Rick

As you know, the energy sector is facing several challenges: MAE 
intervention, rationing, drafting a new market agreement and the like. It is 
all happening as we speak.

In my capacity of President of the Brazilian Association of Energy Traders, I 
have defended correct economic  signals, have a functioning MAE, keeping 
market rules stable, creating wholesale and retail competition, honoring 
contract sanctity, and the like. More importantly, that rationing should not 
be an excuse for "revoking" supply and demand

Those are not ideologic positions only. They represent, in my view, the best 
interest for Enron in the short, medium and long terms.  We have already 
agreed on that in a recent Enron executive commitee. That means, I am in fact 
wearing Abraceel hat to defend Enron's best interests.

Just two examples on how those principles are linked to our interest (among 
many others)

a) By defending contract sanctity, we defended Elektro's contractual position 
on Annex V, which sets a formula on how financial contracts  decline during 
rationing. Simulations have indicated that our long position, even during the 
deepest rationing will offset loss of revenues. On the contraty, w/o Annex V 
loss of EBITDA may be US$ 60 million in 2001

b) By defending the integrity of MAE, spot prices and the like, we are paving 
the road for Eletrobolt's success.

Needless to say, Abraceel message has been  consistent "across the board". 
For example, if one believes on markets, we have to defend the use of market 
signals (economic incentives/penalties) during rationing. And prices to 
allocate a scarce resource. Also, as a corollary, no intervention in spot 
prices, which will, in turn, make our Eletrobolt merchant plant feasible.

I feel very comfortable in defending Enron's interests and wearing my 
Abraceel hat. There is a positive synergy.

However, Orlando is the President of ABRADEE, the Brazilian Association of 
Distributors. The interests of ABRADEE are not always the interests of free 
market (seldom are); nor they are the interests of Enron. For example, 
ABRADEE as a group, criticizes the government for changing MAE governance; 
they wanted rolling black-outs instead of economic signals; they advocate 
caps on spot and the like. 

Needless to say, there is a [potential] crash here, with some internal 
reverberations.

Today,  the government announced the  rationing plan. It is based on quotas 
with an overlay of economic signals (tied to wholesale prices). This is 
consistent with markets and what ABRACEEL has been saying on and on. However, 
ABRADEE wanted rolling black-outs.  (paving the road for eliminating MAE 
rules and setting caps on spot to avoid exposures)

Guess what happened? Orlando is being pressured by his peers to criticize the 
plan and kill it. I am convinced that the government made the right decision 
(and we helped influence it)

The subject has received a lot of press coverage on TV, radio and other 
media. Abraceel has been viewed as one of the champions of market forces. 
Last Tuesday, I was invited to express our views to the "Minister of the 
Rationing" and I think I was quite persuasive in showing that there is 
elasticity in demand, MAE should work asap, intervention was necessary, 
government should refrain from the temptation to set caps on spot, etc. Most 
of those statements where contrary to what Abradee had stated in the very 
same meeting. The plan the Government announced today embeds several elements 
of market forces. It was a sudden shift from the plan announced a few days 
ago, where market signals were completely neglected. (CERA has recently 
referred to it as a "step away from market forces"). And it was indeed.

Internally, we have been managing this tension in a productive way for Enron. 
However, the situation is getting more complicated, as tension increases. 
Orlando is getting a little uncomfortable because his peers perceive Luiz 
Maurer as someone against the interest of the distribution business.

In sum, there is an internal issue going on. I do not want to be a trouble 
maker. However, I feel that we have now a window of opportunities to make 
things work. (or at least to try to) Our relationship with ANEEL and with the 
powerful Ministry of Rationing has been excellent. I feel we should take 
advantage of it and put a stick on the ground. That is our culture. 

 I think that spending too much time and energy in building consensus among 
different stakeholders is not going to lead us anywhere (beside, we know that 
we do not want markets). That is what we have been doing at COEX in the last 
two years, with no material results. We have remained silent in key issues 
waiting for this consensus to happen. This has been the case for the market 
intervention. The market is misinterpreting our views. For example, there was 
a  press article today, stating that Enron, together with AES, were 
dominating COEX and are trying to revert the situation back to the old regime 
(stakeholder board). What a gross misinterpretation of our views !! 
Informativo Regulatorio #  3 has conveyed  the opposite message and it has 
inspired ANEEL to start fixing the mess !! They gave us the credit. We are 
still silent on our view, waiting for  consensus to happen. 

May be I am in too much of a hurry, because I am leaving soon. But I feel 
that we have a window of opportunity to make things happen (or at least 
knowing that they are not going to happen any time soon). And we are not 
taking advantage of it.

I am not expecting any immediate action from you. Just for you to be aware on 
what is going on and  share some concerns.  If you have any comments or any  
advise, please let me know.  I have even considered to resign Abraceel 
leadership to avoid future internal conflicts. 



Luiz Maurer