<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-13584
ENRON GLOBAL POWER & PIPELINES L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0456366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 CLAY STREET, SUITE 1800
HOUSTON, TEXAS 77002
(Address of principal executive offices) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 853-6220
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common shares, as of the latest practicable date:
CLASS OUTSTANDING AS OF OCTOBER 31, 1997
----- ----------------------------------
Common Shares 26,021,662 shares
===============================================================================
<PAGE> 2
ENRON GLOBAL POWER & PIPELINES L.L.C.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income -- Three Months
Ended September 30, 1997 and 1996 and Nine Months Ended
September 30, 1997 and 1996.................................... 1
Consolidated Balance Sheets -- September 30, 1997 and
December 31, 1996.............................................. 2
Consolidated Statements of Cash Flows -- Nine Months
Ended September 30, 1997 and 1996.............................. 3
Consolidated Statements of Changes in Shareholders'
Equity -- Nine Months Ended September 30, 1997................. 4
Notes to Consolidated Financial Statements...................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders......................................................... 23
Item 5. Other Matters.............................................. 23
Item 6. Exhibits and Reports on Form 8-K........................... 23
</TABLE>
i
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ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1997 1996 1997 1996
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Technical Assistance Fees $ 3,170 $ 3,106 $ 9,020 $ 8,414
Equity in Earnings of Unconsolidated Subsidiaries:
Pipeline Operations 13,214 5,890 28,039 22,419
Power Operations 4,600 4,019 13,027 11,676
--------- -------- -------- -------
Equity in Earnings and Technical Assistance Fees 20,984 13,015 50,086 42,509
General and Administrative Expenses (1,449) (1,304) (4,728) (4,215)
Taxes Other Than Income (173) (199) (479) (492)
Interest Expense (446) (836) (1,789) (836)
Interest Income 1,787 1,328 4,346 2,303
Other Income (Expense), Net (4,691) 31 (3,227) (1,825)
--------- -------- -------- -------
Income Before Income Taxes 16,012 12,035 44,209 37,444
Income Tax (Expense) Benefit (1,159) (1,150) 1,651 (3,463)
--------- -------- -------- -------
Net Income 14,853 10,885 45,860 33,981
========= ======== ======== =======
Net Income Per Common Share $ 0.57 0.45 $ 1.79 $ 1.41
========= ======== ======== =======
Average Number of Common Shares Used in Computation 26,020 24,371 25,629 24,141
========= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 54,262 $ 24,582
Accounts receivable 8,473 6,301
Dividends receivable 7,189 --
Current portion of notes receivable 1,470 1,394
Other current assets 336 404
-------- --------
Total Current Assets 71,730 32,681
-------- --------
Investments in and Advances to Unconsolidated Subsidiaries 286,340 298,530
Notes Receivable 16,059 12,111
Other 279 521
-------- --------
Total Assets $374,408 $343,843
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 13,461 $ 11,277
Accrued taxes 1,910 1,488
Current portion of note payable -- 36,583
-------- --------
Total Current Liabilities 15,371 49,348
-------- --------
Deferred Income Taxes 525 4,301
Notes Payable 18,027 24,750
Commitments and Contingencies (Note 9)
Shareholders' Equity
Common Shares, no par value,
200,000,000 shares authorized
and 26,021,662 and 24,392,352
shares issued and outstanding, respectively 268,107 219,816
Retained earnings 72,378 45,628
-------- --------
Total Shareholders' Equity 340,485 265,444
-------- --------
Total Liabilities and Shareholders' Equity $374,408 $343,843
