Idel

Congratulaions for Enron's active presence in this secondary market for 
energy quotas.

Now that Enron (and most of our potential clients in the future) is helping 
creating a [healthy] appetite for trading, let's make sure that some 
government bureaucrats do not screw up, and step away from market forces.  
(Particularly Mauro Arce, who has never been comfortable with economic 
signals - please refer to his interview in the press in the second week of 
May, where he was the first government official to publicly defend rolling 
black-outs as opposed to quotas with MAE prices). Industry players will 
likely put pressure on Aneel to have retail competition thresholds reduced to 
50 kW in 2003. So far, distribution companies have bitterly opposed to to it, 
under the [moot] assumption that most of the new PPAs will become stranded.

I am particularly concerned with Plan B, or whatever they call it in case 20% 
is not achieved/sufficient, which is being prepared by Mauro Arce. Let's keep 
an eye to make sure that Plan B is indeed perceived as a continuation, as 
opposed to a repudiation of market forces. If necessary, let's reduce quotas 
and increase the cost of deficit to R$ 2350/MWh (David  Rosenberg has great 
ideas on this), with a corresponding increase in the penalties for all 
customers.  The savings Brazil has achieved so far are far greater than what 
PROCEL has achieved in 20 years. This is not a criticism on PROCEL, but 
simply a testimony that market signals [in our particular case in tandem with 
perception of crises, instilled only on May 03]  do work. I had chance to 
exchange some ideas with A IBRD comission last week. They are on the very 
same boat to use economic signals, not only in 2001 but also throughout 
2002.  They even advocate to set quotas below the target rationing, to reduce 
the regulated segment of the market. 

The recent success on the hydro auction program also illustrates the point. 
Large customers have perceived that the old-fashioned strategy of keeping 
subsidies in the system is not sustainable. They would rather make the 
investment themselves and have the badly needed energy in place. The threat 
of high energy prices in 2003, when the initial contracts start to scale 
downand the prices are  expected  to skyrocket, is a great incentive for 
people (including customers) to invest in new generation (therefore reducing 
the impact of the crisis).  For this to happen, it is key that the government 
maintains the initial contracts, with NO regulated bulk tariffs after 2003. 
Bill of Law  2905 want to re-regulate energy. It is an over-reaction to the 
California syndrom and it would be a bad incentive for new contracting and 
expansion. The only way to make the self-fulfilling prophecy wrong is by 
giving NOW all the right incentives for expansion. The allegation of 
"protecting" the customer does not hold.

Clear regulatory incentives, and no expectations of being bailed out is key 
for this to happen. It is part of the "virtuous circle". 

FYI, please find enclosed a recent presentation on "virtuous contracting"- 
(and the maintenance of Initial Contracts is part of it), recently delivered 
at the Institute of the Americas. (Pedro Parente agrees with the concepts in 
there)...


... as well as a position paper from Abraceel (my last one) on why there 
should NOT be regulated tariffs after 2003 in excess to what is proposed by 
the Initial Contracts.  This paper is to be sent early next week to Deputy 
Aleluia, and Gazeta Mercantil will publish an article on Monday. 



LM




Idel Metzger
06/27/2001 07:00 PM
To: Orlando Gonzalez/SA/Enron@Enron, Joe Kishkill/SA/Enron@Enron, Brett R 
Wiggs/SA/Enron@Enron, Joao Carlos Albuquerque/SA/Enron@Enron, Ricardo 
Mucci/SA/Enron@Enron, Ricardo D Cunha/SA/Enron@Enron, Luis 
Henriques/SA/Enron@Enron, Luis Berti/SA/Enron@Enron, Antonio 
Duarte/SA/Enron@Enron, Luiz Baccaro/SA/Enron@Enron, Bernardo 
Andrews/SA/Enron@Enron, Federico Cerisoli/SA/Enron@Enron, Joca 
Paciello/SA/Enron@Enron, Erwin Landivar/SA/Enron@Enron, Roberto 
Hukai/SA/Enron@Enron, Marcelo Parodi/SA/Enron@Enron, Maria Ines 
Granado/SA/Enron@Enron, Roberto Schloesser/SA/Enron@Enron, Ricardo 
Szlejf/SA/Enron@Enron, Eduardo Cancian/SA/Enron@Enron, Paulo 
Squariz/SA/Enron@Enron, Murilo Hyai/SA/Enron@Enron, Diego 
Hollweck/SA/Enron@Enron, Roderick Blackham/SA/Enron@Enron, Karla 
Azevedo/SA/Enron@Enron, Sami Arap/SA/Enron@Enron, Luiz 
Watanabe/SA/Enron@Enron, Remi Collonges/SA/Enron@Enron, David M 
Rosenberg/SA/Enron@Enron, Guy Ishikawa/SA/Enron@Enron, Ricardo 
Lisboa/SA/Enron@Enron, Ricardo Sassatani/SA/Enron@Enron, Breno 
Nogueira/SA/Enron@Enron, Cecilia Mercio/SA/Enron@Enron, Jose Lucio 
Reis/SA/Enron@Enron, Luiz Maurer/SA/Enron@Enron, Fred Sampaio/SA/Enron@Enron, 
Jose Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Debora 
Klinger/SA/Enron@Enron, Luiz Maurer/SA/Enron@Enron, Rubens 
Parreira/SA/Enron@Enron
cc:  

Subject: Purchase of Certificate from Alcan

We (Rubens Parreira and Idel) closed verbally, today our first purchase of 
1000MWh of Certificates from Alcan in the Nordeast for July.
Congratulations to Rubens and the trading team for the competent work
Idel