The Hungry Vulture

Enron and the Push for Energy Privatization in Mexico

Given the profoundly corrupt nature of Mexican politics and business, it is astounding just how unsuccessful Enron was in making big money here. Sure, Enron was financing political campaigns, promoting electricity deregulation, and opening up phantom companies to hide its dirt, just as it did in the United States. However, most Mexicans, who are staunchly nationalistic on energy issues, denied political and popular support for electricity markets and for the privatization of the state-owned utilities, which were key goals in Enron’s strategy. Today, the Enron scandal seems to have made Mexicans more resolute than ever to prevent deregulation of the industry.

Mexico was important enough for Enron to bring its global CEO Jeffrey Skilling down here to promote deregulation. Back in 1999, I had the chance to meet and talk to Skilling here. He portrayed Enron as the energy company of the new age, but behind the veil, Enron’s plan for Mexico was clear. It would push for total deregulation and privatization of state-owned assets, acquire the most strategic power plants and transmission lines, especially in the Monterrey and Bajío industrial regions, and then use that infrastructure to gouge the hell out of businessmen and ordinary Mexicans.

Or, as The New York Times put it, Enron’s core management philosophy was to be “the first mover in the regulatory black holes of power markets and to make big money in the initial chaos and lack of transparency.” The conversation with Skilling reminded me of a Mexican gas distributor, who once said publicly that foreign energy firms were like a “flock of vultures circling overhead, ready to pounce” and buy out Mexican companies. After the meeting, I wrote in the political magazine Siempre! that if reform of the Mexican electricity industry meant opening Mexico’s doors to “vultures like Enron,” it was better not to do it.

Not everyone was as skeptical about Enron. Many were fascinated by what Fortune magazine called the “world’s most innovative company” four years in a row. Not least of all Luis Téllez, the high-profile Energy Secretary of the Ernesto Zedillo government, who said Mexicans would suffer blackouts nationwide if they did not deregulate the industry at once and privatize the Federal Electricity Commission (CFE). He also warned of impending financial failure at the CFE. Had this occurred, it would not have been surprising, as there are signs that Téllez used CFE money under the table to promote his own image and his privatization policy. However, privatization never happened. Neither did the blackouts.

Téllez never failed to make the most of public events to tell Mexicans about the wonders of Enron, which he enthusiastically described as a highly integrated global business of high-tech energy marketing and production, which was creating vast wealth and well-being for mankind. This was the future and Mexico should join in. The alternative was to continue along the road of inefficient, bureaucratic state-run energy utilities, he would say.

Did he and Zedillo get financial backing from Enron? One suspects that might have occurred. Was President Vicente Fox’s 2000 presidential campaign partly financed by Enron? That’s what many suspect and opposition politicians now seem eager to prove. What is known about Enron is that it was a major sponsor of energy conferences promoting deregulation and electricity markets here. It is also a fact that at the first energy-sector event of the Fox government, the keynote presentation on the future of electricity markets in Mexico was made by Ricardo Charvel, the Senior Director for Strategy at Enron de Mexico. (And Rosario Tapia, a deputy from the opposition PRD, Party of the Democratic Revolution, alleges that part of the Fox transitional team’s energy policy was written on Charvel’s computer.)

But for all the hype and lobbying, Enron de Mexico did not actually do much real business. It was awarded a few permits for energy and water projects that failed to materialize, it sold a few gas-price hedging instruments, but its main claim to fame here is just one medium-sized, gas-fired power plant in the city of Monterrey; construction is only now beginning to get underway. And you guessed it, that plant is now at the heart of an ongoing controversy.

Life was frustrating for Enron executives here. I was invited twice to breakfast by former Enron de Mexico president Max Yzaguirre at the classy Four Seasons hotel in downtown Mexico City. Yzaguirre–who recently resigned in a storm as the head of the Texas Public Utilities Commission–was always pleasant, but his press interviews usually took about an hour and a half, as he carefully chose every word to create exactly the right image of Enron under the watchful eye of Ellen, his elegant PR flack. The content, however, was meager. Enron is trying to create an energy marketing business in Mexico, but cannot get very far in any major power-generation projects without deregulation, he would say.

More poignant are my recollections of Jaime Alatorre, a rich, hawk-faced executive, who turned his back on government perks at the Mexican Investment Board to become the real brain behind Enron’s dealings in Mexico. At the Hemispheric Energy Conference, held in Mexico City in March 2001, Alatorre listened attentively to a presentation by Canada’s Westcoast Energy, a company that obtained the Zedillo government’s two most lucrative energy contracts. The contracts, on Petroleos Mexicanos’ (Pemex’s) Cantarell offshore oil project in the Bay of Campeche, are among many Cantarell contracts suspected to have been rife with corruption.

