File Number 70-8759
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment No. 1
to
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG INTERNATIONAL CORPORATION
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
Consolidated Natural Gas Company, a registered holding company,
is the parent of the other party
Names and addresses of agents for service:
S. E. WILLIAMS, Senior Vice President
and General Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
N. F. CHANDLER, General Attorney
Consolidated Natural Gas Service Company, Inc.
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
<PAGE>
File Number 70-8759
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1
to
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
-----------------------------------
1.1 Introduction. Consolidated Natural Gas Company (the "Company"
------------
or "CNG"), a registered holding company under the Public Utility Holding
Company Act of 1935, seeks to expand the geographic scope of certain of its
core business activities to foreign energy markets. These activities,
which will be conducted through CNG's newly-formed subsidiary CNG
International Corporation ("CNG International"), include gas transmission
and storage, gas exploration and production, the brokering and marketing of
electricity, gas and other energy commodities, energy consulting in foreign
energy markets, and the provision of administrative, technical,
construction, operating, maintenance and other management services to
nonassociates with respect to their foreign operations (collectively,
"Foreign Energy Activities").
By order dated May 30, 1996, CNG was authorized to establish CNG
International to invest in foreign utility companies ("FUCOs") and exempt
wholesale generators ("EWGs") located outside of the United States.
Holding Co. Act Release No. 26523.<1> The order further authorized the
formation and capitalization of intermediate subsidiaries to hold interests
in such EWGs and FUCOs, and the provision of $300 million credit support
for these entities. The order, however, reserved jurisdiction over the
proposed investment of $300 million in Foreign Energy Activities, the $300
---------------------
<1> A notice of the filing was issued on February 9, 1996. No requests
for hearing were received.
<PAGE>
million credit support as it relates to these activities, and related
transactions.
Accordingly, CNG requests authority through March 31, 2001 to invest
up to $300 million through CNG International in gas transmission and
storage, gas exploration and production, and energy brokering and marketing
activities outside of the United States. To the extent Commission approval
may be required, CNG further requests authority to provide guarantees and
other credit support for these activities through March 31, 2001, up to an
aggregate amount of $300 million at any one time outstanding, and for
related transactions. In this post-effective amendment, CNG seeks specific
authority with respect to proposed investments by CNG International of up
to $25 million in a Bolivian pipeline project, and up to $50 million in an
Uruguayan pipeline project, including the formation and capitalization of
such entities as may be required to hold CNG International's interests in
the pipeline projects and related transactions, and asks the Commission to
reserve jurisdiction over the balance of the transactions.
Time is of the essence. As explained herein, the bid bond in
connection with the Bolivian project must be submitted in the near future.
Accordingly, CNG requests the Commission issue its order approving
the proposed investments no later than October 4, 1996.
1.2 Background. CNG, through its subsidiaries, is engaged in all
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phases of the natural gas business: exploration, production, purchasing,
gathering, transmission, storage, distribution and marketing. It is also
involved in gas storage activities and the extraction and sale of oil,
condensate, natural gasoline, butane, propane and ethane, and electric
power marketing.
<PAGE>
For the year ending December 31, 1995, CNG had operating revenues of
$3.307 billion. As of December 31, 1995, CNG had consolidated assets of
$5.418 billion.
CNG continues to be one of the financially strongest companies in the
industry. The ratio of long-term debt to total capitalization is a
conservative 35 percent. The major rating agencies maintain high quality
credit ratings of AA, AA-minus or A for the Company's senior debentures,
and its commercial paper has the highest ratings. These factors combine to
give CNG flexibility and a solid foundation for its business strategy.
As part of its business strategy, the Company is systematically
seeking new ventures, both international and domestic, that will build upon
the system's core competency as a provider of energy and energy services.
In 1995, CNG formed a strategic alliance with EnergyAustralia,
Australia's largest electric utility. CNG is helping EnergyAustralia to
develop its natural gas marketing capabilities in the restructured
Australian energy market. It is anticipated that the two companies
together will identify and develop energy infrastructure projects in
Australia and Asia.
Earlier this year, the Commission authorized CNG to enter into a joint
venture with two Canadian firms: Hydro-Quebec, North America's largest and
lowest-cost generator of electricity, and Noverco, parent of Quebec's
largest gas distributor.<2> It is anticipated that the companies together
will market a broad range of electric, gas and other energy supplies and
services initially in the northeastern United States but may move into
other market areas.
----------------------
<2> Consolidated Natural Gas Co., Holding Co. Act Release No. 26512 (Apr.
----------------------------
30, 1996).
<PAGE>
As the Commission has recognized, the energy industry is rapidly
evolving. Competition is overtaking regulation as the guiding force.<3>
As recent events illustrate, the industry is moving quickly toward a more
integrated, more dynamic global energy marketplace. The Wall Street
------
Journal, on August 13, 1996, reported that the first-ever Mexican gas
concession has been awarded to a consortium of U.S. and Mexican firms:
The exclusive, 12-year concession to serve the border city of
Mexicali, begins a privatization process that will open the entire
country to natural-gas providers, creating a $3 billion-a-year market
for private utilities over the next decade, according to industry
sources.<4>
The following day, the Journal reported that "giant energy companies,
mainly U.S. ones, are vying to dominate access routes between Latin
America's natural-gas fields and its big cities." The paper reported that:
Neighboring countries in the Southern Cone . . . have decided that
knitting a vast gas-delivery system is the solution to the energy
shortages that are accompanying their fast economic growth. Within 20
years, the network will connect gas fields in the Patagonian desert of
Argentina and the jungles of Bolivia and Peru with the cities of
Buenos Aires, Santiago, Sao Paulo and Rio de Janeiro. It will cross
some of the world's most environmentally sensitive areas. And it will
cost billions of dollars, mostly from private-sector coffers.
* * * * *
[The current situation] is a mess that needs to be sorted out soon.
Brazil has run out of feasible hydroelectricity sites, and gas is far
less polluting than oil. Electricity shortages are just a year or two
away. "We are already operating without a margin of error," says
Carlos Roberto Silvestrin, director of Agencia Desenvolvimento Tiete
Parana, a private-sector development group in Brazil. "We need gas,
and we need it quickly."
At present, CNG is constrained by the 1935 Act from participating fully in
these developing markets. In contrast, non-registered U.S. companies, such
--------------------
<3> See generally The Regulation of Public-Utility Holding Companies,
----------------------------------------------------------------
Securities and Exchange Commission, Division of Investment Management
(1995).
<4> The U.S. companies in the winning consortium, were Enova's San Diego
Gas & Electric Co. and Pacific Enterprises' Southern California Gas
Co.
<PAGE>
as Enron Corp., CMS Energy Corp., and AES Corp., are already actively
competing in Latin gas markets.
The ability to participate in international gas markets is critical to
CNG's long-term continued success. Although CNG intends to strengthen and
expand its core businesses of local gas distribution and interstate gas
transportation, it also intends to pursue opportunities for growth in the
unregulated parts of the energy market, including gas exploration and
production, transportation and storage, and brokering and marketing of gas,
electricity and other forms of energy -- the activities that are the
subject of this filing. By pursuing these activities in highly competitive
foreign markets, CNG will gain expertise that will benefit its domestic
utility consumers.
In this regard, it is important to note that the Company's primary
focus will continue to be on customers and opportunities domestically, even
as it seeks to participate in carefully selected projects in key
international markets.
1.3 Foreign Energy Activities. CNG has identified core
-------------------------
competencies in which it can best respond to opportunities for growth in
foreign energy markets. Accordingly, in this post-effective amendment, CNG
proposes that CNG International be authorized to identify, evaluate and
engage in gas exploration and production, transmission and storage, and
energy marketing activities in the foreign energy sector.
Gas-Related Activities. The world gas industry is rapidly evolving.
----------------------
Until recently, production companies (generally oil companies) have been
multinational in scope while distribution companies have been limited to
<PAGE>
domestic markets.<5> Institutional changes, however, such as the opening
of the gas market to new entrants, provide the conditions for a
transformation of the gas business from a more domestically focused one
into a more global industry. Some companies, such as British Gas and
Enron, have already designed and adopted strategies to become major actors
in the global gas market.<6>
A number of factors have contributed to the increased use of natural
gas over the last decade. Gas produces about half the carbon dioxide
emissions of coal and about two thirds the emissions of fuel oil. Thomas
Land, writing for the Petroleum Economist Ltd. [UK] states, "The growing
global need for environmentally clean fuel and availability of the
plentiful natural gas reserves can be expected to combine as the major
factor determining international trade and other economic activities in the
medium term."<7>
In a similar vein, Andrew Slaughter who is responsible for DRI/McGraw-
Hill's International Energy Services comments that natural gas receives
high marks for its environmental advantages, abundance, widespread
geographical dispersion of its reserves, and the overall economics of gas
use versus other fuels.<8> Slaughter sees the strongest regional growth
--------------------
<5> Gas transportation by pipeline has been handled by consortiums of
producing and buying companies, while liquid natural gas has been
typically in the hands of the major oil companies.
<6> The investing community measures Consolidated's performance against
the Value Line group of diversified natural gas companies (see Exhibit
B-1), many of which are aggressively moving into international
markets.
<7> Growth of Gas Could Boost World Economy; International Monetary Fund
--------------------------------------------------------------------
Report on Natural Gas, Gas World International, May 1994.
---------------------
<8> Power Generation Key to Global Natural Gas, Electrical World, Nov.
------------------------------------------
1994.
<PAGE>
rates in Latin America and the Asia/Pacific region.<9> Energy, the economy
and the environment will become even more closely linked as market
globalization intensifies.<10>
The development of energy infrastructure overseas, including
hydrocarbon reserves, oil and gas pipelines, gas storage facilities, power
generation, electric transmission lines, and retail distribution, also
contributes to global energy security and price stabilization. To the
extent that there are additions to the supply and related infrastructure of
different forms of energy that compete with each other, there will be less
price volatility caused by disruption in any one energy source.
CNG, as one of the largest integrated energy suppliers in the United
States, has already responded to challenges in the domestic market by
devoting additional resources to exploration and production, expanding its
pipeline and storage capacity, and developing its energy services business.
CNG now wishes to build upon this expertise to enable it to compete
effectively in the global energy market. The additional knowledge derived
from these ventures will enable CNG to better serve consumers in the
increasingly competitive domestic markets.
Energy Marketing. CNG is currently authorized to engage in the
----------------
brokering and marketing of gas through its wholly-owned subsidiary CNG
-------------------
<9> A list of natural gas-fired facilities by region is attached as
Exhibit B-2.
<10> Infrastructure investments result in orders for goods and services
which frequently will be supplied by U.S. firms. Examples in the
energy sector would include pipe, compressors, turbines, engineering
services, construction management, and operating management. Filed as
Exhibit B-3 are a number of news releases of the Export-Import Bank
of the United States regarding foreign energy projects that have been
supported by Bank financing and the importance of exports to the
domestic economy. The Bank's support is directly related to an
estimated 358,000 U.S. jobs and indirectly supports 2 million more.
<11> Among other things, the CNG system is the largest gas storage operator
in North America with a total capacity of 876 Bcf, and is arguably the
best in the world at operating storage facilities.
<PAGE>
Energy Services Corporation,<12> and the marketing of electricity through
its wholly-owned subsidiary CNG Power Services Corporation, an exempt
wholesale generator. CNG, through CNG Energy Arbitrage Corporation, is
also authorized to engage in the marketing and brokering of electricity,
gas and other fuels, the provision of electricity or fuel management
services, and related activities and services.<13> It is anticipated that
CNG International will invest in brokering and marketing of electricity,
oil, propane, natural gas liquids and other petroleum products, coal, wood
chips and other fuels, in foreign energy markets.<14>
1.5 Risk Profile of Foreign Energy Activities. Investments in foreign
-----------------------------------------
ventures involve a variety of risks that are not necessarily present in the
traditional, regulated public-utility industry. CNG has addressed these
concerns in the first instance by staffing CNG International with
experienced professionals who have worked extensively with international
project development and financing.<15> By seeking project partners, using
project financing and limiting the size of any one investment, CNG acts to
ensure that the risks associated with foreign ventures do not adversely
affect the financial strength of the CNG system. In addition, CNG has
established comprehensive procedures to identify and limit or mitigate the
risks that may be associated with a specific project.
--------------------
<12> See Holding Co. Act Release No. 25600 (Aug. 7, 1992).
<13> Consolidated Natural Gas Co., Holding Co. Act Release No. 26512
---------------------------
April 30, 1996).
<14> The proposed combination of gas, electric and other energy commodity
brokering and marketing in CNG International or a subsidiary thereof
is similar to activities for which CNG Energy has made application in
a pending Form U-1 proceeding at File No. 70-8883.
<15> Additional technical expertise will come primarily from CNG's domestic
nonutility operations.
<PAGE>
The Project Review Process. Every investment opportunity pursued by
--------------------------
CNG is subjected to a series of formal reviews to ensure that the project
satisfies the Company's standards for investment. The process begins with
the identification of an investment opportunity. An analysis of the host
country focuses on the political and economic stability of the particular
country, the government's commitment to energy services, the legal and
regulatory framework for private investment, and the potential effect of
local business practices with respect to long-term investment of private
capital.
CNG has developed a formula and process for evaluating prospective CNG
International investments in foreign countries. The so-called "hurdle
rate" study assesses the additional risks of operating in a foreign
business environment and the uncertainty of projects in the development and
construction stages, or with complex or new technology.
The required rate of return or "hurdle rate" is calculated for high
and low commercial risk projects in the foreign country. Higher rates are
applied to projects in the development and construction phases. Tables are
then prepared showing each country and the appropriate hurdle rates for
each project stage. The tables will be revised on a periodic basis to
reflect changes in the country risk premiums, and to include countries
where CNG International is actively developing projects.
The hurdle rate table can then be used by developers to screen
potential projects. If the expected market rate is below the hurdle rate,
the project can be rejected or the developer can look for income
enhancements to boost the expected return on the project.<16> After the
project passes the initial screening process, a more intensive review of
the project and the country will be undertaken. The hurdle rate will be
----------------------
<16> In the past with EWGs and FUCOs, for example, CNG could earn
additional income by securing the Operation & Maintenance contract, or
by managing the fuel supply to the project.
<PAGE>
further refined to take into account the risk profile of the project. For
example, the rate may be reduced if the developer is able to (i) purchase
political risk insurance from the Overseas Private Investment Corporation,
a U.S. Government agency, or the Multilateral Investment Guarantee Agency,
a World Bank unit, or (ii) obtain sovereign guarantees from the host
government for any of the project contracts or for foreign exchange
availability. The rate may also be modified upward or downward if a
detailed review forecasts a significant change in the fundamental economic
or political conditions of the country.<17>
Once project development is undertaken, milestones are established and
the project team monitors the major technical, financial, commercial and
legal risks associated with the project and the management of those risks.
