous spider
spinning a web for its own benefit, entrapping a whole host of very
reputable institutions," Lieberman told G. Kelly Martin, a Merrill senior
vice president. "Your entrapment was not unknowing, unwilling. The
poisonous web nonetheless had some attractiveness to you." Martin implied
that his company took an interest -- which he described as a loan, and the
senators described as equity -- in the Nigeria project to please an
important client. "Discussions with Enron went along the lines initially of
continuing to increase the business relationship," said Martin. "They
needed us to do something in the business of these barges."

Most telling, perhaps, was the Merrill official's portrayal of financial
institutions' strange attraction for Enron's scheme. "Enron was a very
aggressive client," Martin testified. The company was "recognized by
everybody in the U.S. and perhaps globally from Wall Street to government
to consulting to academia as the future way that American companies would
be run We were focused on working with them as a seeming industry leader."

Enron "the future way that American companies would be run" was the
ultimate expression of the global economic model that the U.S. government,
and later, the World Bank, has been pushing since the dawn of Reaganomics
in the early 1980's. Enron's rise accompanied heavy-handed efforts by U.S.
and World Bank officials to pry open developing countries' energy sectors
to foreign corporate control.

In Nigeria, as in many other countries, Enron forged a hard bargain. While
the barge project changed hands from Enron to Merrill Lynch to LJM2, Enron
officials hammered out a power purchase agreement. In June 2001, Nigerian
President (General) Olusegun Obasanjo railed against Enron on CNN. "Enron
has played a dirty game on us. Dirty game in two ways: the price at which
they have tried to sell power to us has been very exorbitant. Two, what
they told us they would do, they have not done," he asserted. Ultimately,
fearing Nigeria's standing among foreign investors, the government
supported the barge project.
Public Backers

Enron developed the Lagos (or Egbin) barge power project, then sold its
interests to AES, a global private power developer based in Virginia, in
January 2001 for $255 million. Enron, however, maintained management ties
to the Lagos venture through its subsidiary, Nigeria Power Holdings Ltd.
Despite Enron's tough terms not to mention endemic corruption and human
rights abuse in Nigeria -- the World Bank and OPIC blessed the deal with
financial packages last summer. In July 2001, the World Bank approved a
$100 million loan toward Nigeria's power sector privatization, noting with
approval the development of the AES/Enron power project. A month earlier,
in June 2001, OPIC president/CEO Peter S. Watson announced the approval of
a $200 million political risk insurance package for the AES/Enron power
plant. "This project will help Nigeria meet a critical demand for
electrical power generation, and at the same time enable the Nigerian
government to demonstrate to U.S. investors its commitment to provide
investment opportunities," he said. "OPIC is pleased to make this important
contribution to Nigeria's first independent private power project and to
Nigeria's ongoing economic development." OPIC's press release emphasized
the involvement of AES, not Enron.

After news of Enron's bankruptcy broke in early December 2001, Lagos State
Governor Bola Ahmed Tinubu reportedly called the company to voice his
concerns. Enron tried to allay his fears. In a letter to Gov. Tinubu,
Nigeria Power Holding Ltd. executive Yao Apsau wrote, "Contrary to popular
belief, the Chapter 11 filing does not mean that Enron is out of business,
but that it has entered into a court-supervised process by which it can
continue to operate most of its businesses, reorganize its finances and
explore various strategic, operational and financial alternatives in an
orderly manner. "Enron Nigeria Power Limited and its affiliate involved in
the development of the Nigeria project are not included in the bankruptcy
filing and are free to pursue the development of the Lagos IPP in the
ordinary course of business," assured Mr. Apsau. "As you are aware, we are
working feverishly with you, Lagos State, ministry of power and steel, and
NEPA [the soon-to-be-privatized National Electric Power Authority] to
ensure the successful development of the IPP. In addition, the Enron barge
project at Egbin is already being successfully operated by AES and is
unlikely to be affected by Enron Corp.'s filings. Many of Enron's plants
and projects overseas are also continuing their operations in the ordinary
course of business."
Business as Usual

Indeed, Enron is continuing along its "ordinary course of business," and
public financial institutions have not stepped away. The U.S.
taxpayer-backed Inter-American Development Bank is considering new
financing toward Enron's gas pipeline investments in Bolivia. The Export
Import Bank, OPIC, and other financial institutions have remained strangely
silent regarding their direct involvement with Enron, but this could be the
calm before the storm. Clearly these public agencies have not, as Levin has
urged, stepped up and taken their fair lumps.


Jim Vallette is research director for the Sustainable Energy and Economy
Network, a project of the Institute for Policy Studies in Washington D.C.,
and co-author of Enron's Pawns: How Public Institutions Bankrolled Enron's
Globalization Game (March 2002), available at: http://www.seen.org