Thanks!  Our team has been working on the supreme decree for over two years 
and it is gratifying to finally bring this in, given that it will have a 
significant financial benefit for Enron/Transredes.  I have included an 
executive summary and detailed report below. 

Executive Summary

Through the efforts of the Transredes regulatory team:

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

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

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

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

The Supreme Decree will also allow Transredes, rate case, financing program 
and pending bond issue to move forward. 

Detailed Report

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

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

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

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

In the future, Transredes will also be able to fully recover all of its 
prudently incurred costs and rate of return via tariffs charged for 
transportation on the domestic and export oil concessions, and the export gas 
concession.  We believe that the tariff mechanism for the domestic gas 
concession may require additional detail work.  The mechanism provides for a 
ceiling rate of US$0.41 for transportation in the domestic concession and a 
surcharge on all export volumes of US$0.03. These tariff components will not 
be sufficient to recover the costs and rate of return contemplated by the 
Hydrocarbon Law to be recovered by Transredes.  However, there appears to be 
no impediment to collecting the revenue shortfall in the Transredes export 
gas tariff.  The regulatory team will continue trying to "firm up" this 
mechanism.  

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



  




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 

Subject: Re: Supreme Decree  

Congrats!!



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

Subject: Supreme Decree

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