Despite Enron Corp.'s financial collapse in the United States, the Houston energy giant is alive and well in Bolivia, where it continues to play a major and highly controversial role in the nation's natural gas industry.

Enron keeps role in Bolivia pipeline project

Criticism grows — records missing

Jimmy Langman, Chronicle Foreign Service Tuesday, June 25, 2002

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http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/a/2002/06/25/MN173753.DTL

La Paz, Bolivia — Despite Enron Corp.'s financial collapse in the United States, the Houston energy giant is alive and well in Bolivia, where it continues to play a major and highly controversial role in the nation's burgeoning natural gas industry.

Enron owns 40 percent of the Bolivian portion of a gas pipeline completed in 1999 that earns an estimated $42 million a year and supplies natural gas to an Enron thermal electric plant in the Brazilian state of Mato Grosso. It also has a 50 percent stake — along with Shell Oil — in a hydrocarbons transport company responsible for the nation's pipelines called Transredes.

These overseas ventures are not part of the company's Chapter 11 bankruptcy proceedings and are major ingredients of its reorganization plan. But Enron's financial implosion has spurred a Bolivian congressional panel to investigate the firm.

The commission is focusing its probe on alleged corrupt dealings between the company and the government of President Gonzalo Sanchez de Lozada, which was in power from 1993 to 1997. They are also looking at reports of ecological destruction and complaints by indigenous communities in the Chiquitano Dry Forest of eastern Bolivia, through which the gas pipeline passes.

"I think there were surely unethical dealings," said Armando de la Parra, the legislator who heads the congressional committee. "The process by which Enron was selected for the pipeline was clearly unfair."

The Bolivia-Brazil pipeline is a $2 billion project considered to be key to this nation's future economic growth. International banks, however, were reticent to finance the Bolivian portion because of Bolivia's high foreign debt, which forced the government to seek a corporate partner.

De la Parra, a member of the Movement of the Revolutionary Left party, says the five companies that competed with Enron were given just 13 days notice to make their pitch for the pipeline contract. Enron, on the other hand, had been in contact with the Sanchez de Lozada administration for four months prior to winning what executives call a "beauty contest." There was no bidding process, only formal company presentations.

De la Parra says the eventual contract signed in 1994 was illegal in Bolivia because it was enacted under New York state law, allowing Enron to register as an international offshore company free of Bolivian laws and taxation.

"Explain the benefits of that for Bolivia," said de la Parra.

Enron spokesman Keith Micelli said the congressional inquiry is merely a ploy to influence Bolivia's June 30 presidential election, in which Sanchez de Lozada is running.

"Even the Bolivian newspapers have pointed out that because Sanchez de Lozada is a candidate, they have politicized the issue," Micelli said.

The former president, who is chairman of the board of the Toronto-based Orvana Minerals Corp., has likened the congressional probe to a witch hunt.

"They are obviously hoping to find some skullduggery between me and Enron," he said. "But I think people are generally satisfied that there wasn't."

The investigation has provided mudslinging material for several candidates, especially after Orvana filed plans to build a spin-off pipeline to power a gold mining plant in the Chiquitano forest.

In a televised debate, Jorge Richter, a congressional candidate of the New Republican Force party, alleged that he had documents proving that Enron paid a $2.5 million bribe in 1994 to officials of the state-owned oil and gas company, known as YPFB, to influence the privatization process.

The original contract between Enron and the government is missing, and only one photocopy exists.

Enron also never delivered on its agreement to donate $10 million for rural electrification projects or raised needed funding for the pipeline's construction. So, after two years, impatient, energy-starved Brazil bankrolled the entire project. Nevertheless, the Bolivian government allowed Enron to maintain 40 percent ownership of the pipeline.

In recent questioning by the congressional panel, Mauricio Gonzalez, Sanchez de Lozada's former energy minister, argued that Enron retained its 40 percent stake because it had already invested $22 million in the pipeline's general planning. De la Parra says his committee has found no record of any such investment.

Since its arrival in Bolivia in 1994, Enron has been a source of controversy.

When news spread that the government was about to grant Enron a majority ownership in the pipeline, the army was called in to protect oil refineries and natural gas facilities. The government feared sabotage by state gas workers, who were concerned about losing their jobs and giving away a key national resource to a foreign firm.

In 2000, hundreds of indigenous protesters blocked access to three Enron construction camps for 16 days after Enron failed to deliver promised land titles as part of a compensation package for allowing the pipeline to be built through Indian territory.

The conflict with the Chiquitano and Ayoreo indigenous communities, who number some 58,000 inhabitants and have historical land claims of some 37 percent of the Chiquitano forest, was finally resolved through negotiations.

Indigenous leaders, however, say Enron still has not given them land deeds. "They made their pipeline and then violated their word," said Carlos Cuasace, president of the Chiquitano Indigenous Organization.

Environmentalists also say their worst fears about the 6 million-acre Chiquitano Dry Forest — South America's largest remaining undeveloped dry tropical forest — are coming true.

It is a region with 90 endangered species, including the giant anteater, black howler monkey and jaguar, and is "one of the richest, rarest and most biologically outstanding habitats on Earth," according to the World Wildlife Fund, or WWF.

Patricia Caffrey, former director of WWF-Bolivia, says recent environmental destruction by loggers, cattle and hunters has been a result of new service roads, which were built in violation of Enron's environmental management plan.

The U.S. Senate is investigating whether the Overseas Private Investment Corp., a U.S. government agency that helps finance projects in developing countries, approved financing for the pipeline project in violation of its own policies. Under a 1997 Clinton administration directive, OPIC is prohibited from financing "infrastructure projects in primary tropical rain forests."

Laine Powell, director of Enron's pipeline project, denies his company has damaged the fragile ecosystem in Chiquitano.

"We didn't build any roads," Powell said. "What we did was improve the roads already there."

Powell says that despite the controversies and bankruptcy, Enron intends to honor its obligations.

"We have made commitments, we have met commitments," he said. "We plan to continue meeting those commitments."