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Reconciliation of net income to net cash flows from
operating activities
Net income $ 45,860 $ 33,981
Equity in earnings of unconsolidated subsidiaries (41,066) (34,095)
Distributions from unconsolidated subsidiaries 46,067 34,224
Deferred income taxes (3,776) 1,295
Changes in components of working capital:
Accounts receivable (2,172) (398)
Accounts payable 2,184 2,172
Accrued taxes 422 (667)
Other, net 310 (939)
--------- ---------
Net Cash Flows from Operating Activities 47,829 35,573
--------- ---------
Cash Flows from Investing Activities:
Loan to unconsolidated subsidiary (4,552) --
Payment of note receivable 528 --
Net investments in and advances to
unconsolidated subsidiary -- (117,500)
Proceeds from sale of unconsolidated subsidiary -- 39,167
--------- ---------
Net Cash Flows Used in Investing Activities (4,024) (78,333)
--------- ---------
Cash Flows From Financing Activities:
Common shares issued 48,291 179
Loan from parent 9,926 --
Proceeds from long-term debt -- 117,500
Payment of long-term debt (53,232) (56,167)
Dividends paid (19,110) (14,888)
--------- ---------
Net Cash Flows (Used in) Provided by Financing Activities (14,125) 46,624
--------- ---------
Increase in Cash and Cash Equivalents 29,680 3,864
Cash and Cash Equivalents, Beginning of Period 24,582 23,364
--------- ---------
Cash and Cash Equivalents, End of Period $ 54,262 $ 27,228
========= =========
Supplemental Cash Flow Information:
Cash Paid for Income Taxes $ 1,620 $ 3,045
========= =========
Cash Paid for Interest $ 1,563 $ 1,484
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
-----------------------------------------------
COMMON RETAINED
SHARES EARNINGS TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 219,816 $ 45,628 $ 265,444
Net income -- 45,860 45,860
Dividends -- (19,110) (19,110)
Exercise of purchase option by Enron Corp. 47,000 -- 47,000
Issuances for share options 1,291 -- 1,291
---------- --------- ----------
Balance at September 30, 1997 (Unaudited) $ 268,107 $ 72,378 $ 340,485
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company,
and its wholly owned subsidiaries (EPP), own interests in natural gas pipeline
systems in Argentina and Colombia, two power plants in the Philippines, a power
plant in Guatemala and a power plant in the Dominican Republic. EPP's pipeline
operations in Argentina are conducted through its wholly owned subsidiary, Enron
Pipeline Company -- Argentina S.A. (EPCA). EPCA owns 33 1/3% of Compania de
Inversiones de Energia S.A. (CIESA), which in turn owns 70% of Transportadora de
Gas del Sur S.A. (TGS), the entity that owns the pipeline system. EPP's pipeline
operations in Colombia are conducted through its 49% limited partnership
interest in Centragas -- Transportadora de Gas de la Region Central de Enron
Development & Cia., S.C.A. (Centragas). EPP's power operations in the
Philippines are conducted through its wholly owned subsidiary, Enron Power
Philippines Corp. (EPPC). EPPC owns 50% of the outstanding stock of Subic Power
Corp. (SPC) and Batangas Power Corp. (BPC), the entities that own the respective
power plants. The Guatemala power operations are conducted through EPP's 50%
ownership interest in Puerto Quetzal Power Corp. EPP's Dominican Republic power
operations are conducted through its 50% partnership interest in Smith/Enron
Cogeneration Limited Partnership (SECLP) and Smith/Enron O&M Limited Partnership
(SEOM).
2. ACQUISITIONS
General
Acquisitions of projects from Enron Corp. or its affiliates (collectively,
Enron) are transactions between entities under common control that are accounted
for similar to the pooling of interests method of accounting using the
historical carryover basis and restating historical results to include the
results of acquired projects. There were no acquisitions during the nine months
ended September 30, 1997.
