Subject: Re: CADE - CEG/CEG-RIO
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Fri, 2 Mar 2001 04:30:00 -0800 (PST)

I received an unofficial copy of the vote yesterday from CADE (the official 
version has not yet been published) for the Atos de Concentrac?o.  Today we 
received the final deliberation printed in the Diario Oficial concerning the 
Medida Preventiva.  Below is a re-cap of the highlights of the two CADE cases 
recently decided in favor of CEG AND CEG RIO:

Administrative Process (Medida Preventiva) for CEG RIO

This is the process in which several industrials brought a charge of abusive 
pricing against CEG RIO and in which an administrative injunction was imposed 
by the SDE to maintain CEG RIO's margin at the level existing at time of 
privatization.  Vote was unanimous in our favor to permanently cease the 
injunction with the Relator of the process reiterating:
-  the tariff system set out in the Concession Contracts differentiating 
consumers by segment attends the requirements of an efficient regulatory 
system and promotes social well-being
- the opening and full functioning of commercialization in the gas market 
depends on the presence of various participants (in the upstream) and in the 
development of (multiple) production sources and sophisticated logistics
- the adaptation of the Concession Contracts (renegotiation) concerning 
commercialization depends on measures taken by the Conceding Power (the State 
of Rio) at the appropriate phase of development of the market
- CEG RIO's pricing practices fall within the regulatory framework 
requirements and therefore cannot be considered abusive conduct as they were 
in strict accordance with the regulations which emanated from competent 
organs and legitimate policy decisions

Appropriate actions (both legal and administrative) are now being taken to 
collect the differences in tariff due pursuant to the above decision

Atos de Concentra??o for CEG and CEG RIO

This is the CADE review and approval process for mergers and acquisitions 
which meet specific threshold requirements.  The SDE and CADE were using 
these initial privatizations as a forum to restructure the gas distribution 
industry.  The threat that existed was imposition of various requirements 
that included breaking of exclusivity rights, structure for physical and 
commercial bypass, legal and accounting separation of distribution and 
commercialization, etc.  Such requirements, if imposed by the CADE would have 
resulted in onerous changes to basic provisions in the Concession Contract.  
Based on a strong legal and technical strategy and lobby both at the federal 
and state levels, we achieved a unanimous decision in our favor (CEG and CEG 
RIO) concluding:
- The State has the jurisdiction and autonomy to define privatization 
modelling and regulatory framework
- The recommendations of the SDE may be implemented by the State or its 
regulatory body when it considers the market ripe for such changes
- In the mid-term, after the term of exclusivity set out in the Concession 
Contracts has expired, the regulatory body should turn its attention to 
establishing clear rules for the distribution company to allow access to its 
system
- CADE will be sending recommendations to the Brazilian Association of 
Regulators (ABAR) to study and prepare accounting plans for the country's 
distribution companies which separates distribution and commercialization 
from an accounting standpoint only (no legal separation recommended)
- CADE will be sending recommendations to ABAR, CNPE and ANP to establish 
participation limits for the distribution companies in regional markets with 
a view to prevent excess horizontal control of distribution and 
commercialization

Conclusion:  The decision met our objective of clearly establishing that the 
granting State, not the CADE has the competence and jurisdiction to review 
the Concession Contracts.  It reinforces the concept of the emerging market 
in Brazil and the need for short term exclusivity in order to develop needed 
infrastructure.  Additional note regarding the final CADE recommendation, it 
is my opinion that any cross-ownership restrictions would have to emanate 
from the promulgation of federal and state legislation (the former in cases 
impacting transportation, the latter in cases impacting distribution), and 
not from the organs indicated by CADE.

Please advise if you would like further details.

Regards,

Vicky

Randy Young
02/21/2001 08:28 PM
To: Orlando Puppin/SA/Enron@Enron, Vicky Martinez/SA/Enron@Enron, John 
Novak/SA/Enron@Enron
cc: Rob Walls/ENRON@enronXgate 

Subject: Re: CADE - CEG/CEG-RIO  

Great job.  I look forward to the update.  ry

Orlando Puppin
02/21/2001 03:44 PM
To: Peter E Weidler/NA/Enron@Enron, Ricky Waddell/Enron Communications@Enron 
Communications, Frank Stabler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Randy 
Young/NA/Enron@Enron, Edward E Graham/SA/Enron@Enron, Paula 
Porto/SA/Enron@Enron
cc:  

Subject: CADE - CEG/CEG-RIO

Gente:
We won the batle. Now no more problems with Cade. It was 6 x 0 in favour of 
Cegs or its shareholders.
Details to follow tomorrow.