In addition, each project is subjected to increasing levels of
management review. Depending on the amount of the potential exposure to
the CNG system, a project must be approved by the Chairman and the Chief
Executive Officer, the Chief Financial Officer, and by the full board of
directors of CNG.
Significantly, this internal review process is largely repeated by the
lenders who provide debt financing for a foreign project, since repayment
of the debt will depend, in the first instance, on the success of the
project. Project debt documents typically require the establishment of
debt service and other funded reserves.
CNG further represents that shareholders and not domestic utility
customers will bear the risks that may be associated with these foreign
ventures.
--------------------------
<17> Attached as Exhibit B-4 is a detailed discussion of risks that are
considered in connection with foreign ventures.
<PAGE>
1.6 Immediate Pipeline Investment Opportunities. Over the past year,
-------------------------------------------
CNG has reviewed literally dozens of potential foreign ventures. On the
basis of that review, CNG has identified two projects in Bolivia and
Uruguay that meet the Company's criteria for investments.<18> Specific
authority is requested for those projects as discussed below.
Bolivia Hydrocarbon Transportation
----------------------------------
Bolivia is privatizing the state-owned oil and gas company Yacimientos
Petroliferos Fiscales Bolivianos ("YPFB") through a public tender on
interests in five separate units: two exploration and production units, one
hydrocarbon transportation unit, one refining unit, and one marketing
unit. CNG has been prequalified by the Bolivian government to bid for the
hydrocarbon transportation unit, which consists almost exclusively of gas
pipelines. It is anticipated that CNG International will participate in a
bidding consortium. The three members of the consortium would have equal
economic interests in the bid. <19>
The successful bidder will acquire a 50% economic interest and
operational control of the existing natural gas transmission system in
Bolivia.<20> At present, the Bolivian system includes more the 2900 km of
gas pipeline covering the southern and central part of the country.
Current transmission throughput is about 460 mmcfd including exports to
Argentina. Also included is a 35,000 b/d capacity oil pipeline from Santa
Cruz, Bolivia to Arica, Chile.
--------------------
<18> Attached as Exhibit C-1 is an overview of the factors that favor these
investments.
<19> A list of the qualified bidders for the Bolivian pipeline project is
attached as Exhibit B-1.
<20> The remaining 50% interest will be retained by YPFB.
<PAGE>
In addition, the successful bidder will acquire 50% of the YPFB
position in certain key transportation projects. YPFB has a key ownership
in a proposed major Bolivia to Brazil gas pipeline project, in which from
283 to 565 mmcfd of gas is planned for export to Brazil. YPFB's interest
includes 51% of the Bolivia portion of the pipeline and 12% of the
Brazilian portion. Additional YPFB pipeline projects are under development
including pipelines to Chile and Paraguay.
Bolivia's geographic position affords it the potential for serving a
central role in the South American energy market, particularly in the
southern cone. Thus, participation in this capitalization is a key
opportunity for CNG to establish a competitive position in these growing
energy markets.
ruguay Pipeline: Buenos Aires to Montevideo
--------------------------------------------
CNG International has been prequalified to submit a bid to construct,
own, and operate a gas pipeline from Buenos Aires, Argentina to Montevideo,
Uruguay. It is anticipated that final bids will be submitted early this
fall.<21> If successful, CNG would participate in the construction and
operation of an approximately 140 mile pipeline, including 30 miles under
the river Plate, to provide transportation services on a non-discriminatory
basis to substantial markets in Montevideo <22>. It is anticipated that
this project may eventually connect to other projects such as a planned
pipeline to southern Brazil or a storage facility. A successful bid on
this project, besides providing an economic opportunity, could also provide
a basis for developing additional energy markets in this region of South
America.
----------------------
<21> A list of the prequalified companies for the Uruguay pipeline project
is attached as Exhibit C-3.
<22> The Uruguayan government may take a minority interest in the
pipeline.
<PAGE>
CNG International will carry on the proposed activities through one or
more special-purpose subsidiary or associate companies, partnerships,
limited liability companies, joint ventures or other entities (depending
upon the legal and regulatory requirements of the particular project) to be
formed with unrelated persons or entities for the sole purpose of engaging
in Foreign Energy Activities.
It is anticipated that financings by and among CNG International and
its subsidiaries will be generally exempt pursuant to Rule 52 under the
Act. CNG requests the Commission reserve jurisdiction over any financing
transactions that are not so exempt. <23>
Pursuant to the authorizations requested above and without limiting
the same, CNG International and its subsidiaries would be able to acquire,
without further Commission approval, voting or nonvoting stock in one or
more corporation, general partnership interests or voting equity interests
in one or more other joint business entities such as joint ventures or
limited liability companies, or up to 100% of the limited partnership
interests in one or more partnerships, provided all of such corporations,
partnerships or other entities are established for the sole purpose of
engaging in Foreign Energy Activities.<24>
CNG International will fund the proposed transactions by (i) selling
shares of its common stock, $10,000 par value per share, to CNG, (ii) open
account advances as described below, or (iii) long-term loans from CNG, in
---------------------------
<23> CNG will file a post-effective amendment describing the general terms
of each such security and requesting a supplemental order of the Commission
authorizing such transactions. CNG requests that supplemental orders be
issued without further time-consuming public notice.
<24> This would be similar to the authorization granted to CNG Energy in
Commission order dated July 26, 1995, Holding Co. Act Release No. 26341,
File No. 70-8621.
<PAGE>
any combination thereof. The open account advances and long-term loans
will have the same effective terms and interest rates as related borrowings
of CNG in the forms listed.
Open account advances may be made to CNG International on a revolving
basis to provide working capital and to finance the activities authorized
by the Commission. Open account advances will be made under letter
agreement with CNG International and will be repaid on or before a date
not more than one year from the date of the first advance with interest
at the same effective rate of interest as CNG's weighted average
effective rate for commercial paper and/or revolving credit borrowings.
If no such borrowings are outstanding, the interest rate shall be
predicated on the Federal Funds' effective rate of interest as quoted
daily by the Federal Reserve Bank of New York. Only outstanding amounts
of open account advances will be calculated against the $300 million cap
on financing requested herein.
CNG may make long-term loans to CNG International for the financing
of its activities. Loans to CNG International shall be evidenced by
long-term non-negotiable notes of CNG International (documented by book
entry only) maturing over a period of time (not in excess of 50 years) to
be determined by the officers of CNG, with the interest predicated on and
equal to CNG's cost of funds for comparable borrowings. In the event CNG
has not had recent comparable borrowings, the rates will be tied to the
Salomon Brothers indicative rate for comparable debt issuances published
in Salomon Brothers Inc. Bond Market Roundup or similar publication on the
date nearest to the time of takedown. All loans may be prepaid at any time
without premium or penalty.
CNG will obtain the funds required for CNG International either
through internal cash generation or from financings at the time authorized
<PAGE>
by the Commission, such as pursuant to the five year intrasystem financing
authorization under Holding Co. Act Release No. 26500 (March 28, 1996).
Authority is sought for CNG, CNG International and its subsidiaries
engaged in Foreign Energy Activities to enter guarantee arrangements,
obtain letters of credit, and otherwise provide credit support with respect
to obligations of their respective subsidiaries to third parties as may be
needed and appropriate to enable them to carry on in the ordinary course of
their respective businesses. The maximum aggregate limit on all credit
support by CNG, CNG International and its subsidiaries, including the
credit support previously authorized for EWGs and FUCOs, will be $300
million at any one time outstanding. The $300 million in guarantees and
other credit support is in addition to the $300 million authority requested
elsewhere herein.
Item 2. Fees, Commissions and Expenses.
------------------------------
The fees, commissions and expenses to be paid or incurred in
connection with the filing of this Application are estimated not to exceed
$25,000, including the Commission's $2,000 filing fee, fees payable to
Consolidated Natural Gas Service Company, Inc. ("Service Company") for
services on a cost basis (including regularly employed and fees of
regularly employed counsel).
Item 3. Applicable Statutory Provisions.
-------------------------------
3.1 Authorization Requested. By order dated May 30, 1996, CNG was
-----------------------
authorized to establish CNG International to invest in FUCOs and EWGs
located outside of the United States. Holding Co. Act Release No.
26523.<25> The order further authorized the formation and capitalization
of intermediate subsidiaries to hold interests in such EWGs and FUCOs, and
the provision of $300 million credit support for these entities. The
---------------------
<25> A notice of the filing was issued on February 9, 1996. No requests
for hearing were received.
<PAGE>
order, however, reserved jurisdiction over the proposed investment of $300
million in Foreign Energy Activities, the $300 million credit support as it
relates to these activities, and related transactions.
CNG now requests authority through March 31, 2001 to invest up to
$300 million through CNG International in gas transmission and storage, gas
exploration and production, and energy brokering and marketing activities
outside of the United States. To the extent Commission approval may be
required, CNG further requests authority to provide guarantees and other
credit support for these activities through March 31, 2001, up to an
aggregate amount of $300 million at any one time outstanding, and for
related transactions. In this post-effective amendment, CNG seeks specific
authority with respect to proposed investments by CNG International of up
to $25 million in a Bolivian pipeline project, and up to $50 million in an
Uruguayan pipeline project, including the formation and capitalization of
such entities as may be required to hold CNG International's interests in
the pipeline projects and related transactions, and asks the Commission to
reserve jurisdiction over the balance of the transactions.
3.2 General Provisions. The proposal herein is subject to sections
------------------
9(a), 10, 11, 32 and rule 54 and the Gas Related Activities Act of 1990.
If, however, the Commission considers the proposed transactions to require
any authorization, approval or exemption, under any section of the Act or
rule or regulation other than those cited hereinabove, such authorization,
approval or exemption is hereby requested.
<PAGE>
3.3 Analysis of Section 11 Issues.
-----------------------------
Under section 10(c)(1) of the Act, the SEC cannot approve an
acquisition that would be "detrimental to the carrying out of the
provisions of section 11." That section, in turn, directs the SEC to limit
the nonutility interests of a registered holding company to those that are
"reasonably incidental, or economically necessary or appropriate" to such
company's utility operations, including interests in any other business
which the SEC finds "necessary or appropriate in the public interest or for
the protection of investors or consumers and not detrimental to the proper
functioning of such system."
In the instant matter, these requirements are satisfied either by
reason of the Gas Related Activities Act of 1990 ("GRAA"),<26> the plain
meaning of section 11(b)(1) or consistent with SEC precedent under sections
9, 10 and 11 of the Act.
1. MANY OF THE FOREIGN ENERGY ACTIVITIES CAN BE AUTHORIZED UNDER THE
GRAA.
The GRAA deems the requirements of section 11(b)(1) to be met with
respect to certain gas-related activities. In particular, the proposed gas
transportation and storage activities are deemed to satisfy section
11(b)(1) pursuant to section 2(a) of the GRAA. The remaining activities,
relating to gas exploration, development, production, marketing,
manufacture and other similar activities related to the supply of natural
or manufactured gas ("gas supply activities"), can be found to satisfy the
standards of section 11 pursuant to section 2(b) of the GRAA. That
section, in turn, requires a Commission finding that the proposed activity:
is in the interest of consumers of each gas utility company of such
registered company or consumers of any other subsidiary of such
registered company; and . . .
---------------------
<26> Pub. L. No. 101-572, 104 Stat. 2810 (codified at 15 U.S.C. sec. 79k
note).
<PAGE>
such acquisition will not be detrimental to the interest of consumers
of any such gas utility company or other subsidiary as to the proper
functioning of the registered holding company system.
Section 2(c) of the GRAA provides that each determination be made "on a
case-by-case basis, and not based on any preset criteria."
The proposed gas supply activities clearly satisfy the standards for
approval under section 2(b) of the GRAA. These activities are in the
interest of system consumers. The activities of CNG International will
benefit domestic utility consumers both directly, by enabling CNG to
develop greater expertise in operating in competitive markets, and
indirectly, by generating economic profits that will contribute to the
financial strength of the CNG system and so result in continued low rates
for CNG's consumers. Such profits would be due, in part, to the higher
rate of return associated with investments in foreign energy markets.
As used in the GRAA, the term "consumers" also refers to customers
of other system companies, such as pipelines and other nonutility
subsidiaries.<27> To succeed in a competitive marketplace, CNG
International must provide benefits for these consumers as well. The
interchange of technical and other expertise, between the domestic and
foreign portions of the CNG system will also contribute to the strength of
the system as a whole. Energy markets in other parts of the world are more
developed than those in the Unites States. The ability to move
technological and market intelligence to and from CNG's domestic markets
will make the Company more competitive, and so benefit consumers of both
utility and nonutility companies in the CNG system. In addition, the
proposed activities will contribute to the optimal use of system resources,
allowing such resources to be deployed over larger market areas, and
permitting full utilization of system personnel.
------------------------
<27> National Fuel Gas Co., Holding Co. Act Release No. 26181 (Dec. 6,
---------------------
1994).
<PAGE>
Further, as the sponsors of the GRAA recognized:
Technical advances and expertise may also be developed through these
activities that may benefit consumers. Finally, there may exist
assets that either surplus to the needs of the system or that have
developed in the normal course of system operations. Use of these
assets to maximize their value is recognized as a benefit to
customers only so long as the proposed activity does not create a
detriment to system customers. <28>
In this matter, investors and not consumers will bear the risks that may be
associated with these new ventures. As explained previously, CNG conducts
a thorough review of any proposed investment, with a view toward risk
management. The international operations will be conducted with the same
prudence and sound business judgment that has resulted in CNG's present
status as one of the country's most financially sound energy providers.
There is no geographic limit under the GRAA. In this matter, the
public interest standard is readily satisfied.
For the reasons explained previously, the proposed activities will not
lead to a recurrence of the abuses the Act was intended to correct.<29>
2. THE PROPOSED ACTIVITIES SATISFY THE PLAIN MEANING OF SECTION
11(b)(1).
The proposed activities can be approved under sections 9, 10 and 11
of the Act. In the first instance, gas transmission and storage,
exploration and development, and the marketing and brokering of energy
commodities all satisfy the plain meaning of section 11: they are both
"reasonably incidental, or economically necessary or appropriate" to CNG's
utility operations and "not detrimental" to the protected interests or to
-----------------------
<28> S17585 Cong. Rec. (Oct. 27, 1990).
<29> See Gaz Metropolitain, Inc., Holding Co. Act Release No. 26170 (Nov.
--- -----------------------
23, 1994) (permitting a foreign holding company to acquire U.S.
utility operations), and Southern Co., Holding Co. Act Release No.
------------
25639 (Sept. 23, 1992) (permitting acquisition of foreign utility
operations by a registered holding company).