CIESA
The acquisition of an additional interest in CIESA from a third party
occurred in July 1996. Detailed below are summarized pro forma results of
operations for EPP as though the acquisition of CIESA had occurred on January 1,
1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Equity in Earnings and
Technical Assistance Fees.............. $ 13,691 $ 46,863
Net Income ................................. 11,659 36,731
Net Income per Common Share................. $ 0.48 $ 1.52
</TABLE>
Centragas
During 1996, EPP recorded equity in earnings from Centragas of approximately
$2.8 million related to an early completion bonus. In accordance with the
Transportation Services Contract dated May 12, 1994, between Centragas and
Empresa Colombiana de Petroleos (Ecopetrol), the state-owned oil company of
Colombia, Ecopetrol was obligated to pay to Centragas an early completion bonus
if certain conditions were satisfied. Centragas believed that
5
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ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
all of these conditions were satisfied; however, Ecopetrol contested certain
aspects of the early completion bonus. Centragas asserted its claim to such
bonus through an amicable compoundment dispute resolution process whereby an
independent engineering firm, chosen by Centragas and Ecopetrol, would decide
the issue. On June 4, 1997, the independent engineering firm resolved the
dispute in favor of Ecopetrol. As a result of this decision, EPP recorded a $1.9
million net reduction to equity in earnings from Centragas in the first nine
months of 1997.
3. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
EPP without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, the consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial results for the interim periods. Certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles (GAAP) have been
condensed or omitted pursuant to such rules and regulations. However, EPP
believes that the disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in EPP's Annual Report on Form 10-K for the year ended December 31,
1996.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
EPP records as cash equivalents all highly liquid short-term investments with
original maturities of three months or less. From time to time, EPP invests
excess funds with Enron under promissory notes payable on demand at market
interest rates. At September 30, 1997, approximately $47.6 million was invested
under such notes. Such amounts are classified as cash equivalents.
All monetary amounts presented in tables herein are expressed in thousands,
except per share amounts.
Certain prior period amounts have been reclassified to conform with the
current presentation.
4. SHAREHOLDERS' EQUITY
On March 5, 1997, Enron exercised an option, which was granted to Enron in
connection with Enron providing the financing for the additional EPP interest in
CIESA acquired in July 1996 (the Option) (see Note 2). The Option allowed Enron
to purchase $47.0 million of EPP common shares at the average market price for
the 20 trading days immediately preceding the second trading day prior to the
exercise (approximately 1.6 million EPP common shares). A portion of the
proceeds was used to repay the $36.6 million note payable to Enron (see Note 6).
On September 15, 1997, EPP paid a quarterly cash dividend of $0.25 per share.
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
EPP's investments in and advances to unconsolidated subsidiaries and the
changes in such balances are as follows:
6
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ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
PIPELINE POWER TOTAL
-------- --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 198,204 $ 100,326 $ 298,530
Equity in Earnings 28,039 13,027 41,066
Distributions Declared (7,189) -- (7,189)
Distributions Made (37,317) (8,750) (46,067)
--------- --------- ---------
Balance at September 30, 1997 $ 181,737 $ 104,603 $ 286,340
--------- --------- ---------
</TABLE>
At September 30, 1997, EPP's share of undistributed earnings of its pipeline
and power subsidiaries totaled approximately $1.0 million and $25.9 million,
respectively. At September 30, 1997, SECLP had undistributed earnings of $6.8
million and is precluded from making distributions due to arrearages on
principal and interest payments related to the cost overrun loans (COLs) (see
Note 8) and maintenance funding requirements.
In the first nine months of 1997, EPPC received $7.3 million in dividends
from its Philippine power operations, EPCA received $29.9 million in dividends
from CIESA and EPP received $1.5 million in dividends from its Guatemala power
plant operations. During the first nine months of 1997, Centragas declared
dividends of approximately $29.9 million, approximately $7.4 million of which
was received during the first nine months of 1997 and $7.2 million of which is
expected to be received by EPP incrementally through December 1997. Equity in
earnings are net of amortization of excess investment related to CIESA and
SECLP/SEOM.
6. NOTES PAYABLE
On March 5, 1997, EPP received $47.0 million in connection with the exercise
of Enron's option to acquire EPP common shares (see Note 4). EPP used a portion
of the proceeds from the exercise of the option to repay the $36.6 million note
payable to Enron.
