Message-ID: <9806259.1075851026579.JavaMail.evans@thyme>
Date: Fri, 23 Mar 2001 09:11:00 -0800 (PST)
From: ray.alvarez@enron.com
To: richard.shapiro@enron.com
Subject: Re: Supreme Decree
Cc: steven.kean@enron.com, james.steffes@enron.com, john.neslage@enron.com, 
	joe.hartsoe@enron.com
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Thanks!  Our team has been working on the supreme decree for over two years=
=20
and it is gratifying to finally bring this in, given that it will have a=20
significant financial benefit for Enron/Transredes.  I have included an=20
executive summary and detailed report below.=20

Executive Summary

Through the efforts of the Transredes regulatory team:

A presidential Supreme Decree, establishing a new tariff methodology for=20
Bolivian gas transportation, has issued and gone into effect.

The recovery mechanism we proposed will allow Transredes to recover over=20
US$100 million, which was at risk.  This amount, residing in the gas deferr=
ed=20
account, will be recovered over 20 years (instead of 25 under the former=20
regulations) and will take the form of a surcharge on all gas transported b=
y=20
any pipeline in Bolivia (instead of being assessed only on Transredes=20
transport volumes, as per the former regulations).

In the future, Transredes will be able to fully recover all of its prudentl=
y=20
incurred costs, and the full rate of return contemplated by the Hydrocarbon=
=20
Law, via tariffs charged for transportation on the domestic and export oil=
=20
concessions, and the export gas concession.=20

The mechanism advanced by government to subsidize the transportation tariff=
=20
of the domestic gas concession in the future will, in all likelihood, allow=
=20
Transredes to receive the full rate of return contemplated by the Hydrocarb=
on=20
Law, although the mechanism needs to be fleshed out further.

The Supreme Decree will also allow Transredes=01, rate case, financing prog=
ram=20
and pending bond issue to move forward.=20

Detailed Report

This is a significant development in the Bolivian regulatory arena.  The=20
Supreme Decree, establishing a new tariff methodology for natural gas=20
transportation in Bolivia, was signed by President Banzer and was published=
=20
in the official gazette on Wednesday.  We officially learned about it=20
yesterday upon receipt of a certified copy.  The new methodology and=20
regulations are now in effect. =20

The decree provides for full recovery of Transredes' gas deferred account=
=20
over the next twenty years via a surcharge on ALL volumes exported from=20
Bolivia, whether transported by Transredes or not.  The magnitude of the ga=
s=20
deferred account is much greater than anticipated due primarily to severe=
=20
export shortfalls as compared to projected export volumes.  This is due in=
=20
large part to delays in the development of the Brazilian market and to=20
expiration of gas sales and export agreements between Bolivia and Argentina=
=20
(in 1999). Please see the attached graph comparing the volumes projected by=
=20
the Bolivian government to set transitory tariffs, prior to privatization,=
=20
with the actual volumes transported. =20

The gas deferred account is estimated to be approximately US$101 million=20
(plus approximately US$ 60MM for the hydrocarbon liquids deferred account,=
=20
giving a total of US$161MM).  Please see attached Gas Deferred Account and=
=20
Total Deferred Account graphs.  These amounts represent the shortfall in=20
revenues experienced due to insufficiently high transitory tariffs, plus th=
e=20
cost of capital at 7%. =20

The recovery mechanism for the gas deferred account represents the mitigati=
on=20
of a significant exposure that existed at the time we acquired the company:=
=20
the transportation concessions are nonexclusive and producers have the=20
explicit right in the Hydrocarbon Law to build their own (bypass) pipelines=
,=20
yet the deferred account recovery mechanism placed the burden of recovery=
=20
solely on the transportation tariffs of Transredes.  The change in=20
regulations not only secures recovery of these amounts in a commercially=20
viable manner but will dis-incentivize threatened bypasses.

In the future, Transredes will also be able to fully recover all of its=20
prudently incurred costs and rate of return via tariffs charged for=20
transportation on the domestic and export oil concessions, and the export g=
as=20
concession.  We believe that the tariff mechanism for the domestic gas=20
concession may require additional detail work.  The mechanism provides for =
a=20
ceiling rate of US$0.41 for transportation in the domestic concession and a=
=20
surcharge on all export volumes of US$0.03. These tariff components will no=
t=20
be sufficient to recover the costs and rate of return contemplated by the=
=20
Hydrocarbon Law to be recovered by Transredes.  However, there appears to b=
e=20
no impediment to collecting the revenue shortfall in the Transredes export=
=20
gas tariff.  The regulatory team will continue trying to "firm up" this=20
mechanism. =20

The Supreme Decree will also allow Transredes' rate case to move forward. =
=20
The rate case filing made in late January kicked off a process that will=20
culminate in the approval of new economic rates to be effective on May 16. =
=20
The decree and rate case filing will also allow the Transredes financing=20
program and pending bond issue to move forward.  These have been stalled fo=
r=20
months due to lender doubts and uncertainty about rates and recovery of the=
=20
deferred account.



 =20




Richard Shapiro
03/22/2001 05:50 PM
To: Ray Alvarez/NA/Enron@ENRON
cc: Steven J Kean/NA/Enron@Enron, James D Steffes/NA/Enron@Enron=20

Subject: Re: Supreme Decree =20

Congrats!!



Ray Alvarez
03/22/2001 04:29 PM
To: Richard Shapiro/NA/Enron@Enron
cc: =20

Subject: Supreme Decree

Rick, I heard from my Bolivia regulatory team that the supreme decree is a=
=20
reality and that it is very positive- including full recovery of the $100MM=
=20
gas deferred account that we were hanging out on.  I will provide more=20
details as soon as I receive them.  Ray