<PAGE>
the proper functioning of the CNG system. There is precedent for this
approach. At the end of 1994, the SEC approved a proposal by The Southern
Company to develop a wireless communications system to provide services to
system companies and regional nonassociates. In addition to approving the
transaction under the functional relationship test, the SEC noted that the
activities were permissible under the plain meaning of section 11, as
"reasonably incidental, or economically necessary or appropriate" to the
system's core utility operations, and "necessary or appropriate in the
public interest or for the protection of investors or consumers and not
detrimental" to the proper functioning of the integrated system.<30>
Thereafter, in its report on the regulation of public-utility holding
companies, the Division of Investment Management recommended that the SEC
adopt a more flexible approach to diversification. The report stated that:
Specifically, the Division contemplates an interpretation of the
language of section 11(b)(1) that would allow registered holding
companies to engage in nonutility businesses that are economically
appropriate and in the public interest, regardless of whether such
--------------------------
activities are ancillary to the utility business (emphasis added).
------------------------------------------------
The report cited the Southern mobile communications order discussed above,
--------
and the 1946 Study of Operations.<31> The Division's recommendation is
noteworthy because, as the staff is aware, the report was the result of a
year-long process of consensus-building at all levels of the SEC, in
consultation with congressional staff and the NARUC, as well as the
companies and other interested parties.
-----------------------
<30> Southern Co., Holding Co. Act Release No. 26211 (Dec. 30, 1994).
------------
<31> Study of Operations Pursuant to Public Utility Holding Company Act of
---------------------------------------------------------------------
1935: Hearings before the Securities Subcommittee of the House of
------------------------------------------------------------------
Representatives Committee on Interstate and Foreign Commerce, 79th
------------------------------------------------------------
Cong., 2d Sess., pt. 3 at 851 (1946).
<PAGE>
3. THE PROPOSED ACTIVITIES ARE CONSISTENT WITH COMMISSION PRECEDENT UNDER
SECTIONS 9, 10 AND 11 OF THE ACT.
In the alternative, the activities are consistent with Commission
precedent. Clearly, gas transmission and storage, gas exploration and
production, and the marketing and brokering of energy commodities are all
closely related to the CNG system's core utility business. The fact that
these activities will be conducted outside of the United States does not
destroy that relationship.
Although the SEC has traditionally required an operating or
"functional relationship" between the nonutility business and the system's
utility operations, the interpretation of this test has evolved in recent
years, in response to changes in the utility industry. In 1995, in an
order removing the percentage limitation on the EUA system's energy
management services business, the SEC found the standards of section 11
satisfied because the subject activities were "closely related to the core
business of the utility."<32> The SEC explained that:
The Act "creates a system of pervasive and continuing economic
regulation that must in some measure at least be refashioned from
time to time to keep pace with changing economic and regulatory
climates." The Commission is satisfied that, "On the facts of
this matter we do not believe that the proposed acquisition will
lead to a recurrence of the evils the Act was intended to
address."<33>
Since the report was issued, the SEC has taken several major steps toward
implementing its recommendations. Proposed rule 58 would exempt from the
requirement of prior SEC approval under sections 9(a)(1) and 10 of the Act,
pursuant to section 9(c)(3), the acquisition by a registered holding
---------------------
<32> Eastern Utilities Associates, Holding Co. Act Release No. 26232 (Feb.
----------------------------
15, 1995) (footnote omitted).
<33> Id., quoting Union Electric Co., 45 S.E.C. 489, 503 n. 52 (1974),
--- -----------------
aff'd sub nom. City of Cape Girardeau v. SEC, 521 F.2d 324 (D.C. Cir.
----- --- ---- -----------------------------
1975), and Southern Co., Holding Co. Act Release No. 25639 (Sept. 23,
------------
1992) (approving acquisition of foreign public-utility subsidiary
companies).
<PAGE>
company of the securities of an energy-related company, subject to certain
investment limitations and reporting requirements, and the acquisition by a
registered gas-utility holding company of the securities of a gas-related
company, subject to certain reporting requirements.<34>
Most recently, in the CNG Energy Alliance order, the SEC authorized
the system to engage, without geographic restriction, in marketing and
brokering activities as a full participant in the integrated energy
markets. Under the order, CNG can deal in various types of energy
commodities rather than limiting itself to gas, the energy sold by system
utilities.<34> The SEC noted that it is appropriate to assess issues in
light of the "changing realities" of the utility industry."
(i) THE FOREIGN ENERGY ACTIVITIES ARE CLOSELY RELATED TO CNG'S CORE
UTILITY BUSINESS.
The Foreign Energy Activities are "energy-related" or "gas-related"
within the meaning of proposed rule 58. The proposed brokering and
marketing of electricity and other energy commodities would also be energy-
related activities under section b(1)(v) of the rule. The proposing
release cites various orders in which registered holding companies have
been authorized to engage in energy marketing and brokering activities:
Consolidated Natural Gas Co., Holding Co. Act Release No. 24329 (Feb. 27,
--------------------
<34> Exemption of Acquisition by Registered Public-Utility Holding
Companies of Securities of Nonutility Companies Engaged in Certain
Energy-Related and Gas-Related Businesses; Exemptions of Capital
Contributions and Advances to Such Companies, Holding Co. Act Release
No. 26313 (June 20, 1995).
<35> Consolidated Natural Gas Co., Holding Co. Act Release No. 26512 (Apr.
---------------------------
30, 1996). The description of the CNG Energy Arbitrage order is taken
from Eastern Utilities Associates, Holding Co. Act Release No.
----------------------------
26519 (May 23, 1996), in which the SEC authorized retail marketing of
electric power with respect to pilot programs adopted in New Hampshire
and Massachusetts.
<PAGE>
1987); Entergy Corp., Holding Co. Act Release No. 25848 (July 8, 1993); and
------------
UNITIL Corp., Holding Co. Act Release No. 25816 (May 24, 1993). In
------------
addition, as noted above, the SEC has recently authorized CNG in a wide
range of energy marketing and brokering activities.<36>
The activities related to gas exploration and production, transmission
and storage, and brokering and marketing of natural gas are all "gas-
related" activities within the meaning of the rule. The definition of gas-
related company under rule 58 is derived, in turn, from the Gas Related
Activities Act of 1990 in which Congress intended, by permitting gas
registered holding companies to invest in gas production, transportation,
storage, marketing and similar activities, to promote competition in the
natural gas markets. As the SEC noted in the proposing release for rule
58, "the activities contemplated by the GRAA are per se closely related
--- --
to the core utility business of the gas registered holding companies."
(ii) THE SEC HAS PREVIOUSLY AUTHORIZED REGISTERED HOLDING COMPANIES TO
ENGAGE IN FOREIGN NONUTILITY ACTIVITIES.
It is our understanding that the SEC staff distinguishes the instant
matter from the precedent largely on the basis of the foreign nature of the
proposed activities. The basis for this distinction, however, is unclear.
The matter is not unprecedented. Rather, there is ample precedent in
orders issued by the SEC over the past 25 years, permitting registered
holding companies to engage in a wide range of nonutility activities
worldwide.
Beginning in 1981, the SEC permitted The Southern Company to provide
management, technical and training services to nonassociates including
"unaffiliated domestic or foreign governmental agencies, public utilities,
-------------------
<36> Indeed, a survey of the FERC Docket filings indicates that more than
half of the power marketing applicants have gas, as well as electric
marketing capability.
<PAGE>
industrial concerns, or entities owning, operating or performing services
for any of them." Southern Co., Holding Co. Act Release No. 22132 (July
------------
17, 1981). A year later, the SEC authorized American Electric Power
Company to sell "management, technical, and training expertise in the open,
competitive market to non-affiliated entities including domestic and
foreign governmental agencies, public utilities and other business
concerns." American Electric Power Co., Holding Co. Act Release No. 22468
---------------------------
(Apr. 21, 1982). See also New England Electric System, Holding Co. Act
--- ---- ---------------------------
Release No. 22719 (Nov. 19, 1982), and Middle South Utilities, Holding Co.
----------------------
Act Release No. 22828 (Jan. 11, 1983).
In 1992, the SEC issued a series of orders permitting public-utility
holding companies, both registered and exempt, to acquire interests in
foreign utility operations. In authorizing Southern Electric
International, Inc., a subsidiary of The Southern Company to acquire an
ownership interest in an Australian power station, the SEC stated:
Since the Act was adopted in 1935, the world economy has changed
vastly. Products and services are increasingly traded on a global
market. Financial and securities markets are becoming more
international. There is every reason to believe that this development
will continue, and even accelerate.
Against this backdrop, we note the increasing opportunities for
international utility investments and demand for American utility
expertise abroad. . . . We agree with the commmenter, CNG, that
"there is nothing in the 1930 era abuses cited in Section 1(b) which
is apropos to the concentrated and project directed financings in the
foreign utility investment transactions in the 1990s."
Southern Co., Holding Co. Act Release No. 25639 (Sept. 23, 1992) (citation
------------
omitted). The Energy Policy Act of 1992 subsequently amended the Act to
create new sections 32 and 33 which expressly permit registered holding
companies to invest in foreign utility operations. In a floor statement,
Senator Riegle explained that it was Congress' intention that registered
holding companies be able to respond to "immediate and fleeting
<PAGE>
opportunities for U.S. companies."<37>
Although the same logic would apply in the instant matter, the
exemption under section 33, which tracks the statutory definitions of gas
and electric utility companies, does not by its terms extend to investments
in foreign gas exploration, production, transportation and storage as such.
The omission of these activities may be viewed as an unintended consequence
of the decision in 1935 to narrow the definition of gas utility company to
lessen the regulatory burden on the oil and gas industry.<38> If, as
originally proposed, the definition of gas utility had extended to
production and transportation, as well as to distribution, it is likely
that these activities would have been similarly exempted by the Energy
Policy Act of 1992. As it remains, and as recognized by the GRAA, these
activities are integral to the operation of a gas utility system. Their
characterization as "nonutility" activities is a legal fiction that follows
from the decision of the Congress in 1935 not to attempt to regulate the
entire oil and gas industry.
The Energy Policy Act also implicitly authorized registered holding
companies to engage in foreign nonutility activities. The Federal Energy
Regulatory Commission has interpreted section 32 of the Act, which requires
that an exempt wholesale generator be engaged "exclusively" in owning or
---------------------
<37> Statement of Sen. Riegle, Cong. Rec. S17629 (Oct. 8, 1992).
<38> The Senate Report explains:
"Gas utility company" had been defined in the original title to
include every person in the business of producing, transporting, or
selling natural or manufactured gas. The committee did not find it
desirable to include so broad a group of persons and has limited the
definition for the purposes of [the 1935 Act] so as to reach only
companies in the business of distribution at retail, thus excluding
companies, whose only interest in the gas business is in the sources
of supply or in transportation.
S. Rep. No. 621, 74th Cong., 1st Sess. 5 (1935) ("Senate Report").
<PAGE>
operating eligible facilities, to permit certain incidental nonutility
activities. Section 33, which does not contain an "exclusively"
requirement, on its face would seem to permit foreign nonutility activities
by an entity that has notified the SEC of its status as a foreign utility
company.
In addition, since 1992, the SEC has issued a series of orders
enlarging the scope of permissible nonutility activities. In 1994, the SEC
authorized Central and South West Corporation to provide a wide range of
services, including design, construction, engineering, operation,
maintenance, management, administrative, employment, tax, accounting,
economic, financial, fuel environmental, communications, energy
conservation, demand side management, overhead efficiency, utility
performance and electronic data processing, as well as software development
and support, services to "foreign electric utility enterprises." Central
-------
and South West Corp., Holding Co. Act Release No. 26156 (Nov. 3, 1994). A
--------------------
year later, in the EUA Cogenex order discussed above, the SEC removed
-----------
previous restrictions on sales of goods and services to nonassociates,
implicitly authorizing that company to render energy management services
worldwide. Eastern Utilities Associates, Holding Co. Act Release No. 26232
----------------------------
(Feb. 15, 1995).<39> Similarly, the SEC removed the 50% limitation on the
activities of HEC Canada and HEC International, permitting those companies
to provide energy management, demand side management and consulting service
worldwide. Northeast Utilities, Holding Co. Act Release No. 26335 (July
-------------------
19, 1995). See also Central and South West Corporation, Holding Co. Act
--- ---- ----------------------------------
Release No. 26367 (Sept. 1, 1995), and Allegheny Power System, Holding Co.
----------------------
Act Release No. 26401 (Oct. 27, 1995). Concurrently, in its release
-------------------
<39> The SEC had previously authorized the formation of a subsidiary EUA
Cogenex Canada for the sale of energy management and demand-side
management services to Canadian institutional customers. EUA
---
Cogenex, Holding Co. Act Release No. 26135 (Sept. 30, 1994).
-------
<PAGE>
proposing rule 58, the SEC stated that "it is unnecessary to restrict the
extent to which an energy-related company or a gas-related company may
serve nonassociate companies."
(iii) THE FOREIGN ENERGY ACTIVITIES WILL BENEFIT CNG'S CONSUMERS.
The activities of CNG International will benefit domestic utility
consumers both directly, by enabling CNG to develop greater expertise in
operating in competitive markets, and indirectly, by generating economic
profits that will contribute to the financial strength of the CNG system
and so result in continued low rates for CNG's consumers. Such profits
would be due, in part, to the higher rate of return associated with
investments in foreign energy markets.
To succeed in a competitive marketplace, CNG International must
provide benefits for these consumers as well. The interchange of technical
and other expertise, between the domestic and foreign portions of the CNG
system will also contribute to the strength of the system as a whole. Many
energy markets in other parts of the world are more developed than those in
the United States. The ability to move technological and market
intelligence to and from CNG's domestic markets will make the Company more
competitive, and so benefit consumers of both utility and nonutility
companies in the CNG system. In addition, the proposed activities will
contribute to the optimal use of system resources, allowing such resources
to be deployed over larger market areas, and permitting full utilization of
system personnel. As the sponsors of the GRAA recognized, technical
advances and expertise may also be developed through these activities that
may benefit consumers.<40>
-------------------
<40> S17585 Cong. Rec. (Oct. 27, 1990).
<PAGE>
(iv) CONCLUSION
Clearly much has changed since 1981 when CNG sold its Canadian
operations because they were unable to use the properties as a direct
source of supply for the CNG domestic utility system. See Consolidated
--- ------------
Natural Gas Co., Holding Co. Act Release No. 22016 (Apr. 21, 1981, as
---------------
amended Apr. 23, 1981). With developments in infrastructure and
technology, the gas from those operations is now serving utility customers
in California.