In the first nine months of 1997, EPP borrowed $4.6 million from Enron to
loan to SECLP (see Notes 8 and 9).
In the first nine months of 1997, EPCA repaid $11.3 million of the $24.8
million borrowed from Centragas, predominantly with proceeds from repayment of
loans made to, and a loan from, Enron in the amount of $5.9 million and $5.4
million, respectively (see Note 3).
On July 22, 1997, EPCA repaid the $5.4 million loan to Enron
7. SUPPLEMENTAL CASH FLOW INFORMATION
The first nine months of 1996 include the issuance of approximately 3.5
million EPP common shares to Enron in exchange for assets with a carryover basis
totaling $62.5 million related to the acquisitions of Centragas, SECLP and SEOM.
There were no noncash transactions in the first nine months of 1997.
8. NOTES RECEIVABLE
In the first nine months of 1997, EPP loaned approximately $8.6 million to
Enron in the form of a note receivable. The note bore interest at 5.4% payable
quarterly and was payable on demand. The note was converted to the one-month
London Interbank Offering Rate with principal due on demand and is included in
cash and cash equivalents (see Note 3).
During the first nine months of 1997, EPP made additional COLs to SECLP in
the amount of $4.6 million for construction-related items (see Note 9). As of
September 30, 1997, the COLs and past due interest payments total in the
aggregate $15.3 million. The COLs, bear interest at 13.5% and are due in
semiannual principal and interest payments through December 15, 2005. As of
September 30, 1997, past due principal and interest on the COLs totaled $1.7
million and $1.6 million, respectively, of the $15.3 million and bear interest
at 15.5%.
7
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ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. COMMITMENTS AND CONTINGENCIES
EPP and subsidiaries, in the ordinary course of business, are defendants in
various lawsuits and administrative proceedings before various courts and
governmental agencies. Management believes that the final outcome of these
proceedings, individually and in the aggregate, will not have a material adverse
impact on EPP's financial position or results of operations.
Argentina
GdE Request
TGS received and denied a request from Gas del Estado S.E. (GdE), a company
owned and operated by the Argentine government, for the reimbursement of
approximately $23 million paid by GdE under purchase orders issued for the
construction of two compressor plants. GdE submitted this matter for resolution
to Ente Nacional Regulador del Gas (ENARGAS), the Argentine federal gas
regulatory entity, but ENARGAS concluded that it lacks jurisdiction to
adjudicate the dispute. In April 1996, GdE filed a legal action seeking
reimbursement from TGS of the $23 million. TGS has accrued approximately $4.8
million as property, plant and equipment based on its estimate of construction
costs of similar plants. TGS has thoroughly answered the demand and is defending
the claim.
TGS has filed a claim against GdE and the Argentine government seeking the
reimbursement of amounts paid by TGS in connection with the registration and
payment of certain easements. On October 7, 1996, the Executive Branch, through
Decree No. 1,136/96, created a contribution fund, as provided for in the license
to transport natural gas through the southern Argentine gas pipeline system
granted to TGS in December 1992, to assume GdE's obligations for paying
easements and any other compensation to land owners for an initial five-year
period, beginning with privatization. ENARGAS has started managing the above
mentioned fund, which is financed by a special charge included in the
transportation rates and reimbursed to ENARGAS. TGS expects to recover the
amounts paid related to such easement. As of September 30, 1997, the total
amount sought by TGS is approximately $3.8 million.
Regulatory Matters
On July 4, 1997, ENARGAS announced its resolution covering the base natural
gas transportation tariffs of TGS for the five-year period commencing January 1,
1998. The ENARGAS resolution included an up-front, one-time tariff reduction of
6.5% for the efficiency factor and the framework by which TGS will promote and
price future systems expansions. The resolution did not address the investment
factor nor other proposals which could partially mitigate the impact of the rate
reduction.
