I want to get involved in this.  Michelle will bring me up-to-date.  I don't 
understand why we are considering Brazilian court versus ICC arbitration.




Michelle Blaine
02/01/2001 07:36 PM
To: jgardine@skadden.com, drosenbl@skadden.com
cc: John Novak/SA/Enron@Enron, Bruce 
Lundstrom/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Richard B Sanders@ECT, Robert 
C Williams/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject: Cuiaba Call--legal issues

1. Consent Issue:  Jose Bestard (he's the main developer who did this deal) 
reported that he met with Furnas this week.  Furnas had not received  EPE's 
letter addressing the consent issue.  Furnas continues to link its failure to 
sign the consent to commercial exposure to the high price from the MAE. There 
are initials on the original consent and no one (including Furnas) knows 
whose they are. John Novak told me he's not sure of the significance, but it 
is not uncommon in Brazil to initial documents. Nevertheless, we need to ask 
our Brazilian lawyers whether there is any significance under Brazilian law.  
Keep in mind also that consent document was between EPE and the assignor, 
Electronorte. 

2.  Arbitration considerations:  Bestard has a meeting planned with the 
ambassador.  He  consulted Enron's financial/business consultant in Brazil, 
Winston Fernino (sp?) who advised that we should exhaust all political 
avenues before resorting to litigation or arbitration.   What concerns me, 
however, is  his advice that, politically, it is not the time to seek 
assistance fromthe president for the consent, that there is a political 
battle in the senate, and that we should wait until the end of February to 
seek political assistance.  My view on that is, to wait 4 more weeks to 
progress with this notice of default, when the 90 day cure period has 
expired, plus the 30 day extension which has also expired, sends the wrong 
message and weakens our position. Thus, it is my recommendation that we 
proceed immediately with a notice to terminate under Clause 27, paragraph 2 
of the PPA, which then requires a 30day consultation period (paragraph3) at 
the end of which we have the option to terminate.  This buys us a little 
time, but keeps the pressure on, at the end of which we can initiate 
proceedings to compel the consent or to terminate.  I'm not sure what 
reaction the notice to terminate could bring about from Furnas. I'm not sure 
how that plays out in our settlement with Siemans. Consider also that the 
commercial people are not comfortable with termination yet.  I am not sure 
what rights, if any, we waive by waiting around doing nothing or how that may 
affect our position in arbitration or litigation (something we need to look 
at under the contract, although I cannot immediately recall any deadlines or 
express waivers related to timing in this regard).  I committed that we would 
advise the team on the next call (next Thursday) our recommendation with 
respect to  arbitration/litigation.   I want to make sure they understand 
every possibility so they can make an informed decision. You have the matrix 
developed already if you want to expand on that, or handle that your own 
way.  Bestard opines that Furnas will fight hard, that they have 
traditionally been very adversarial and uncooperative. I'll find out who 
represents them. 

3. Force Majeure:   Furnas is also taking a very strong position that EPE 
does not have a valid force majeure claim.  Based on my reading of the 
contract, our facts appear to fit squarely under Clause 95(c).   However, I'm 
told we did not comply strictly to the notice terms. We'll need to show that 
we were not negligent as a cause for the attorney general's action.  Laine 
Powell, President of the Cuiaba companies will gather the information on our 
force majeure claim and we need to consider the legal issues related to our 
position.    Note that if FM lasts more than 12 consecutive months, both 
parties have the right to terminate.  No one buys the plant and we're stuck.  
I'll find out the date of our last FM notice.  There have been several.

4.  Budget:  Lets consider what it will cost to nail down this arbitration 
concern and give initial advice on how to proceed over the next week,  what 
it will cost to prepare for arbitration and, the cost of the arbitration. 
Darren I'll call you tomorrow and we can break that out.  We may want to 
consider the litigation route. We'll need to put together some kind of 
proposed or potential time line, and what will happen in each stage and tie a 
number to it.  I've done this with Pete before and he seems to like it.  It 
needs to be subject to review as we go along.

5.NEXT: Prep for the call and get a recommended strategy in place. I'm going 
to get together all our opinions on the Brazilian state of arbitration and 
get a conference call with one of these experts so we can get the best 
advice.  We certainly have some conflicting views.  Our experience in the 
Brazilian courts is that nothing happens and we could be stuck for years, so 
I am inclined to take our chances with arbitration and we may get stuck in 
the court anyway.  If we go to court, perhaps Furnas would take the position 
that we must arbitrate, that is what Fernando Serec said.  Who knows.
Please give me your comments or just call me.  I'm open to any suggestions. 
John Novak will be able to tell us about all the competing concerns that I 
may be unaware of with any strategic plan.
Regards,
Michelle