Message-ID: <17135225.1075845019020.JavaMail.evans@thyme> Date: Fri, 26 Jan 2001 08:21:00 -0800 (PST) From: michelle.blaine@enron.com To: rob.walls@enron.com, bruce.lundstrom@enron.com Subject: EPE Dispute with Furnas/Privileged and Confidential Cc: john.novak@enron.com, jgardine@skadden.com, serec@tozzini.com.br Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: john.novak@enron.com, jgardine@skadden.com, serec@tozzini.com.br X-From: Michelle Blaine X-To: Rob Walls, Bruce Lundstrom, Richard B Sanders@ECT, Mark E Haedicke@ECT X-cc: John Novak, jgardine@skadden.com, Stephanie Harris@ENRON, serec@tozzini.com.br X-bcc: X-Folder: \Mark_Haedicke_Oct2001\Notes Folders\All documents X-Origin: HAEDICKE-M X-FileName: mhaedic.nsf John Novak called me Wednesday to assist in handling a dispute involving EPE and the Cuiaba project. EPE entered into a PPA with Furnas, the government entity buying power to sell to distributors. Furnas is wrongfully withholding its consent to assignment required by the banks (OPIC and KfW) for financing this project. We believe Furnas is acting in bad faith and has no contractual right to withhold its consent which gives EPE a right to issue a default under the PPA. EPE issued a default notice to Furnas and Eletrobras (the guarantor of Furnas' obligations under the PPA) in September of 2000. The grace period to cure the default has expired and EPE is now analyzing whether to proceed with termination of the PPA, to initiate arbitration over the dispute, or to follow some other course of action. Furnas is using the assignment consent as leverage to hold up financing and force EPE to renegotiate the PPA because of commercial risk and loss it has incurred resulting from delay of Phase II of project. By way of background, EPE issued a force majeure notice under the contract last year for delay in building the project as a result of the Mato Grosso attorney general's investigation and imposition of tedious environmental measures that have caused significant delay in building the gas pipeline to the plant over the ridges region of Caceres. EPE has no contractual obligation to remedy Furnas' losses resulting from a valid force majeure delay and no obligation to renegotiate the contract. The PPA contains an ICC arbitration clause (arbitration in Paris) and Brazilian law governs the contract. We are also investigating alternative remedies to resolve the matter. John Gardiner of Skadden Arps in New York will act as counsel on international arbitration. Fernado Serec with Tozzini Freire Teixeira e Silva Advogados in Sao Paulo will advise us on the Brazilian law aspects of this dispute. Please call me if you have any questions 56159. Regards, Michelle