The gas industry, which has already undergone the first round of
restructuring, now faces a second wave of challenges as companies seek to
compete in a global energy market. Other companies, that are not subject
to the 1935 Act, have already penetrated these markets. As noted
previously, Enron Corporation, for example, has proclaimed its intention to
be the first gas "major," with the capability of providing energy for all
classes of customers world-wide. At present, Enron and its subsidiaries
are engaged in the gathering, transportation and marketing of natural gas
throughout the United States and internationally through approximately
44,000 miles of pipelines. The company is also involved in the exploration
for and production of natural gas and crude oil in the United States and
internationally, the production, purchase, transportation and world-wide
marketing of natural gas liquids and refined petroleum products, the
independent development, construction and operation of gas-fired power
plants in the United States and internationally, and a wide range of energy
marketing and brokering activities.
Exempt holding companies, as well, have acquired significant interests
in foreign gas-related ventures. In 1995, CMS Energy Corporation, an
exempt gas and electric utility holding company, through its pipeline
subsidiary, acquired a 25% interest in Argentina's Trasportadora Gas del
Norte pipeline for approximately $140 million. In addition, the company
<PAGE>
has announced that its oil and gas exploration and production subsidiary
has entered into an agreement to acquire Pecten Yemen Company, an affiliate
of Shell Oil Company, that holds a working interest in the East Shabwa
Contract Area. These efforts are in addition to the company's significant
domestic activities, including power marketing and brokering.
The proposed Foreign Energy Activities are a necessary complement to
the foreign utility activities authorized under the Energy Policy Act of
1992. Strategic benefits are anticipated to stem from the company's
participation in new energy markets. While investments in foreign projects
may pose risks that do not arise in the domestic electric utility industry,
these risks are not an absolute bar to foreign investment. Rather, as the
SEC emphasized in its recent order permitting Southern to invest an amount
equal to 100% of its consolidated retained earnings in exempt wholesale
generators and foreign utility companies, there is a need for the
registered holding company to establish procedures to identify and mitigate
such risks.<41>
In this matter, as discussed previously, there are ample safeguards
for consumer interests. The transactions will be structured so that
investors and not consumers will bear the risks that may be associated with
these new ventures. As explained previously, CNG conducts a thorough
review of any proposed investment, with a view toward risk management. The
international operations will be conducted with the same prudence and sound
business judgment that has resulted in CNG's present status as one of the
country's most financially sound energy provider.
Accordingly, for the reasons set forth above, CNG requests that the
SEC should release jurisdiction over the gas transmission and storage, gas
------------------
<40> Southern Co., Holding Co. Act Release No. 26501 (Apr. 1, 1996).
------------
<PAGE>
exploration and production and the marketing and brokering of energy
commodities.
Item 4. Regulatory Approval
-------------------
The authorization sought herein is not subject to the jurisdiction of
any State or Federal Commission (other than the Commission).
Item 5. Procedure
---------
It is hereby requested that the Commission issue its order with
respect to the proposed pipeline transactions on or before October 4,
1996. It is further requested that the Commission delegate authority to
the Division to release jurisdiction over the remaining transactions, from
time to time, as the record is completed with respect to those matters.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed with respect to the
proposed transactions. The Division of Investment Management - Office of
Public Utility Regulation may assist in the preparation of the Commission's
decision. There should be no waiting period between the issuance of the
Commission's order and the date on which it is to become
effective.
It is also requested that rule 24 Certificates of Notification be
filed within 45 days after the end of each quarterly calendar period to
report to the Commission with respect to transactions authorized pursuant
to this filing. Such certificates shall contain a CNG International
balance sheet as of the end of such period, and a statement of income and
expense for the period.
The certificates will also contain a summary of services provided by
associate CNG System companies to CNG International or its subsidiaries.
This summary will detail the service provided, identify the company
providing the same, the total full-time equivalent employees involved in
such service activities during the reporting period, the charge for such
service and the method of calculating such charge (cost or market).
Item 6. Exhibits and Financial Statements
---------------------------------
The following exhibits and financial statements are made a part of
this statement:
(a) Exhibits
A-1 Certificate of Incorporation of CNG International.
A-2 By-laws of CNG International.*
B-1 List of Diversified Natural Gas Companies Moving into
International Markets.
B-2 List of Natural Gas Fired Facilities by Region (1990-2015).
B-3 News Releases of Export Import Bank Concerning Foreign Energy
Projects.
B-4 Analysis of Foreign Investment Risks
F Opinion of counsel for CNG and CNG International.
- -------------
* Filed Previously
Item 7. Information as to Environmental Effects
_______________________________________
The proposed transactions do not involve major federal action having
a significant effect on the human environment. See Item 1(a).
No federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transaction.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
By /s/ D. M. Westfall
-----------------------------
D. M. Westfall
Senior Vice President
and Chief Financial Officer
CNG INTERNATIONAL CORPORATION
By /s/ N. F. Chandler
----------------------------
N. F. Chandler
Its attorney
Date: September 13, 1996
<PAGE>
EXHIBIT INDEX
--------------
A-1 Certificate of Incorporation of CNG International.
B-1 List of Diversified Natural Gas Companies Moving into
International Markets.
B-2 List of Natural Gas Fired Facilities by Region (1990-2015).
B-3 News Releases of Export Import Bank Concerning Foreign Energy
Projects.
B-4 Analysis of Foreign Investment Risks
F Opinion of counsel for CNG and CNG International.
EXHIBIT A-1
CERTIFICATE OF INCORPORATION
OF
CNG INTERNATIONAL CORPORATION
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and
promoting the purposes hereinafter stated, under the
provisions and subject to the requirements of the laws of
the State of Delaware (particularly Chapter 1, Title 8 of
the Delaware Code and the acts amendatory thereof and
supplemental thereto, and known, identified, and referred to
as the "General Corporation Law of the State of Delaware"),
hereby certifies that:
FIRST. The name of the corporation (hereinafter called
the "corporation") is:
CNG INTERNATIONAL CORPORATION
SECOND. The address, including street, number, city,
and county, of the registered office of the corporation in
the State of Delaware is 1013 Centre Road, Wilmington,
County of New Castle; and the name of the registered agent
of the corporation in the State of Delaware at such address
is The Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the corporation is to engage in
any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the
corporation shall have authority to issue is Thirty Thousand
(30,000) shares. Each of such shares have a par value of
Ten Thousand Dollars ($10,000.00). All such shares are one
class and are shares of Common Stock.
FIFTH. The name and mailing address of the
incorporator are as follows:
NAME MAIL ADDRESSING
Evelyn F. Wright 1013 Centre Road
Wilmington, DE 19805
SIXTH. The name and the mailing address of each person
who is to serve as a director until the first annual meeting
of stockholders or until a successor is elected and
qualified is as follows:
S. E. Williams CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
CNG Tower
D. M. Westfall 625 Liberty Avenue
Pittsburgh, PA 15222
625 Liberty Avenue
R. M. Sable, Jr. Pittsburgh, PA 15222
SEVENTH. The corporation is to have perpetual
existence.
EIGHTH. In furtherance, and not in limitation of the
powers conferred by statue, the board of directors if
expressly authorized:
To make, alter or repeal the by-laws of the
corporation.
By a majority of the whole board, to designate one or
more committees, each committee to consist of one or more of
the directors of the corporation. The board may designate
one or more directors as alternate members of any committee,
who may replace any designate one or more directors as
alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the
committee. The by-laws may provide that in the absence or
disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the
extent provided in the resolution of the board of directors
or in the by-laws of the corporation, shall have and may
exercise all the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed
to all papers which may require it; but no such committee
shall have the power or authority in reference to amending
the certificate of incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders
the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation of a
revocation of a dissolution, or amending the by-laws of the
corporation; and unless the resolution or by-laws expressly
so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance
of stock.
When and as authorized by the stockholders in
accordance with statute, to sell, lease or exchange all or
substantially all of the property and assets of the
corporation, including its good will and its corporate
franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of
money or property including shares of stock in, and/or other
securities of, any other corporation or corporation, as its
board of directors shall deem expedient and for the best
interests of the corporation.
NINTH. Elections of directors need not be by written
ballot unless the by-law of the corporation shall so
Meetings of stockholders may be held within or without
the State of Delaware, as the by-laws may provide. The
books of the corporation may be kept (subject to any
provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from
time to time by the board of directors or in the by-laws of
the corporation.
TENTH. To the full extent that the General Corporation
Law of the State of Delaware, as the same now exists,
permits elimination or limitation of the liability of
directors, no director of the corporation shall be liable to
the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper
personal benefit.
To the full extent permitted by law, all directors of
the corporation shall be afforded any exemption from
liability or limitation of liability permitted by any
subsequent enactment, modification or amendment of the
General Corporation Law of the State of Delaware.
Any repeal or modification of either or both of the
foregoing paragraphs by the stockholders of the corporation
shall no adversely affect any exemption from liability
limitation of liability or other right of a director of the
corporation with respect to any matter occurring prior to
such repeal or modification.
ELEVENTH. The corporation reserves the right to amend,
alter, change or repeal any provision contained in this
certificate of incorporation, in the manner now or hereafter
prescribed by statue, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Signed on January 19, 1996
/s/ Evelyn F. Wright
------------------------
Evelyn F. Wright
Incorporator
EXHIBIT B-1
LIST OF PREQUALIFIED COMPANIES
-------------------------------
FOR THE URAGUAY PIPELINE
-------------------------
1. THE WILLIAMS COMPANIES, INC. - Estados Unidos.
2. ENAGAS S.A. - Espana.
3. ENRON TRANSPORTADORA URUGUAY LTD. - Estados Unidos.
4. NOVAGAS INTERNATIONAL Ltd. - Canada.
5. NOVAGAS INTERNATIONAL S.A. - Argentina.
6. ICA (INGENTIEROS CIVILES ASOCIADOS S.A.) - Mexico - PAMAR
SACIFIA - Argentina
7. TRANSPORTADORA DE GAS DEL SUR S.A. - Argentina.
8. INTERNATIONAL GENERATING COMPANY, Ltd. - Estados Unidos.
9. GDF INTERNATIONAL (Francia)-GASEBA S.A. (Argentina)-BRIDAS
SAPIC (Argentina)-EMPRIGAS S.A. (Argentina).
10. SHELL INTERNATIONAL GAS LIMITED - Holanda.
11. CONSOLIDATED NATURAL GAS COMPANY - Estados Unidos.
12. BRITISH GAS (Reino Unico)-ASTRA COMPANIA ARGENTINA DE
PETROLEO S.A. - ORPYDSA (Uruguay)
13. TECHINT COMPANIA TECNICA INTERNACIONAL SACI (Argentina)-
NOVAGAS INTERNACIONAL S.A.
14. COMPANIA GENERAL DE COMBUSTIBLES S.A. (Argentina)
<PAGE>
QUALIFIED BIDDERS FOR THE BOLIVIAN PIPELINE
-------------------------------------------
1. Bridas S.A.P.I.C.
2. CNG
3. CMS Enterprises
4. Compania General de Combustibles
5. El Paso Energy Development Company
6. Enron Transportadora (Bolivia) S.A.
7. Exxon Pipeline Bolivia Limited
8. GASEBA - Gax de France
9. International Generating Company Ltd.
10. International Generating Pipeline Company, Ltd.
11. IPL International, Inc.
12. Mobil Corporation
13. Nova Corporation
14. Nova Gas International S.A.
15. Panhandle International Development Corporation
16. Sonat Americas, Inc.
17. Tejas Gas International Ltd.
18. Transcanada Pipelines
19. Westcoast Energy, Inc.
20. Williams International Pipeline Company
EXHIBIT B-2
DIVERSIFIED NATURAL GAS COMPANIES
MOVING INTO INTERNATIONAL MARKETS
Coastal Corporation
-------------------
Central America - cogeneration plant
China - cogeneration plant
El Paso
-------
Mexico - 30% interest in 700 MW power plant
Peru - 25% interest in pipeline, transmission line and
gas-fired power plant
(through acquisition of Tennecos energy assets):
Southeastern Australia - 470 mile gas pipeline
South Australia - 488 mile gas pipeline
Brazil/Bolivia - 8-10% interest in a pipeline with
possible participation in related power plants
China - technical advisor for construction of major
onshore gas pipeline
Taiwan - alliance to develop a 600MW gas-fired power
plant and a 190 mile offshore pipeline
Australia - an interest in a 135 MW power plant and a
50% interest in a gas field
Enron
-----
Engaged in the following activities in India, Turkey,
Indonesia, Italy, China, Vietnam, the Philippines, Guatemala and
the Dominican Republic:
More than 1,000MW in power projects under construction
About 3,000MW in the final development stage
About 2,300 MW in active development
Almost 6,000 MW in preliminary development
Engaged in gas pipeline and other gas activities activities
in Argentina, Columbia, Bolivia, Brazil, Russia, Trinidad and
India
Has energy trading operations in London, Buenos Aires,
Caracas, Dubai, UAE, Kingston, Paris and Singapore
Ensearch
--------
Victoria, Australia - Electric distribution company
(through Texas Utilities)
Pacific Enterprises
-------------------
Argentina - 12.5% interest in each of two gas utilities
Mexico - a gas distribution company
PanEnergy
---------
Peru - interest in a joint venture to develop oil and
gas, and construct a gas-fired power plant and
transmission lines
KN Energy
---------
Soon to announce a joint venture with an international
partner
Noram Energy
------------
A number of overseas projects are on the horizon
EXHIBIT B-3
FOR IMMEDIATE RELEASE
http://www.exim.gov:80/press/apr0596.html
FOR IMMEDIATE RELEASE
April 5, 1996
Contact: Marianna Ohe 202-565-3200
Louisiana and Texas Oil & Gas Companies To Benefit
EX-IM BANK SUPPORTS U.S. EXPORTS TO GHANA POWER PROJECT
The Export-Import Bank of the United States (Ex-Im Bank) has
approved financing to support $326 million in sales of U.S. oil
and gas production equipment and services to an off-shore gas
field development project in Ghana. The transaction represents a
major Ex-Im Bank commitment to supporting exports to the West
African market.
Ex-Im Bank has authorized a $253 million long-term guarantee to
finance the export of capital equipment and services by U.S.
suppliers to develop the Tano offshore natural gas fields and to
build pipelines to carry the fuel to a 130-megawatt barge-mounted
electric power plant that will be built and installed near the
village of Effasu on the Ghanaian coast. In addition, Ex-Im Bank
has approved a $62.5 million direct loan to support long-term
operations and maintenance services for the gas field system and
the power plant.
Principal U.S. suppliers include Continental Engineering and
Construction Company of Lafayette, Louisiana, and Westinghouse
International Service Company of Orlando, Florida, as well as a
number of oil and gasfield companies in Louisiana and Texas.
"This transaction opens doors for U.S. exporters in the oil and
gas industry in West Africa," said Ex-Im Bank Acting President
and Chairman Martin A. Kamarck. "This project will be the first
offshore gas development to be done in Ghana, which has
considerable reserves and a great need for power to develop its
infrastructure. Ex-Im Bank is committed to helping U.S.
companies establish a share in this new developing market."
