Robert,
Please find below my comments to your second paper on the Venezuelan Energy 
outlook:
Objective of the document. The document serves as a briefing paper for a 
visit that has a specific object, the promotion of the LNG Project. The 
evaluation, therefore, should be made in that light, and at most in reference 
to future Enron projects (basically, constrained to the gas business 
downstream.) References to the Oil industry, and given the comments below, to 
the Hydrocarbons Law, should be minimized, as they are of marginal 
importance. The document on the political outlook, on the other hand, 
sufficiently covers the implications of a reduction in oil revenues.
Gas Law vs. Hydrocarbons Law. It is not only my belief, but of many 
participants in the industry, that the Gas Law will be preserved as it is and 
will not be abrogated by the new Hydrocarbons Law. The source of the 
confusion might be that the Hydrocarbons Law will encompass the Exploration 
and Production of associated gas (gas "associated" to the production of oil.) 
The other stages, as well as E&P of non-associated or free gas are regulated 
by the Gas Law. Therefore, all references to this issue should be eliminated.
Hydrocarbons Law. The only copy of the Hydrocarbons Law available for review 
is the original draft that was part of the set of energy laws that were 
approved in 1999: Electricity, Mines and Gas. It was acknowledged that the 
original Hydrocarbons Law had significant deficiencies and for this reason it 
was delayed. Currently, only a petit committee is working on the new version, 
basically the Ministry's Counsel and the Minister himself. A high ranking 
official assured me that the draft would be circulated among investors before 
approval to repeat the success achieved with the Telecommunications Law. The 
draft in circulation (that BTW was very hard to find given its deficiencies), 
however, clearly stipulates that it does not cover the non-associated gas. 
PDVSA as policymaker. Some actions by the Chavez Administration are highly 
rational and in the interests of the investors (see my comments to the 
political outlook document.) For example, the fact that PDVSA is loosing its 
ability to set policies is, in theory, appropriate. It must be recognized 
that PDVSA, as a monopoly of the Venezuelan Oil and Gas Industry, behaves 
like one. Therefore, the policies it sets are in its interests and not 
necessarily in the interest of the industry, or the country. An example is 
tariffs for integrated operations. In this respect, the Gas Law clearly 
separates the activities of production, transportation and distribution in 
order to minimize the exercise of monopoly power. 
MEM as policymaker. It must be acknowledged that the Ministry of Energy and 
Mines lacks many tools and abilities to formulate policies, but also that 
they are making a significant effort to overcome these shortcomings. MEM is 
handling very complex processes, and naively believed that they could produce 
all the regulations within an unrealistic time frame This lack of experience 
(as well as lack of leadership, I must admit) is the source of delays.
Contract renegotiations. Contract renegotiations have been made at the 
request of investors. Some investors are loosing money big time, but this is 
the nature of the E&P business (no wonder we got out of it!)
Quality of PDVSA personnel. It is acknowledged that PDVSA is not the best run 
company in the world and that a significant human capital has been lost in 
recent years. It is my experience as well as others in Enron, however, that 
there is still people sophisticated enough to do business with, as evidenced 
in the complexity of the Gas Supply Agreement and the Participation Agreement 
of the LNG Project and the regulations and tariffs of transportation services.
ENAGAS, the regulatory entity (not ENERGAS). It is acknowledged that ENAGAS 
lacks independence from the Administration, that it is little developed and 
that it is still not fully formed. I have had two meetings with the heads of 
the regulatory agency explaining who we are, what we want and how we plan to 
achieve it, and they responded with clear goals, admitted the conflicts they 
face, and how they plan to do about them. We are not completely satisfied 
with the results, but now there is a much better understanding of what each 
is looking for (and more hope that the project will go forward.)
I honestly believe that the document requires significant redrafting, in 
particular those aspects that highlight risks immaterial to the project such 
as the behavior of the domestic market in the short term,  or that are 
speculative (e.g., the behavior of large foreign firms), contradictory (e.g., 
break-even of $1.200 per capita in oil revenue vs. growth in GDP with only 
$500 per capita in oil revenues), and/or repetitive. I have specific comments 
that I think would be more effective if I gave them to you verbally. Please 
call me if you have any questions,
ALF




Robert Johnston@ECT
01/29/2001 04:44 PM
To: Alberto Levy/SA/Enron@Enron
cc: Scott Tholan/Corp/Enron@Enron, Emilio 
Vicens/ENRON_DEVELOPMENT@ENRON_DEVELOPMENt 

Subject: Venezuela Briefing Paper

Hi Alberto:

I work with Scott Tholan, who asked me to forward our draft briefing paper on 
Venezuela.  Per his message this morning we need a quick turnaround on this 
paper in order to get the final copy to Mike McConnell on Wednesday.  The 
comments from Emilio Vicens on the original draft have been incorporated, to 
clean up some technical errors and reduce the emphasis on the oil sector.

Robert Johnston
Manager, Political and Sovereign Risk
Enron Global Markets
713-853-9934