Under the Argentine Natural Gas Act, every five years ENARGAS is required to
review the tariffs charged for regulated transportation services with the use of
an incentive tariff methodology. The methodology provides for the derivation of
an efficiency factor and an investment factor. The efficiency factor, which is a
reduction to transporters' base tariff rates, is a sharing mechanism between the
transporters and their customers resulting from specific, quantifiable
efficiencies identified by ENARGAS. The investment factor, which is an increase
to the transporters' base tariff, is a funding mechanism designed to recover the
incremental investment in and return on ENARGAS-approved expansions to be
undertaken by the transporter during the established period. In August 1997, TGS
filed an appeal with and is awaiting the decision from ENARGAS.
EPP believes that the concepts ENARGAS has applied are inconsistent with the
letter and spirit of the regulatory framework which was intended to encourage
operational efficiencies. TGS has appealed to ENARGAS and requested that ENARGAS
reconsider its resolution, and EPP will continue to work with TGS to evaluate
the resolution and its impact on planned future investments.
8
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ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Dominican Republic
SECLP is currently involved in an International Chamber of Commerce
arbitration proceeding against Corporacion Dominicana de Electricidad (CDE), the
government agency which provides electric services to the Dominican Republic,
and the Dominican Republic Government (DR Government). In SECLP's earlier
pleadings in the arbitration proceedings, SECLP has formally alleged that CDE
owes approximately $19.4 million in past due amounts under the Electric Energy
Supply and Sales Contract dated July 26, 1993, as amended, among SECLP, CDE and
the DR Government (Puerto Plata Energy Supply Contract), a claim which CDE
disputes. SECLP has reserved the right to update its pleadings prior to a final
arbitration hearing date to include the then current amount of the alleged
receivable. As of September 30, 1997, SECLP believes that the total receivable
is approximately $30 million. CDE has alleged that SECLP owes approximately
$13.6 million in delay damages to CDE pursuant to the Puerto Plata Energy Supply
Contract. In addition to CDE's claims, the DR Government has alleged that its
guaranty of CDE's obligations under the Puerto Plata Energy Supply Contract and
the $24 million letter of credit furnished by the DR Government are void because
such commitments were not approved by the Congress of the Dominican Republic. At
the request of the DR Government, the arbitration tribunal has requested that
SECLP refrain from drawing on the letter of credit while the arbitration is
underway. In the arbitration proceeding, SECLP has denied the claims of CDE and
the DR Government and is defending against such claims, which defense includes
the fact that the claim for delay damages was previously waived by CDE and the
DR Government in an earlier contractual undertaking. SECLP believes that it has
strong legal and factual defenses and is vigorously pursuing its claims against,
as well as contesting the claims brought by CDE and the DR Government. SECLP
anticipates a decision by the arbitration panel during the first quarter of
1998. While the arbitration proceeding is ongoing, SECLP and CDE have begun
informal and preliminary discussions to negotiate a settlement of their dispute.
Although no assurances can be given, EPP believes that the ultimate resolution
of this matter will not have a material adverse effect on EPP's financial
position or results of operations.
On October 5, 1994, Hotelera del Atlantico, S.A. (Hotelera), the owner of a
hotel located near the Puerto Plata Plant in the Dominican Republic (Puerto
Plata Plant), initiated an action (the Lawsuit) against SECLP in the Dominican
Republic, requesting damages in excess of 1.5 billion pesos (approximately $108
million based on a conversion rate of 13.83 pesos/U.S. dollar) and a penalty of
50,000 pesos (approximately $3,600) for each day SECLP continued to operate the
Puerto Plata Plant after the action was initiated. In the Lawsuit, Hotelera
alleged that physical damage and nuisance were caused to the hotel by the
operation of the Puerto Plata Plant prior to December 15, 1994. On December 15,
1994, an agreement between the parties was reached and a settlement agreement
was signed (Settlement Agreement). However, on September 4, 1995, Hotelera filed
a petition with the Dominican Republic Council of Reconciliation and Arbitration
alleging, among other things, that the environmental guidelines of the World
Bank had not been followed by SECLP as agreed to in the Settlement Agreement.