The Tano gas fields are part of the greater Ivory Coast
geological basin system, which is marked by small-to-medium-sized
hydrocarbon field systems containing mainly gas reserves.
Pipelines from the Ghanaian and Ivorien gas fields will feed into
the barge-mounted power plant, which will supply electricity to
Ghana's national power grid system.
Ghana National Petroleum Company is the borrower. The lender is
Chemical Bank of New York. Ex-Im Bank's financing is guaranteed
by the Bank of Ghana.
Ex-Im Bank is an independent government agency that helps finance
and promote the sale of U.S. goods and services around the world.
# # # #
(Editors note: The Bank follows the AP Stylebook, which states
that Export-Import Bank of the United States is always acceptable
as a first reference and Ex-Im Bank is the acceptable second
reference.)
[Ex-Im Home Page] | [View Press Releases]
Export-Import Bank of the United States
Revised : April 11, 1996
<PAGE>
FOR IMMEDIATE RELEASEhttp://www.exim.gov:80/press/dec0195a.html
FOR IMMEDIATE RELEASE
DECEMBER 1, 1995
CONTACT: Linda Formella (202) 565-3200
Opens Doors in $1 Billion Market
for U.S. Environmental Exporters
EX-IM BANK SIGNS AGREEMENT WITH POLAND'S NATIONAL FUND AND BANK
FOR ENVIRONMENTAL PROTECTION
Today the Export-Import Bank of the United States (Ex-Im Bank)
signed a memorandum of understanding with Poland's National Fund
for Environmental Protection and Water Management, and Bos Bank,
Poland's Bank for Environmental Protection, to facilitate
financing for sales of U.S. products and services to Polish
environmental projects. The agreement will provide a clear
process to finance U.S. sales to one of the world's biggest
emerging markets for environmental technology.
"This agreement sets the stage for terrific opportunities for
U.S. environmental exporters," said Ex-Im Bank Director Julie
Belaga. "Poland has a strong financial infrastructure for
environmental protection that serves as a model for other
countries. Poland's current and projected environmental spending
is over a billion dollars per year and is expected to rise as the
country continues its rapid economic growth. This agreement will
enable U.S. exporters to establish a solid share in this exciting
market."
The Memorandum of Understanding establishes a cooperative
financing arrangement that will allow Poland's National Fund for
Environmental Protection and Water Management and Bos Bank to
leverage financial resources to support more environmental
projects.
Director Julie Belaga, Kazimierz Chlopecki, Chairman of Poland's
National Fund for Environmental Protection and Water Management,
and Jozef Koziol, President of Bos Bank, signed the agreement.
The signing occurred in conjunction with the Polish-American
Conference on the Innovative Financing of Environmental Projects
in Poland, jointly sponsored by the U.S. Environmental Protection
Agency and the Environmental Business Council of New England.
Ex-Im Bank is an independent government agency that finances the
sale of U.S. goods and services around the world.
# # # #
(Editors note: The Bank follows the AP Stylebook, which states
that Export-Import Bank of the United States is always acceptable
as a first reference and Ex-Im Bank is the acceptable second
reference.)
[Ex-Im Home Page] | [View Press Releases]
Approved: IC 12/12/95
url: http://www.exim.gov/press/dec0195a.html
<PAGE>
History of Ex-Im Bank http://www.exim.gov:80/history.html
History of Ex-Im Bank
A Brief History of the Export-Import Bank of the United States
The Export-Import Bank of the United States (Ex-Im Bank) was
created in 1934 and established under its present law in 1945 to
aid in financing and to facilitate U.S. exports. Its creation
was spurred by the economic conditions of the 1930's when exports
were viewed as a stimulus to economic activity and employment. A
primary aim of Ex-Im Bank was to foster trade between the United
States and the Soviet Union. During the post-World War II era,
Ex-Im Bank helped U.S. companies participate in the
reconstruction of Europe and Asia.
Ex-Im Bank is encouraged to supplement, but not compete with
private capital. Over the years, the private sector, Congress and
the executive branch have debated Ex-Im Bank's role in a free
market economy, where the private sector handles the majority of
export financing. For example in 1953, the President virtually
liquidated Ex-Im Bank in an effort to reduce government spending
and to ease a turf battle with the World Bank, but Congress
intervened to keep Ex-Im Bank open. According to supporters, Ex-
Im Bank has historically filled gaps created when the private
sector is reluctant to engage in export financing.
Today Ex-Im Bank faces many of the same challenges and
opportunities that it encountered when it was first created. For
example, the United States is renewing trade relations with the
countries of the former Soviet Union and Eastern Europe.
Increasingly, exports are seen as vital for sustaining U.S.
economic growth. The U.S. economy is much more internationalized
and exports form a larger share of the gross national product
than in the 1930's. In addition, around the world trading and
financial systems are more interdependent and international
competition is incomparibly more intense.
Ex-Im Bank provides guarantees of working capital loans for U.S.
exporters, guarantees the repayment of loans or makes loans to
foreign purchasers of U.S. goods and services and provides credit
insurance against non-payment by foreign buyers for political or
commercial risk. Ex-Im Bank must also balance its mandate, that
there exists a reasonable assurance of repayment.
To carry out the Clinton Administration's strategy for continuing
export growth, the Bank is focusing on critical areas such as
emphasizing exports to developing countries, aggressively
countering trade subsidies of other governments, stimulating
small business transactions, promoting the export of
environmentally beneficial goods and services, and expanding
project finance capabilities.
Ex-Im Bank is not an aid or development agency, but a government
held corporation, managed by a Board of Directors consisting of a
Chairman, Vice Chairman and three additional Board Members.
Members serve for staggered terms and are chosen and serve at the
discretion of the President of the United States.
Export-Import Bank of the United States
Revised: May 30, 1996
<PAGE>
FOR IMMEDIATE RELEASE http://www.exim.gov:80/press/jan2996.html
FOR IMMEDIATE RELEASE
January 29, 1996
Contact: Marianna Ohe 202-565-3200
Project Finance Program Continues Expanding
Tex., La., Ohio, Mo. Firms Among Beneficiaries
EX-IM BANK FINANCES PROJECTS IN TRINIDAD & TOBAGO, PAKISTAN
The Export-Import Bank of the United States (Ex-Im Bank) is
providing nearly $300 million in project financing to support the
sale of U.S. equipment and services for an ammonia plant in
Trinidad and Tobago and a power plant in Pakistan.
Ex-Im Bank's Board of Directors authorized $240 million in
financing to support the sale of equipment and services by The
M.W. Kellogg Co., Houston, TX, and other U.S. suppliers for an
ammonia plant in Trinidad and Tobago. It is Ex-Im's first
limited recourse project finance transaction in that country and
will support thousands of high-quality American jobs. M.W.
Kellogg said it will use scores of suppliers around the country
for the project.
"This is the first transaction in what is expected to be a
continuing emphasis on Ex-Im Bank's important project finance
program under the leadership of Acting Chairman Martin Kamarck,"
said Dianne S. Rudo, Vice President and Co-Head, Project Finance
Division. "We are delighted that the program is branching out
into a new country and a new sector with this deal."
The sponsors of the transaction are Farmland Industries, Inc.,
Kansas City, MO, and Mississippi Chemical Corp., Yazoo City, MO.
The project company, the Farmland MissChem Ltd. owned jointly by
the sponsors, will build, own and operate a 1,850 metric ton-per-
day anhydrous ammonia plant at the Brighton/La Brea Industrial
Estate on the island of Trinidad.
M.W. Kellogg, the primary contractor, will build the plant. The
government-owned National Gas Co. of Trinidad and Tobago will
supply the natural gas for the project. The sponsors will buy
the output from the ammonia plant.
Ex-Im Bank will provide a guarantee of political risk only on a
$234.6 million loan by ABN-AMRO North America, Chicago, IL,
during the pre-completion phase of the project. At project
completion, Ex-Im Bank will replace the commercial bank financing
with a $240 million direct loan. The loan will be repaid in 20
semiannual installments starting Dec. 15, 1998.
Ex-Im Bank recently also authorized more than $50 million in
project financing in support of exports by Babcock and Wilcox
Co., headquartered in New Orleans, LA with production facilities
in Barberton, OH, for a 125-megawatt oil-fired power plant in
Pakistan.
Sponsors of the project are Cogen Technologies of Houston, TX,
Capco Resources of Canada and Powerflow International of
Pakistan. Saba Power Company Ltd., the project company owned
jointly by the sponsors, will build, own and operate the oil-
fired power plant near Farouqabad in Pakistan's Punjab Province.
"The Saba Power Project is the second privately developed, owned
and operated power project in Pakistan to receive an Ex-Im Bank
financing commitment recently," said Glen T. Matsumoto, Vice
President and Co-Head, Project Finance Division. "The Pakistan
model for private power is impressive, and Ex-Im Bank is doing
all it can to be there with timely financing support for U.S.
suppliers." The Bank last November provided a financing
commitment of $242.8 million for a 586-megawatt power plant in
western Pakistan.
Babcock and Wilcox will provide engineering, procurement and
construction for the Saba project. The Water and Power
Development Authority of Pakistan will buy the plant's entire
capacity and output.
Ex-Im Bank will provide more than $50 million in financing upon
project completion, either as a comprehensive guarantee or a
direct loan. The financing is to be repaid in 24 semiannual
installments starting April 15, 1998. During the construction,
Ex-Im Bank will provide a political risk only guarantee to
support a commercial bank construction loan.
Ex-Im Bank approved a record $2.1 billion in project financing in
fiscal 1995, its first full year with a dedicated Project Finance
Division, enabling American companies to participate in
infrastructure development in fast-growing emerging markets
throughout the world.
With limited recourse project finance, repayment is based on
project revenues rather than a guarantee of the debt from the
host country government.
Ex-Im Bank is an independent government agency that helps finance
and promote the sale of U.S. goods and services around the world.
# # # #
(Editors note: The Bank follows the AP Stylebook, which states
that Export-Import Bank of the United States is always acceptable
as a first reference and Ex-Im Bank is the acceptable second
reference.)
[Ex-Im Home Page] | [View Press Releases]
Approved: IC 2/12/96
url: http://www.exim.gov/press/JAN291996.html
<PAGE>
http://www.exim.gov:80/press/jun2596.html
Press Release - Ex-Im Bank Support of Environmental Exports
Surges
Press Release
FOR IMMEDIATE RELEASE
June 25, 1996
Contact: Marianna Ohe (202) 565-3200
American Firms Tap Fast-Growing Emerging Markets
EX-IM BANK SUPPORT OF ENVIRONMENTAL EXPORTS SURGES
The Export-Import Bank of the United States (Ex-Im Bank) is
supporting record levels of environmentally beneficial U.S.
exports -- from water purification systems and wind energy
equipment to major gas-fired power projects -- Ex-Im Bank
Director Julie D. Belaga told a Denver wind energy conference.
"The world market for environmental technologies will be worth
some $800 billion by the year 2025," Belaga noted. "Many
companies and countries are scrambling to secure a share of this
booming new high-tech industry sector. Ex-Im Bank wants to
ensure that American companies capture their fair share of these
markets."
Ex-Im Bank financing and potential business support of
environmental exports increased 84 percent from 26 cases in 1994
to 48 cases in 1995, Belaga reported at the Windpower '96
conference of the American Wind Energy Association. Overall, the
Bank approved $1.37 billion in financing supporting
environmentally beneficial exports in fiscal 1995.
"Many of the companies were first-time users of Ex-Im Bank,"
Belaga said. "This demonstrates that our aggressive marketing
programs aimed at promoting export of environmentally beneficial
products and services are working."
Just last week, Ex-Im Bank approved financing enabling Zond
Systems Inc. of Tehachapi, CA to sell wind turbine generators to
the People's Republic of China to be used by small utilities in
Inner Mongolia, Liaoning and Guangdong Provinces, Belaga noted.
Since January, she said, the Bank has approved financing for nine
renewable energy projects, ranging from a $440,000 loan guarantee
for one small wind turbine to Mexico, to a $56 million loan
guarantee for the sale of equipment from a Virginia company for
the 1,800-megawatt Xiaolangdi hydroelectric project on the Yellow
River in China. The projects amount to a 300 percent increase in
Ex-Im Bank's activity in the area of renewable energy since 1993.
In a powerful demonstration of support for small business and
environmental exports, the Bank earlier this year approved $50
million in financing backing the sale of equipment by a small
Nevada company for a geothermal project in the Philippines. Ex-
Im Bank's support enabled the Nevada firm to win the contract in
the face of stiff competition from Japanese and French companies.
Belaga noted that key high-growth economies -- China, India,
Indonesia, Brazil, Mexico, Turkey, South Korea, Poland and
Argentina -- are expected to account for over 40 percent of
global import growth in the next 20 years. She said Ex-Im Bank
is determined to see that American companies can compete and win
in these markets.
Ex-Im Bank is an independent government agency that helps finance
and promote the sale of U.S. goods and services around the world.
The Bank authorized $15 billion in financing in Fiscal Year 1994.
# # # #
(Editors note: The Bank follows the AP Stylebook, which states
that Export-Import Bank of the United States is always acceptable
as a first reference and Ex-Im Bank is the acceptable second
reference.)
Export-Import Bank of the United States
Revised : June 27, 1996
<PAGE>
Press Release http://www.exim.gov:80/press/may1796b.html
FOR IMMEDIATE RELEASE
May 17, 1996
Contact: Marianna Ohe (202) 565-3200
Missouri, Kentucky, Oklahoma To Benefit
EX-IM BANK FINANCES U.S. EXPORTS FOR ARGENTINE POWER PLANT
The Export-Import Bank of the United States (Ex-Im Bank) is
financing the $60 million sale by Black & Veatch of Kansas City,
MO, and other U..S. suppliers of equipment and services for a
power plant in Argentina. Black & Veatch considers the Ex-Im
Bank transaction significant in establishing the company's
presence in the Latin American market.
Black & Veatch will provide engineering services and equipment to
Perez Companc S.A., a large integrated energy company in
Argentina, for the 660-megawatt Genelba combined cycle power
plant near Ezieza International Airport in Buenos Aires Province.
A major subsupplier is Henry Vogt Machinery Co., Louisville, KY,
a 100-year-old family-owned company which is providing a $23
million heat recovery steam generator for the plant. Vogt
estimates its part of the deal will help sustain directly at
least 100 jobs in Kentucky and Oklahoma, and indirectly
additional jobs at suppliers to Vogt.
Ex-Im Bank's Board of Directors approved a $54 million guarantee
of a loan by Citibank N A, New York, NY. The loan will be repaid
in 20 semiannual installments beginning June 15, 1998.