At the end of the presentation, Alatorre stood up and said to the West- coast executive: “Excuse me, but I would like you to tell all of us just how you guys have been so successful in doing business with Pemex. You have done exactly what we would have liked to do.” It was a moment of catharsis. Could an Enron executive actually acknowledge the superiority of another company? It underlined that, at Enron Mexico, the vulture had gone hungry.

Nevertheless, in light of the U.S. political scandal surrounding Enron, Mexicans are now asking what dealings the company had here. From all accounts, the Mexican operation provided further proof that Enron was good at creating businesses, but terrible at running them. Enron de Mexico tried to sell hedging instruments against volatility in natural gas prices, but businessmen preferred to seek an agreement with state-run Pemex. The Monterrey power plant, its flagship project, is still not built. The company also bid to build power plants for the CFE, but came in close to last in the bidding processes. It signed contracts to run water and wastewater projects in Cancún, Mexico City, and Monterrey, but made little headway. It helped fund construction of offshore living quarters for Pemex oil workers–perhaps its only success story.

It also took a major equity share in Tribasa, a troubled Monterrey-based construction company, which it aspired to rescue. Tribasa collapsed anyway and its owner, David Peñaloza, is a fugitive from Mexican justice due to unpaid loans to the government. Most astonishingly, Enron de Mexico is reported to have created as many as 60 affiliate companies in Delaware, Holland, and the Cayman Islands. It is not clear whether any honest, or even dishonest, business was ever done through any of them, but it looks as if these were simply phantom companies, into which Enron intended to sweep its failures and its dirt. Attention will likely continue to center on what will become of Enron de Mexico’s Monterrey power project. Enron signed contracts with local heavy industries, such as Vitro, Industrias Monterrey (Imsa), and Cementos Apasco, to supply power to them from the plant. Several business columnists here have asked: Where did the money come from for the project? Apparently, it was financed through the InterAmerican Development Bank, once again revealing Enron’s global political influence.

As Enron’s failures became manifest, Belgian energy company Tractebel announced late in 2001 that it had bought an overriding majority stake in Enron’s Monterrey project. Tractebel Mexico is now led by Héctor Olea, Mexico’s former energy regulator and a key promoter of electricity privatization during the Zedillo government. How-ever, it was recently revealed that the Monterrey project remains in Enron’s name for now. Tractebel, it seems, hopes to buy Enron’s remaining share, which would give some security to the unhappy Monterrey industrialists, who still hold a minority stake and who badly need the plant. Meanwhile, Enron de Mexico has abandoned its plush office buildings in Mexico City and Monterrey.

Where does the Mexican electricity industry go from here? President Fox has promised not to sell assets of the state-run utilities, but will promote some form of deregulation. Indeed, he has vowed to push for major energy reform in 2002, which now seems a suicidal idea, thanks, ironically, to Enron’s failures and the California power crisis. The battle lines are drawn, with the government looking like a sure loser already.

“It is a matter of sovereignty and national security that electricity should remain a strategic industry. That is why we oppose it being handed over to transnational companies like Enron,” says Manuel Bartlett Díaz, senator for the traditionalist Institutional Revolu-tionary Party (PRI) and a prominent old-guard politician who is galvanizing sectors in the Mexican left and others opposed to electricity reform.

Bartlett is preparing to send to Congress what appears to be a hard-line, counter-reform bill that will strengthen the CFE monopoly, making it more efficient and financially autonomous, while closing off options to private-sector power generators. “Opening up a market is just a way of deceiving public opinion,” he adds. Not only does it seem certain that Bartlett’s bill will be voted into law virtually untouched, but he has also served notice that Enron’s suspected role in financing political campaigns in Mexico is likely to be up for scrutiny. Recently a group of PRI senators have said that they will request information on Enron’s activities in Mexico from their colleagues in the U.S. Senate.

In response to Fox’s attempts at proving some top PRI politicians were involved in money laundering during that party’s presidential campaign in 2000, Bartlett says that PRI legislators “will demand the five years of financing of Fox’s presidential campaign be investigated, particularly the hypothesis that he received money from foreign companies, including Enron.”

What is now being felt is the backlash against nearly a decade of devious, failed attempts at privatizing the Mexican energy industry, with Enron and others waiting in the wings, ready to swoop. One might ask: Is a stronger state-run monopoly with zero deregulation the best thing for the future of Mexico’s electricity industry? Many of us feel it may not be. But it is what Mexico is now likely to get and people like Manuel Bartlett will gleefully be calling it “energy reform.”

David Shields is a journalist who writes on energy in Mexico City. E-mail: [email protected]

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