Subject: Choice of Mexican Law - Vitro/Monterrey Project
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked]
Date: Tue, 21 Nov 2000 07:29:00 -0800 (PST)

Peggy Banczak called me yesterday to say that the Inter-American Development
Bank ("IADB") had indicated its refusal to fund its loan to the appropriate
ENE borrower in connection with the Enron-Vitro Monterry Cogeneration
Project ("Project") unless the PPA(s) (and construction contracts?), i.e.,
those contracts to be concluded between Mexican entities and calling for
performance in Mexico, be governed by Mexican law.  Peggy explained that
after long negotiation, ENE had been able to convince Vitro and Cementos
Apasco (and other power purchasers/construction companies?) to agree that
their contracts be governed by New York law but that despite this great
success, IADB now for policy reasons was insisting that those contracts be
governed by Mexican law.

Peggy and I talked with Rogelio Lopez-Velarde and Peggy subsequently
provided me copies of three memoranda dated August 15, September 18 and
September 27, 2000, addressed to Peggy and Robert Stephens of Bracewell &
Patterson from Rogelio Lopez-Velarde and Amanada Valdez.  In the August 15,
2000, memorandum Rogelio and Ms. Valdez analyzed the enforceability of
certain of the provisions of the PPA between Enron Energia Industrial de
Mexico, S. de R.L. de C.V. and Apasco should that agreement be governed by
Mexican law.  They recommended certain changes be made if the agreement were
to be governed by Mexican law.  In the September 18, 2000, memorandum
Rogelio and Ms. Valdez gave their opinion on the enforceability of the
"Suspension Remedy" contained in Section 13.5 of the PPA.  In their
memorandum of September 27, 2000, they opined principally that the provision
of Section 13.6 of the PPA specifically denying each "Capacity User" the
right to terminate the PPA except in the case of a "Producer Event of
Default under Section 132(a) (sic) has occurred and the Project has been
Abandoned" was unenforceable.  I have reviewed the three memoranda but I
have not reviewed the PPA nor any of the other underlying Project documents.

As Joe Dilg mentioned to you before we undertook last week our limited
review of the Enron-Vitro Amparo matter, we are not Mexican lawyers and
therefore we cannot opine on the Lopez Velarde, Heftye, Abogados memoranda
and opinions referenced above and we cannot opine on how the application of
Mexican law to disputes that could arise under agreements the IADB now
insists be governed by Mexican law might affect the enforceability of
provisions of those agreements or the agreements themselves.

I consider the memoranda provided by the Lopez Velarde, Heftye, Abogados
firm, however, to be well reasoned and written.  As I have not seen the
underlying documents, I am not able to determine whether the August 15,
2000, memorandum addresses all of what the drafters characterize as the
"Challengeable Clauses" in the PPA in Section I.2.A.  My guess is that the
form from which the PPA has been developed is a form that ENE has used on
other occasions in circumstances that would permit the agreements to be
governed by laws of jurisdictions that have experience considering
sophisticated commercial disputes at a minimum and perhaps disputes
specifically arising under power purchase agreements.  If ENE does agree to
subject interpretation of the PPA and other affected contracts to Mexican
law, it would be worthwhile to again review the PPA and other affected
agreements to be absolutely sure that all of the "Challengable Clauses" are
identified and either changed in a manner acceptable to ENE to make them
enforceable or if not changed that the risks of leaving the provisions "as
is"  are fully understood and evaluated by ENE.  I do have the following
specific comments concerning the August 15, 2000, memorandum:

1. If they already have not been made, is it possible still to
convince the Mexican counter parties to make the changes Lopez Velarde,
Hefty, Abogados have suggested?  Based on the Lopez Velarde, Hefty, Abogados
memos, it seems to me that  ENE, as a condition to agreeing to accept
Mexican law as the governing law, would want to negotiate at least the
material changes to the PPA suggested by the Lopez Velarde, Heftye, Abogados
firm in the memoranda.

2. If it is not possible to negotiate the changes or is
possible only to negotiate some of the changes, with respect to the
"Discretionary Performance Prohibition" and the "Discretionary Condition
Prohibition" outlined in Sections I.1.1 A. and B, would only the
specifically applicable Performance or Condition provision be rendered
unenforceable or could the PPA in its entirety be deemed unenforceable if
either "performance of portions of the PPA [as opposed to performance of the
entire agreement] are left to the unilateral discretion of one of the
parties." or "compliance with some [as opposed to all] [of the conditions]
rests exclusively in the discretion of the obligor..."?

Are there any Performance or Condition Prohibitions that
individually could be deemed to render unenforceable the entire PPA?

If there are a number of Performance or Condition
Prohibitions that are not amended, could they in the aggregate be deemed
sufficient to render undenforecable the entire PPA?

3. Is there any other Challengable Clause or other clause in
the PPA or other affected agreement that without modification to make
enforceable should cause ENE not to entier into the PPA or other affected
agreement ?

4. Do the Discretionary Performance or Discretionary Condition
Prohibitions constitute events of default, even if the party in whose favor
they run do not attempt to enforce them, constitute an event of default that
would afford the "innocent party"  the right to demand rescission of the
PPA?

I understand that the PPA and the affected contracts all contain dispute
resolution provisions that would subject disputes to international
arbitration.    Assuming that the dispute resolution provisions are not
renegotiated, the fact that Mexican law, if agreed as the governing law,
will be interpreted by arbitrators and not Mexican courts is a factor that
could result in a more independent consideration and resolution of the
interpretation and application of Mexican law to disputes that may arise
under the contracts.

If you have questions or wish to discuss this matter, please call me at
713-758-2518.

William H. Weiland

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