Black & Veatch is part of a consortium with Siemens of Germany to
build the $235 million Genelba plant. The Missouri company is
responsible for engineering and construction management,
installation of equipment, civil site work, equipment
procurement, and offsite work such as design of a substation,
transmission lines and a gas line.
Ex-Im Bank is an independent government agency that helps finance
and promote the sale of U.S. goods and services around the world.
(The Bank follows the AP Stylebook, which states that Export-
Import Bank of the United States is the first reference and Ex-Im
Bank is the acceptable second reference.)
Export-Import Bank of the United States
Revised : May 22, 1996
<PAGE>
FOR IMMEDIATE RELEASE http://www.exim.gov:80/press/nov0995.html
FOR IMMEDIATE RELEASE
NOVEMBER 9, 1995
Contact: Marianna Ohe 202-565-3200
Conn., Mass., N.J., N.Y., S.C. Among States to Benefit
Sustains Over 3,000 High-Quality U.S. Jobs
EX-IM BANK SUPPORTS U.S. SALES FOR PAKISTAN POWER PROJECT
The Export-Import Bank of the United States (Ex-Im Bank) approved
$242.8 million in financing supporting the sale of equipment and
services by General Electric Co. (GE), Fairfield, CT, and other
U.S. companies for a 586-megawatt power plant in western
Pakistan. It is the second largest private power project in
Pakistan and Ex-Im Bank's first project finance deal in that
country. The transaction will bolster more than 3,000 American
jobs.
"Ex-Im Bank is delighted to back American companies'
participation in this landmark project," said Glen T. Matsumoto,
Vice President and Co-Head of Ex-Im Bank's Project Finance
Division. "The Government of Pakistan has extended extraordinary
efforts to create a private power structure which carefully
allocates project risks between investors, the government, and
lenders in pursuit of satisfying the electrical demand for their
country. Ex-Im Bank is committed to supporting strong project
finance frameworks such as Pakistan's."
Matsumoto stressed the importance to Ex-Im Bank of achieving
financial closing for the project in an expedited manner. He
said the Bank hopes to provide financing for several other
Pakistan private power projects in the near future.
The project company, Uch Power Limited (UPL) based in Islamabad,
will build, own and operate the combined cycle gas-fired plant
near Dera Murad Jamali in Pakistan's Baluchistan Province.
Project sponsors and owners of UPL are General Electric Capital
Corp., Tenaska Inc. and Hawkins Oil and Gas, all of the United
States; Midlands Electricity plc, of the U.K.; Hasan Associates
(Pvt.) Ltd., of Pakistan; and the World Bank's International
Finance Corp. (IFC).
GE will manufacture equipment for the project in New York and
South Carolina as well as subcontracting portions of the order to
firms in other locations. Raytheon Engineers and Constructors,
Inc., Lexington, MA, will work with GE to provide project
construction oversight services from its Lyndhurst, NJ, facility.
Pakistan's Water and Power Development Authority will buy the
plant's entire electricity output for 25 years. The plant will
use indigenous gas, unlike most power projects which require more
expensive imported fuel.
Ex-Im Bank will provide a guarantee for political risk to
commercial banks during the construction phase of the project.
At completion, the Bank will replace the commercial funding with
a $156.6 million direct loan on a limited recourse finance basis
-- with repayment based on the cash flow from the project rather
than a guarantee of the debt by the host government. In
addition, Ex-Im will provide a $86.2 million loan facility
directly to the government of Pakistan, which will in turn be
invested in the Uch Project as part of the government's private
power initiative.
Co-financing the project with Ex-Im Bank are the World Bank
(IBRD), the IFC and a commercial bank group headed by ABN Amro
and Deutsche Bank.
Ex-Im Bank is an independent government agency that helps finance
and promote the sale of U.S. goods and services around the world.
The Bank authorized $2.1 billion in limited recourse project
financing in fiscal 1995. Ex-Im Bank exposure in Pakistan,
including the Uch Project, currently totals more than half a
billion dollars.
# # # #
(Editors note: The Bank follows the AP Stylebook, which states
that Export-Import Bank of the United States is always acceptable
as a first reference and Ex-Im Bank is the acceptable second
reference.)
[Ex-Im Home Page] | [View Press Releases]
Approved: IC 12/5/95
url: http://www.exim.gov/press/Nov9.html
<PAGE>
FOR IMMEDIATE RELEASE http://www.exim.gov:80/press/oct0295.html
FOR IMMEDIATE RELEASE
OCTOBER 2, 1995
Contact: Marianna Ohe 202-565-3200
California, Connecticut, New York Companies Among Beneficiaries
Tens of Thousands of Jobs for U.S. Workers Across Country EX-IM
BANK PROJECT FINANCING TOPS $2.1 BILLION IN FY 1995
The Export-Import Bank of the United States (Ex-Im Bank) approved
a record $2.1 billion in project financing in Fiscal Year 1995
supporting eight projects in countries as far-flung as the
Philippines, Turkey and Colombia.
Ex-Im Bank's new approach to limited recourse project finance has
enabled American companies to participate in infrastructure
development in fast-growing emerging markets throughout the
world.
"This financing represents tens of thousands of high quality jobs
for American workers across many industrial sectors," said Ex-Im
Bank Chairman Kenneth D. Brody. "The world is changing and a
proactive Ex-Im Bank is changing with it. Over the past three
years the Bank averaged $150 million per year in project
financing, or one case per year. This year, our first with a
project finance group, we did eight cases totaling $2.1 billion.
And we expect an additional 50 percent increase in Fiscal 1996."
The Bank's Board of Directors recently approved over $900 million
for three projects:
Cilicap Refinery Project -- Indonesia. Ex-Im Bank approved $296
million in financing supporting the sale of equipment and
services by Fluor Daniel, Inc., Irvine, California, for the
expansion of the Cilicap oil refinery in Indonesia on the
southern coast of Java. Pertamina (Perusahaan Pertambangan
Minyak Dan Gas Bumi Negara), the Indonesian national oil company,
is the sole sponsor and will own 100 percent of the project. The
financing is arranged through an offshore trustee. The project
involves removing equipment bottlenecks and installing more
efficient equipment to process larger amounts of material in the
refinery.
Termobarranquilla Power Project -- Colombia. Ex-Im Bank approved
$161 million in financing supporting the sale of power generation
equipment and services by U.S. affiliates of ABB Energy Ventures,
Stamford, Connecticut, and other U.S. suppliers for a gas-fired
power project on the Magdalena River near Barranquilla, Colombia.
The project represents a dramatic step in Colombia's effort to
privatize electrical assets and develop the power sector to meet
growing demand. It is the first independent power project in
Colombia with power sales to a major state-owned utility, CORELCA
(Corporacion Electrica de la Costa Atlantica), and CORELCA's
first limited recourse project financing. Sponsors of the
project include Asea Brown Boveri, U.S. and Switzerland; Energy
Initiatives, Inc., a subsidiary of General Public Utilities of
the U.S.; the Lancaster Distral Group with affiliates in the
U.S. and Colombia; and CORELCA. A new 750-megawatt gas-fired
power plant will be built and an existing 230-megawatt plant
rehabilitated.
Samalayuca Power Project -- Mexico. Ex-Im Bank approved $477
million in financing supporting the sale of U.S. equipment and
services by General Electric Co., Schenectady, New York, Bechtel
Enterprises, Inc., San Francisco, California and other U.S.
suppliers to build a 690-megawatt combined cycle power plant in
Chihuahua State in Mexico. It is the first privately funded
power project in Mexico and will help meet the country's growing
demand for electricity. The sponsors of the project are General
Electric; Bechtel; El Paso Natural Gas Co., El Paso, TX; and
ICA Fluor Daniel, S.A. de R.L., Mexico. Ex-Im Bank's Board of
Directors found that the project, located about 30 miles south of
El Paso, not only meets all relevant Ex-Im Bank and Mexican
government standards for thermal power, but also would have no
significant impact on the environment of the territory of the
United States (FONSI).
Earlier this year, Ex-Im Bank approved financing for five other
project finance transactions:
-$540 million for the sale of U.S. equipment and services for the
Paiton Power Project in Indonesia
$67 million for the sale of U.S. technology, equipment and
services for the Comsigua Hot Briquetted Iron Plant in Punta
Cucillo, Venezuela
$165 million for the sale of U.S. mining equipment and services
for the El-Abra Copper Mine Project in Chile in El Loa province
$228 million in financing for the sale of U.S. power generation
equipment for the Marmara Power Project in Turkey west of
Istanbul $182 million for the sale of U.S. equipment and services
for the Sual Power Project in the Philippines.
With limited recourse project finance, repayment is based on
project revenues rather than a guarantee of the debt from the
host country government. Demand for this financing in developing
countries has soared in recent years, stemming from these
governments' emphasis on privatization, the need to reduce
sovereign debt obligations, and projections of unprecedented
economic growth in these emerging markets.
Ex-Im Bank is an independent government agency that helps finance
and promote the sale of U.S. goods and services around the world.
The Bank authorized $15 billion in financing in Fiscal Year 1994.
# # # #
(Editors note: The Bank follows the AP Stylebook, which states
that Export-Import Bank of the United States is always acceptable
as a first reference and Ex-Im Bank is the acceptable second
reference.)
[Ex-Im Home Page] | [View Press Releases]
Approved: IC 11/5/95
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<PAGE>
FOR IMMEDIATE RELEASE http://www.exim.gov:80/press/oct2595.html
MEDIA ADVISORY
October 25, 1995
CONTACT: Niki T. Shepperd (202) 565-3200
Enormous Opportunities for U.S. Exporters
EX-IM BANK VICE CHAIRMAN MARTIN A. KAMARCK TO VISIT CHINA
Export-Import Bank Vice Chairman Martin A. Kamarck and other
senior level bank officials will visit China November 1-3, in an
effort to promote U.S. exports and further strengthen and expand
the Bank's relationship in this important market.
"We view China as one of the most important and fastest growing
emerging markets and we are committed to supporting U.S.
exporters' participation," said Vice Chairman Kamarck. "We are
very excited about the enormous opportunities in China and want
exporters to know Ex-Im Bank financing is available."
As part of the Bank's efforts to develop business oppportunities
for U.S. companies, Ex-Im Bank's support to this market is
underscored by the posting of Ex-Im Bank loan officer Walter B.
Hill, Jr., in China. Hill will work in Beijing and Shanghai,
China until approximately March 1996, marketing the Bank programs
and educate potential buyers, lenders, and government officials
on the use of Ex-Im Bank financing for U.S. exports.
While in Beijing, Kamarck will meet with a variety of potential
buyers and U.S. companies interested in participating in the
tremendous growth needs certain to come in China. "We want to
ensure exporters are fully informed on the financing options
available through the Bank," Kamarck added.
In fiscal year 1995, Ex-Im Bank supported $1 billion of exports
to the People's Republic of China. Since 1981, Ex-Im Bank has
supported $4 billion of U.S. exports to China. Ex-Im Bank is an
independent government agency that finances the sale of U.S.
goods and services around the world. In FY'95, the Bank
authorized $11.9 billion in financing.
###
(The Bank follows the AP Stylebook, which states that Export-
Import Bank of the United States is the acceptable first
reference and Ex-Im Bank is acceptable on second reference.)
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Talking Points http://www.exim.gov:80/talkpt.html
Highlights and Talking Points
EXPORT-IMPORT BANK IS A HIGHLY EFFECTIVE, LEAN U.S. GOVERNMENT
AGENCY WHOSE SOLE PURPOSE IS TO PRESERVE AND CREATE JOBS HERE IN
THE UNITED STATES BY LEVELING THE FINANCIAL PLAYING FIELD IN
TODAY'S FIERCELY COMPETITIVE WORLD TRADE ARENA.
EX-IM BANK SUPPORT FOR AMERICAN JOBS
Ex-Im Bank is doing an excellent job achieving its mission.
During the last 3 years alone, Ex-Im Bank financing supported
nearly $47.7 billion of U.S. exports representing jobs for just
under one million Americans.
COMPANIES FROM ACROSS AMERICA BENEFIT
U.S. exporting companies from across the United States benefit
from Ex-Im Bank financing programs. Over the last five years, a
total of 6,295 different companies, partnerships, or sole
proprietors were assisted by Ex-Im Bank, 3,760 of which are
small businesses.
EX-IM BANK SUPPORT FOR SMALL AND MEDIUM-SIZED BUSINESSES
80% of all Ex-Im Bank fiscal year 1995 transactions benefited
small businesses. The dollar level of this support was $2.4
billion. While all of Ex-Im Bank's programs are available to
support small and medium-sized businesses, particular programs
have been designed specifically to fit the needs of these
entities, not otherwise addressed by the private market place.
Ex-Im Bank's Working Capital Guarantee Program assists small and
medium-sized businesses in obtaining crucial working capital to
fund their export activities.
Ex-Im Bank's Export Credit Insurance Program provides risk
mitigation on export receivables through its Small Business
Insurance Policy, its Short-Term Environmental Export Insurance
Policy, its Short-Term Single Buyer Policy, and its Umbrella
Policy.
TheUmbrella Policy is a great example of a public-private
partnership effort as the policy allows state agencies, export
trading and management companies, insurance brokers and similar
agencies to administrate Ex-Im Bank programs, thereby assisting
clients in obtaining export credit insurance.
EX-IM BANK STRETCHES BUDGET DOLLARS FOR MAXIMUM BENEFIT
Ex-Im Bank has done an outstanding job of stretching its budget
dollars as far as possible. In fiscal year 1995, Ex-Im Bank
leveraged its $674.8 million program budget to support nearly
$13.5 billion in U.S. exports. This represents a leverage
ratio of 20:1. That is, for every dollar of budget expended, Ex-
Im Bank provided a return of $20 worth of U.S. exports.
EX-IM BANK IS PRUDENT WITH THE PUBLIC PURSE AND HAS A GOOD
FINANCIAL TRACK RECORD
Loan losses due to "bad deals" during the past 16 years (1980-
1995) were only $2.5 billion of $119 billion in exports financed,
rendering a loan loss ratio of 2.1%. By comparison, U.S.
insured commercial banks' loan loss ratio was 6% on loans to
foreign governments, and 3.3% on loans to individuals under
credit card plans, for the 12 year period 1984-1995. [1984 is
the first year for this type of data disaggregation. Source:
Federal Deposit Insurance Corporation.]
U.S. EXPORTERS FACE STIFF FOREIGN COMPETITION
Future growth and sustained employment will come from exports to
developing countries. U.S. exporting companies compete against
foreign competitors for world market share. Those foreign
companies, some of which are already "state" owned, benefit from
aggressive financing provided by their own government's export
credit agency. In 1994, the Japanese and French export credit
agencies financed 39.9% and 19.4% of their respective country's
exports. By comparison, Ex-Im Bank financed 3.3% of total U.S.
exports.