SECLP has no reason to believe that it has not complied with the World Bank
guidelines and is aggressively defending against such claims. While Enron has
agreed to indemnify EPP from any changes in investment value due to the
financial impact to the project of the Hotelera dispute, an adverse decision in
the Hotelera dispute may impact EPP's earnings from SECLP. Although no
assurances can be given, EPP believes that the ultimate resolution of this
matter will not have a material adverse effect on EPP's financial position or
results of operations.
SECLP, General Electric Company (GE), Raytheon Engineers & Constructors
(Raytheon), Enron Power Construction Company and certain subcontractors and
insurers have been involved in discussions covered by a confidentiality
arrangement relating to claims arising from the design, construction, start-up,
testing and operation of the Puerto Plata Plant. A settlement of claims has been
agreed to between SECLP, GE and Raytheon. While Enron has agreed to indemnify
EPP from any changes in the investment value due to the potential financial
impact of these settlements on the project, the settlements could impact EPP's
earnings from SECLP. Although no assurances can be given, EPP believes that the
ultimate resolutions of these matters will not have a material adverse effect on
EPP's financial position or results of operations.
Enron is obligated to fund certain amounts to SECLP associated with
construction-related items and other issues. Pursuant to the purchase
arrangement regarding SECLP between subsidiaries of Enron and EPP, if required
to fund
9
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ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
such amounts, Enron will loan funds as COLs to SECLP through EPP. The Purchase
Agreement among EPP, Enron International Inc. and Enron Holding Company L.L.C.
dated June 17, 1996, includes provisions that may require an adjustment to the
purchase price by December 31, 1997, depending upon the resolution of certain
contingencies, including the final amount of additional COLs and collection of
certain receivables ($2.8 million) by SECLP from CDE. Any purchase price
adjustments may be settled in EPP common shares or cash. Although no assurances
can be given, EPP believes that the ultimate resolution of this matter will not
have a material adverse effect on EPP's financial position or results of
operations.
Philippines
At September 30, 1997, BPC had a value added tax (VAT) receivable of
approximately $6.0 million. The realization of the VAT receivable requires the
attainment of VAT exemption from the Bureau of Internal Revenue (BIR), the
Philippine tax authority. BPC received confirmation of VAT exemption through
BIR ruling No. 43-97 dated May 15, 1997. EPP believes that the VAT receivable
will be realized either as a credit against future tax liabilities or a refund
from the BIR and/or National Power Corporation, the primary electric power
supplier in the Philippines, and that the full amount of the VAT receivable
will be recovered.
10. DEFERRED INCOME TAXES
During the first nine months of 1997, EPP reversed a reserve of approximately
$4.0 million for certain Philippine withholding taxes based upon the repeal of a
U.S. tax law which enabled EPP to alter its tax planning strategies. Under the
new strategies, EPP believes that such cash will ultimately be received without
incurring such withholding taxes and, accordingly, management believes that a
liability for such withholding taxes is no longer required.
11. OTHER INCOME (EXPENSE), NET
For the three and nine months ended September 30, 1997, other income
(expense), net, included losses of $3.5 million and $2.1 million, respectively,
recognized from forward contracts used to mitigate foreign exchange risk in
Colombia (see Note 12) and losses of $1.2 million and $1.1 million,
respectively, recognized on foreign currency exchange.
12. DERIVATIVE FINANCIAL INSTRUMENTS
During the first nine months of 1997, EPP entered into forward purchase
contracts (Contracts) on Colombian pesos with a notional value of $24.6 million
scheduled to settle between late 1997 and early 1998. EPP entered into these
Contracts to offset potential fluctuations in planned equity earnings from
Centragas resulting from changes in the peso exchange rate. Such changes can
cause U.S. GAAP income to vary by impacting Colombian tax expense and foreign
exchange gains or losses on peso-denominated monetary assets and liabilities.