EX-IM BANK'S BUDGET FOR FISCAL YEAR 1977
Ex-Im Bank's budget request for fiscal year 1977 (FY '97
commences 10/1/96) is $736.6 million for programs and $47.6
million for administrative expenses. The House and Senate
Appropriations Committees are expected to act on this request in
the next two months.
CURRENT CORPORATE WELFARE DEBATE
Ex-Im Bank faces criticism from those who choose to believe that
the world is economically perfect and that there is no need for a
national export credit agency. Critics refer to Ex-Im Bank as
"corporate welfare" and talk about elimination of the Bank.
This would be unilateral disarmament in a trade battle for world
market share. Ex-Im Bank provides financing only for those
transactions where the private sector either cannot or will not
provide the requisite financing or the requisite terms in order
to make the U.S. exporter's bid competitive.
Export-Import Bank of the United States
Revised : May 6, 1996
<PAGE>
Chairman's Remarks http://www.exim.gov:80/tspeech.html
Chairman's Remarks
Dinner Speaker: Martin A. Kamarck, President and Chairman, Ex-Im
Bank
[Transcript from tape recording.]
Good evening. My name is Tino, and I am a recovering lawyer.
People joke about lawyers, and it is true that, to succeed as a
lawyer, you have to have a good nose for new business. My
business as a lawyer was finance, and it's been five years since
I practiced. But I got to tell you, my nose is twitching
tonight. I smell business. I smell success. I think there's
going to be a lot of business that's done in the corridors of
this hotel in the next 24 hours, and we're here tonight to
celebrate that.
We're here tonight to celebrate the fact that we got a lot of
business done in the last 12 months. We're here tonight to
celebrate the fact that a lot of business can be and, with your
help, will be done in the next few years.
We are here tonight to celebrate the moment, this moment, when,
if we seize it, we can turn the tide of the export battle, and we
can win.
The most important thing I want to say to you tonight and to your
colleagues and coworkers and competitors and customers and
suppliers and to the good people who represent us all in
Congress, my message is that victory in the export battle will be
neither assured nor automatic. We pause to celebrate, but also
to remind ourselves that the stakes are very high and that we
must work together. We must work more, harder, better, smarter,
faster, to win growth for the American economy, to win high-wage
jobs for American workers, to win market share for high-value
American products, goods, and services.
We have a lot to celebrate. The opportunities, the potential
markets are vast. In the past ten years, imports bought by non-
OECD countries--non-OECD countries--more than doubled from $600
billion to almost $1.5 trillion. And we expect them to more than
double again in the next ten years.
The U.S. has finally started to capture its fair share of these
booming markets. We started from a low base, but here's the
kicker. Last year, the growth in exports from America was
astonishing--10 percent. This year, with a stronger dollar, 8
percent is predicted. This good news didn't just happen. We did
it, all of us working together.<P>
Big exports, big exporters are winning. As the U.S. share of
world exports has grown, that coming from the largest exporters,
typically among the largest companies, has stayed pretty
constant. This means that these relatively few companies who are
battling every day for big, high-profile projects against big,
monopolistic, government-supported foreign competitors are
winning.
By the same token, the share of the fast-growing export pie that
comes from small business is also keeping pace. Small business
exporters are winning. Thousands of small businesses are
exporting more into global markets, and thousands of small
businesses are exporting for the first time every year.
We see it at Ex-Im Bank. You've heard that last year almost 80
percent of the transactions we did directly benefited small
business exporters. We're not talking sub-suppliers here.
Eighty percent directly benefiting small business exporters.
Now, we like to brag that this is because Ex-Im Bank has become
more useful and more accessible for smaller exporters, and that
is true. But just among us tonight, it is also true that these
small business customers are getting more motivated to compete
for export business, more sophisticated about using financing to
win that business, and, therefore, smarter about helping us to
help them. These small business exporters are winning.<P>
And there's an important reason why U.S. exporters, big and
small, are starting finally to gain ground in the battle for
share in the world's emerging markets. Their trusty sidekick has
decided to come out from under the table and join the fight.
Trade bankers, phone home.<P>
Your long exile in the wilderness is coming to an end.
For too often and too long, at too many commercial banks the top
management didn't listen to you, didn't listen to me. But guess
what? They're listening now to your customers, and what they're
hearing is that those customers want more trade finance services,
and they want those trade finance services delivered faster,
better, and smarter. You are the winners. We are the winners.
America is the winner.
But what about Ex-Im Bank? I've been talking for, what, about
five minutes now, and I've hardly told you how wonderful we are.
Well, who am I to defy conventional Washington wisdom? There is
a buzz abroad in this town. We've all heard it. Something about
corporate welfare. It says that Ex-Im Bank is pernicious
government interference in the marketplace. It says that we pick
winners and losers, that we select industries, markets, sectors
to support according to some secret agenda. It says that
America's exporters don't need Ex-Im Bank, that they and their
commercial bank partners will do just fine without us. And if
without us you lose business, well, the marketplace has spoken;
and if you lose that business, you deserve to lose that business.
It says that Ex-Im Bank is inconsequential, that we don't make a
difference, that our tiny budget could be taken away altogether
and no one would even notice. It says--and here I have to quote
directly from a Washington think tank report from the Cato
Institute--"that money spent through Ex-Im Bank provides no
corresponding societal benefit." "No corresponding societal
benefit."
Who will dispute this conventional wisdom? I will. The facts
will.
I've been at Ex-Im Bank for three years now. I am proud to
continue the tradition of activism started by John Macomber and
Gene Lawson. I am proud to have been a part of Ken Brody's team.
Together we picked up the pace of change. I promise you tonight,
with your help, the momentum will continue.
We have the facts, we have the truth on our side. The fact is
Ex-Im Bank can and must serve all of our customers, America's
exporters, and your lending partners, wherever and whenever you
need us. Of course, we have to have prudent standards. Of
course, we must carry out this mission as efficiently as we
possibly can. But we must have the resources we need, you need,
to get the job done.
The fact is America's exporters and the workers you employ do
need Ex-Im Bank. You need us to make the difference. Everyone
in this room has a story to tell. Every day you take huge risks,
operating risks, balance sheet risks, often even personal risks,
to do business, to establish trading relationships, to build
credibility in the world's most difficult markets. Time after
time, deal after deal, you face not just bruising competition on
market factors of price, quality, service, but also official
foreign government-sponsored financing support. Almost always
that support is backed by proportionately greater resources than
the U.S. has made available to Ex-Im Bank and our sister
agencies.
To use the phrase you heard earlier, claimed by Fred, we cannot
under these circumstances unilaterally disarm. We cannot deprive
you of the financing support you need to make the sale. And the
fact is a little bit of Ex-Im Bank goes a long way. We don't
have to spend a lot of money, and compared to the big picture, we
don't even have to support a lot of exports to make a big, big
difference.
Ex-Im Bank supports the financing of only about 3 percent of
America's total exports, but in those key emerging markets, where
our exporters are slugging it out to win market share for capital
goods, where trading relationships established today will pull
the American economy into the 21st century, in these crucially
important markets we support between 10 and 40 percent of
America's exports. We support those sales and only those sales
where we make the difference. And for every dollar, every one
dollar set aside against the resulting rusk, America gets $17 to
$20 of new export revenues.
The fact is Ex-Im Bank may be the best bargain the Federal
Government offers the American people.
Ex-Im Bank's tiny share of the federal budget buys tremendous
benefits. The deals we've supported directly link to 358,000 new
jobs, high-wage jobs in this country. Take into account sub-
suppliers, and there are as many as two million more added to the
plus side of the jobs column.
We have helped almost 6,000 companies win sales that they
otherwise would have lost. These companies employ people in more
than 2,000 cities and towns across this nation, in 99 percent of
the congressional districts and in every single one of the 50
states. The fact is dollars spent through Ex-Im Bank provide a
whole lot of societal benefit.
Finally, looking forward, the fact is that potential imports in
emerging markets will grow at 10 to 15 percent every single year
for the foreseeable future. It is important, it is crucially
important for our country, its economy, its workers, our
children, that American exports keep pace, that at the very least
we do not forever cede market share to the French, the British,
the Japanese, the Germans.
That responsibility is on our shoulders. That opportunity lies
before us. Ex-Im Bank must be here and have the resources
required to help you keep winning.
Those are the facts. I believe they're important. I want to
tell you tonight that I intend to fight for what I believe in. I
also happen to believe that you agree with me. As we celebrate
together tonight, I want to ask you to join with me in dedicating
ourselves to two principles.
First, we have to help each other. In my leadership of the Bank,
I have committed myself first and foremost to customer service.
We must and we will deliver for you more, better, faster,
smarter. In return, I ask you, work with us in partnership.
Understand what we can do and what we can't do. Help us to
understand your needs. Most importantly, work with us to find
creative solutions to our common problems.
Second, we have got to tell our side of the story. Here's
another quote. These words have as much meaning for us today as
when they were spoken a year ago. "Measure our performance any
way that you choose--economic growth, job creation, the value of
the services we provide, the contracts that have been signed with
our support. We believe that our plan, our strategy, is working-
-is working for the American people, is working for American
firms."
Those words were said to us at this time last year at this
conference by Ron Brown.
He was right. We know it. It is our duty to tell it. Tell is
in the board rooms, but also tell it in the living rooms. We can
tell it on Wall Street, but we also must tell it on Main Street.
We can tell it from the mountaintop, but we also have to tell it
on the shop floor. Tell your colleagues, your customers, your
coworkers, your partners, your suppliers, but also tell your
friends, tell your families. Tell it in Washington.
This isn't about politics. This isn't about partisanship. This
isn't about ideology. It is about common sense. And, yes, it is
about welfare, economic welfare, America--America's welfare. It
is about the welfare of our workers, our families, our future.
Tell it.
Thank you. Have a wonderful time this evening, and get some
deals done.
Export-Import Bank of the United States
Revised : May 14, 1996
EXHIBIT B-4
RISKS CONSIDERED BY CONSOLIDATED
IN CONNECTION WITH FOREIGN VENTURES
A. Hurdle Rate Study
Consolidated has developed a formula and process to
calculate recommended hurdle rates, or the minimum
acceptable internal rate of return on an after-tax
discounted cash flow basis, for prospective CNG
International investments in foreign countries. For
domestic business units, the rate of return for new
investments must exceed Consolidated's weighted average cost
of capital ("WACC") for that particular business. The
hurdle rate for international projects must be increased to
cover the additional risks of operating in a foreign
business environment and the uncertainty of projects in the
development and construction stages, or with complex or new
technology.
Hurdle rates are calculated for high and low commercial
risk projects in selected countries, primarily those in Asia
and Latin America that are identified as target markets.
The formula starts with Consolidated's WACC for a similar
domestic business, and then adds risk premiums for the
particular country and the stage of the project. Higher
hurdle rates are applied to projects in the development and
construction phases. Tables are then prepared showing each
country and the appropriate hurdle rates for each project
stage. The tables will be revised on a periodic basis to
reflect changes in the country risk premiums, and to include
countries where CNG International is actively developing
projects.
The hurdle rate table can then be used by developers to
screen potential projects. If the expected market rate is
below the hurdle rate, the project can be rejected or the
developer can look for income enhancements to boost the
expected return on the project. For example, Consolidated
may be able to earn additional income by securing the
Operation & Maintenance contract, or by managing the fuel
supply to the project.
After the project passes the initial screening process,
a more intensive review of the project and the country will
be undertaken. The hurdle rate will be further refined to
take into account the risk profile of the project. For
example, the rate may be reduced if the developer is able to
(i) purchase political risk insurance from the Overseas
Private Investment Corporation ("OPIC"), a U.S. Government
agency, or the Multilateral Investment Guarantee Agency
("MIGA"), a World Bank unit, or (ii) obtain sovereign
guarantees from the host government for any of the project
contracts or for foreign exchange availability. The rate
may also be modified upward or downward if a detailed review
forecasts a significant change in the fundamental economic
or political conditions of the country. There are a whole
host of factors that would lead to a revision of the hurdle
rate for a specific project. Many are identified in the
detailed discussion of risks that follows.
B. Consolidated's Expertise in Managing, mitigating
Country and Other Risk
Consolidated has taken a number of steps to identify
and manage the risks inherent in foreign investments. The
principal risks identified are as follows:
Commercial risk
Country risk
Construction risk
Development risk
Technical risk
There are also force majeure risks caused by natural
disasters or accidents such as fires, floods, storms or
earthquakes. These risks are usually mitigated by
commercial insurance. The insurance should cover not only
any asset loss, but also business interruption, including
loss of revenues for delays in plant operations caused by
natural disasters. Force majeure risks are not included in
the hurdle rate, but are captured as an expense in the
financial model.
Consolidated has developed a framework and methodology
for valuing the five categories of risks listed above as
follows.
1. Commercial Risk
Commercial credit risk includes assessment of the
sponsor, management, the market, the project's cash
generation capacity and its underlying components, the
financial structure and funding, the size of the project and
its life cycle, and its legal and institutional structure.
The other sponsors or joint venture partners should be
capable, credible, and experienced, and have adequate
financial standing. Important factors include:
The reputation, credibility and quality of the partner
based on the partner's character, and determined
through personal contacts and objective references such
as the local chamber of commerce or competition.
The sponsor's knowledge of the business based on proven
expertise in the specific industry, and experience over
a complete business cycle. Less experience corresponds
to higher risk. Experience in other industries may
compensate for lack of experience in the specific
industry.
The sponsor's financial capacity and commitment to the
project, as confirmed by local banks or ratings
agencies. Higher commitment reflects lower risk.
The partners motivation or real business interest in
the project. There should be a balance between the
contributions to the project and the respective
rewards, as well as a common interest and compatibility
that bind the partners together. The returns should be
derived primarily from the project rather than from
corollary activities, such as providing raw materials
or distribution services.
The management of the project is normally closely
related to the sponsor, and should have many of the same
attributes. The quality and capability of the management
team, its integrity, character, expertise in the industry,
and commitment to the project are essential to the success
of the project. A management team with more years in the
industry or a similar business translates into lower risk.
The key manager's success in operating and implementing
similar projects should be verified by reputable local
sources. A poor or unproven record will tend to increase
project risk.
The most important market risk factor is the supply and
demand of the project's product or output, and the ability
of the project to successfully place its product in the
market. The launching of a new product for an entirely new
market would imply a higher risk than an already established
market. Strong unmet demand will tend to lower project risk
by increasing the chance of placing the project's output at
an attractive price, while excess supply will depress prices
and increase risk. The ability of a project to increase
prices to compensate for operating cost increases is much
greater if the demand for the output is inelastic,
indicating lower market risk. The ability of the project to
adjust production to take advantage of price changes also
decreases risk.
The reliability and scale of the commercial network of
the company is a key factor. Regardless of how efficient a
producer may be, it will fail if it is unable to place its
output in the market. A higher market share implies lower
market risk. The competitive advantage of the company
relative to other domestic or international producers and
the contribution of the project to increase market share
should be assessed as part of the market research.
The operating risk of the project is based on its cash
flow capacity. The project is the principle source of cash
generation to meet its debt obligations and reward its
shareholders. Besides marketing and management issues, the
main elements of determining cash flow are i) process
aspects, ii) technical assistance, iii) engineering and
construction, iv) raw materials and services, v) cost
competitiveness, vi) and other factors specific to the
project. The project financial projections and company
financial statements are used to quantify the cash flow
capacity of the project. If financial projections show that
a project's capacity to service debt or to provide an
attractive return to shareholders is very sensitive to
relatively small changes in key variables such as price,
operating cost or capacity utilization, then the project
entails higher risk.
The debt service ratio ("DSC") measures the borrower's
ability to pay principle and interest on long term
obligations out of earnings. The DSC is defined as: (net
income + depreciation + interest) divided by (interest
payments + current maturities of principle on outstanding
debt). A DSC below 1 indicates very high risk, while a DSC
of 1.5 or higher correlates to low risk. The rate of return
on the project should be sufficient to adequately compensate
providers of debt and equity capital.
The number, quality and reliability of providers of key
inputs/raw materials is a critical factor in influencing a
project's ability to operate economically. A restricted
number of suppliers may control key inputs and determine
which producers survive or fail. Highly volatile pricing of
inputs may break a project if it is unable to adjust its
selling price accordingly.
The project must have the capacity to generate
sufficient exchange to cover foreign currency expenditures
for imports or debt service. The risk may be mitigated if
the price of the company's output in the local market is
indexed to the U.S. dollar.
A March 29, 1996 analysis by Salomon Brothers concluded
that the beta or volatility of Consolidated's local
distribution business was lower than the transmission
business, which in turn was lower than the exploration and
production business. Many of the power plant projects and
other investments that CNG International will pursue have
commercial risk characteristics similar to the local
distribution business. For example, a gas turbine project
may mitigate risk with carefully crafted power purchase
agreements and fuel supply contracts. Foreign investors are
also protected by financing or insurance from U.S. or
multinational government organizations such OPIC, Exim Bank,
MIGA or the International Finance Corporation. The
investment then acts like an annuity, with relatively low
commercial risk. For projects of this type, a low
commercial risk "WACC" is assigned.
Other potential CNG International projects have
commercial risk characteristics similar to the exploration
and production business. For example, the revenues of a
pipeline project may depend on the volume of gas, or a
merchant power plant project may depend on electric demand
and competitive electric rates. For projects of this type,
a high commercial risk WACC is assigned.
In order to evaluate domestic and international project
opportunities on a consistent basis, the international WACC
hurdle rates will be adjusted for significant interest rate
or Consolidated capital structure changes when the
Consolidated Treasurer's Department publishes new domestic
hurdle rates for the various business segments.
2. Country Risk
The country risk for a project is comprised of
political, macro and foreign exchange risk. Political Risk
includes investment losses due to war, insurrection and
terrorism. A coup or change in government by force may lead
to anti-foreign legislation, termination of agreements or
loss of rights which impairs the value of the investment.
Strikes and industrial disputes may be politically
motivated.
Macro Risk for a particular country considers such
elements as the state and growth of the economy, inflation
and the foreign exchange situation, and savings, investment
and fiscal matters.
Foreign Exchange Risk represents the chance of loss on
foreign currency exchange due to transfer or convertibility
risk that remittances abroad from the borrower or investee
are not allowed due to the lack of hard currency reserves,
foreign exchange controls or nationalization. Devaluation
risks are not included as part of country risk, but are
considered in the project cash flow analysis.
The stability or relative macroeconomic condition of a
country can be measured by outside independent agencies.
This is measured by risk ratings from The Economist,
--- ---------
Euromoney and Institutional Investor. Another indicator is
--------- ----------------------
a country's past due debt, as well as sovereign ratings by
Standard & Poor's and Moody's.
----------------- -------
The country's influence on the specific industry sector
in which a particular project will operate must also be
considered. Some aspects include: (i) the number and size
of the enterprises that are allowed or licensed by the
government, (ii) historical performance of the sector and
its future projections in light of the developments of the
overall economy, (iii) the extent of oligopoly conditions
that might hinder competition from small or medium sized
entrants into the market, and (iv) government policies and
regulatory framework affecting the sector.
Nationalization or creeping expropriation and the
degree of protectionism in a specific industry due to
artificial government subsidies or regulations, including
tariffs and quotas must also be considered. There may also
be protection and regulatory environment components such as
(i) official attitude; a project that enjoys official
priority may have a lower risk profile, and (ii) investment
content; country profiles should be favorable to private
sector investment. A project which relies heavily on
protective legislation for its viability may pose a high
risk of failure if government policy changes.
A "country risk premium" is added to the WACC to
account for the additional return required by U.S. investors
to cover country/political risks; such as expropriation,
currency blockage, and other political acts that reduce the
present value of the investment. The premium may be defined
as the spread between foreign currency denominated bonds
issued by the host country and U.S. treasury bonds. Salomon
Brothers calculated the premium for selected countries in
their March 1996 study by averaging the spreads on Yankee
and Brady Bonds. For countries with no Yankee or Brady
Bonds, Salomon recommends an estimate of the spreads from an
analysis of the Euromoney or Institutional Investor country
--------- ----------------------
credit ratings.
The Exim Bank also rates country risk on a scale of 1
to 8, with 1 being the best or highest rating. The ratings
are used to assign exposure fees to loans. The ratings come
from economic and political data from official government
sources, and are shared by all U.S. agencies which loan to
foreign borrowers.
The development of risk premiums for additional
countries or revision of the recently determined country
risk premiums will be based on average foreign currency bond
spreads. If there are few or no traded bonds in a
particular country, bonds issued by countries with a similar
Institutional Investor or Euromoney rating will be
---------------------- ---------
considered. The Eximbank or S&P/Moody's country ratings may
also be used to develop premiums for countries with thin
securities markets. The country hurdle rates developed by
this methodology will be useful in screening projects.
When the project enters the active development stage,
the country risk premium may be further refined by reviewing
economic statistics and projections, the political outlook,
and reports issued by the World Bank and CIA. The country
risk criteria developed by the Inter-American Investment
Corporation may also be applied to the specific project
profile.
A number of multinational financial institutions,
export credit agencies, and commercial banks have all noted
the umbrella or halo effect of multilateral financial
institution participation in a project. The country risk
may be mitigated to a large extent by participation of
organizations such as the following:
Overseas Private Investment Corporation
Multilateral Investment Guarantee Agency
Export-Import Bank of the U.S. or its foreign
counterparts
International Finance Corporation
World Bank
Inter-American Investment Corporation
Asian Development Bank
Their involvement may include project lending, insurance for
project equity or debt, and minority equity participation in
a project. In such cases the country risk premium may be
reduced to reflect the lower risk level.
Another means of reducing the country risk is to form
joint ventures with local partners with political
connections or economic influence, foreign partners with
strength in the host country, or with the host government or
its agencies. For example, a Singapore government company
would be an excellent partner for a project in China. Again
the country risk premium may be reduced in situations where
the partner provides protection from adverse government
actions. Sovereign government foreign exchange or other
guarantees of specific agreements serve to mitigate country
risk, which will have a positive impact on the assessment of
the risk premium.
3. Construction Risk
The construction risk may differ significantly from the
operating risk of a project once it is on stream. The focus
should be on the ability of the sponsors and management to
effectively implement the project within budget and without
unnecessary delays and technical/engineering risks. There
should be availability of sufficient resources and
completion guarantees to overcome unforeseen overruns.
Important issues are the capacity of the project management
team to implement the project and that the systems in place
to monitor project planning, budget and resource allocation.
Lack of adequate systems is likely to indicate that
insufficient controls are in place to ensure timely
implementation within budget.
The total value of the project in relation to the size
of the sponsor should be considered. The larger the project
in relation to the sponsor, the higher the risk; since the
sponsor may not have the capacity to implement such a large
project. The longer the time required for project
completion, the higher the risk of problems arising in the
construction phase.
Expansion projects enlarge the pre-existing capacity of
companies, while greenfield projects establish production at
undeveloped sites and in the form of new companies.
Expansion projects are generally lower risk because a track
record exists and experienced management is available.
The availability of completion guarantees from project
sponsors or suppliers will reduce implementation risk. the
financial standing of the provider of the guarantees should
be evaluated. The financial standing and technical
competence of the engineering, construction and equipment
suppliers should be closely examined.
A project that is adequately funded will minimize the
risk of it not being completed. Of particular importance
will be the availability of equity resources that are
considered sufficient to provide the company with a sound
capitalization and financial structure. Higher leverage
indicates higher risk since fixed charges related to debt
may overburden the company. A long-term debt to equity
above 2.0 correlates to high risk, while a ratio below 1
correlates to low risk. Liquidity is a firm's ability to
meet maturing short-term obligations, and is often measured
by the current ratio. A current ratio of 1:1 or less
indicates high risk. During the implementation stage, the
current ratio may be less than 1. The project must have all
the necessary financing commitments in place to cover
possible project overruns in project cost or shortfalls in
other elements of the project plan.
The particular way in which the debt instruments are
structured and negotiated, as well as the terms and
conditions can either increase or decrease the financial
risk to the company or the party that implements the
project. Any collateral or assets pledged to the banks
reduces financial flexibility.
The local legal counsel must review the adequacy of
titles to properties, rights of way, environmental
regulations, supply or distribution contracts, rights of the
company that may be contested in court, potential product
or other liabilities and matters that relate to the
compliance of the laws of the host country with respect to
the implementation of the project.
While there is no empirical evidence to calculate an
exact risk premium, most developers and financial
institutions recognize the additional risks associated with
the construction period and recommend a higher hurdle rate.
4. Development Risk
The uncertainties are greatest in the development phase
of the project. As the project proceeds, additional costs
and risks are identified. There is the possibility of long
delays due to negotiations with the following:
Host government, municipalities, and state and
local governments
Environmental agencies and activists
Local land owners and right of way holders
U.S. government and its agencies such as FERC and
SEC
Commercial and multilateral financial and
insurance institutions
Equity partners
Energy suppliers and energy purchasers
Engineers, construction firms and equipment
vendors.
As the time increases, the costs escalate for legal and tax
services, financial advisory assistance and development
efforts. New political and economic developments may impact
the project, and create additional uncertainty risk.
While there is no empirical evidence available to
quantify the development risk, a number of independent power
producer ("IPP") developers add a premium to the hurdle rate
to cover the uncertainty during the development period. In
countries with established IPP markets or where there has
been successful investment in similar projects, a minimum
"development premium" should be estimated and added. Where
no market exists or there is no experience with similar
projects, the development premium should be higher than the
minimum level.
5. Technical Risk
Technical risk includes engineering design errors,
defects in material and workmanship, faulty production
planning, manufacturing and scheduling problems, omission
of necessary equipment, and inability of the equipment to
meet the minimum performance and availability levels.
Improper maintenance and operation procedures can also lead
to equipment breakdowns, industrial accidents and lost
revenues.
The technical complexity and fuel risk of the project
are also important considerations. The following project
types are ranked in order of increasing technical risk:
Gas turbine power plants
Pulverized coal fired power plants
Coal fired or coal fluid bed
Waste fuels
Geothermal with field risk
Some risk mitigation is achieved by careful negotiation
of vendor contracts. There should be bid bonds, performance
guarantees with liquidated damages, equipment warranties and
retentions.
The appropriate premium for technical risk is somewhat
subjective. For CNG International projects, a premium in
the range of 1% to 2% may be added for more technically
difficult projects such as coal fired power plants or coal
fluid bed power plants. A "technology premium" is also
appropriate for more complex or newer technology for
pipeline or gas projects. The premium applies to operating,
construction and development stage projects.
EXHIBIT F
[Letterhead of CNG International Corporation]
September 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re:Consolidated Natural Gas Company, et al.
SEC File Number 70-8759
Dear Madams and Sirs:
The following opinion is rendered in accordance with
the requirements of Exhibit F to Form U-1 under the Public
Utility Holding Company Act of 1935 (the "Act") with respect
to the transactions proposed ("Proposed Transactions") by
Consolidated Natural Gas Company ("Consolidated") in Post-
Amendment No. 1 (the "Amendment") to the Application-
Declaration at SEC File No. 70-8759, as amended
("Application"). An order dated May 30, 1996, HCAR No.
26523, was issued purusant to the Application which
authorized Consolidated to finance a new subsidiary, CNG
International Corporation ("CNG International"), through
March 31, 2001, to invest in exempt wholesale generators
("EWGs"), as defined in Section 32(a) of the Act, outside
the United States and in foreign utility companies
("FUCOs"), as defined in Section 33(a) of the Act, and
Intermediate Companies (as defined) relating to EWGs and
FUCOs.
Authority is requested in the Amendment for CNG
International to obtain for investments in Foreign Energy
Activities (as defined), through March 31, 2001, up to
$300,000,000 through (i) the sale of shares of its common
stock, $10,000 par value per share, to Consolidated, (ii)
open account advances from Consolidated, or (iii) long-term
loans from Consolidated, and any combination thereof. The
Amendment also requests authority for Consolidated, either
directly or indirectly through CNG International and its
subsidiaries, to enter into credit support arrangements with
respect to foreign energy transactions.
I have examined the certificates of incorporation and
bylaws of Consolidated and CNG International; corporate
actions of Consolidated and CNG International relating to
the Proposed Transactions; the Application and Amendment;
and such other documents, records, laws and other matters as
I deemed relevant and necessary for the purposes of this
opinion.
Based on such examination and relying thereon, I am of
the opinion that when the Commission shall have permitted
the Amendment to become effective, all requisite action will
have been taken by Consolidated with respect to the Proposed
Transactions, except the actual carrying out thereof.
In the event the Proposed Transactions are consummated
in accordance with the Amendment, I am of the opinion that:
(a) No state commission has jurisdiction of the
proposed transactions;
(b) All state laws applicable to the Proposed
Transactions will have been complied with;
(c) Consolidated will legally acquire the
capital stock of, and interests in open account
advances and long-term loans to, CNG
International as described in the Amendment;
(d) The guarantees and other credit support
arrangements of Consolidated will be valid and
binding obligations of the Consolidated; and
(e) The consummation of the Proposed
Transactions will not violate the legal rights
of the holders of any securities issued by
Consolidated or any associate company thereof.
I hereby consent to the use of this opinion in
connection with said filing.
Very truly yours,
/s/ N. F. Chandler
-------------------
N. F. Chandler
Attorney