These Contracts do not hedge specific transactions, assets or liabilities and,
accordingly, are marked to market with gains or losses reported as other income
(expense), net. Gains or losses on the termination, sale or maturity of these
Contracts will be reported as other income (expense), net. These Contracts
generated approximately $3.5 million and $2.1 million of expense during the
three months and nine months ended September 30, 1997, which is included in
other income (expense), net.
13. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share" effective for interim and annual periods beginning after December
15, 1997. This statement replaces primary earnings per share (EPS) with a newly
defined basic EPS and modifies the computation of diluted EPS. EPP's basic and
diluted EPS computed using the requirements of SFAS No. 128 are the same as the
currently disclosed primary EPS amounts.
10
<PAGE> 13
ENRON GLOBAL POWER & PIPELINES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. PROPOSED MERGER
On August 18, 1997, Enron and EPP agreed to a merger whereby Enron would
purchase all outstanding EPP common shares not already owned by Enron. Under the
proposal, the shareholders of EPP other than Enron would receive Enron Corp.
common stock having a market value (based on the average trading price of Enron
Corp. common stock for a 20 trading day period prior to the completion of the
merger) of $35 per share. The merger proposal has been sent to, and will be
submitted to a vote at a meeting of, the EPP shareholders, which meeting is
scheduled for November 18, 1997.
A lawsuit has been filed by one of EPP's shareholders seeking to enjoin the
merger with Enron, a copy of such petition is attached hereto as Exhibit 99.1.
The lawsuit, which was served on EPP on November 10, 1997, seeks recovery of
unspecified damages and rescission of the merger if it is not enjoined. The
lawsuit purports to be filed as a class action on behalf of all holders of EPP
common shares against Enron, Enron International Merger L.L.C., EPP, and each of
the directors of EPP. The suit alleges, among other things, that the directors
of EPP breached their duties to EPP shareholders by approving the merger
agreement and recommending that it be adopted by EPP's shareholders, that the
merger price is unfair, that the members of the Oversight Committee (composed of
the three non-Enron affiliated directors of EPP), which approved the merger,
were not independent and that Enron used its majority ownership of EPP to
unfairly dominate the merger process for its own benefit. EPP and Enron believe
that the lawsuit is without merit and does not take into consideration the
lengthy and careful arm's length negotiating process which led to the approval
of the merger agreement by a unanimous vote of EPP's independent Oversight
Committee. EPP and Enron intend to vigorously defend against the allegations in
the litigation.
11
<PAGE> 14
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRIMARY ASSETS AND SOURCES OF EARNINGS AND CASH
The primary assets of Enron Global Power & Pipelines L.L.C. ("EPP"), a
Delaware limited liability company which is approximately 52% owned by Enron
Corp. (together with its subsidiaries, "Enron") at September 30, 1997, are its
interests in 50% or less owned companies ("Project Companies"), which it holds
directly or indirectly through wholly owned subsidiaries. EPP accounts for its
interests in the Project Companies under the equity method of accounting and
records its proportionate share of the earnings or losses of the Project
Companies. The operations of the Project Companies are EPP's primary source of
earnings. EPP also receives technical assistance fees, paid by Project Companies
to certain wholly owned subsidiaries of EPP, primarily by Transportadora de Gas
del Sur S.A. ("TGS") to Enron Pipeline Company -- Argentina S.A. ("EPCA").
Dividends paid by the Project Companies are EPP's primary source of cash.
Declaration and payment of such dividends are at the sole discretion of the
boards of directors of the Project Companies and are subject to certain
restrictions, including, among others, each Project Company's operating
profitability, restrictions on the distribution of cash under applicable credit
agreements and government imposed currency restrictions. See "Liquidity and
Capital Resources of EPP -- Primary Sources of Cash" for further discussion
regarding sources of cash.
RESULTS OF OPERATIONS OF EPP
GENERAL
For the nine months ended September 30, 1997, EPP's equity in earnings and
technical assistance fees from its Argentine and Philippine operations
constituted approximately 63% and 17%, respectively, of EPP's equity in earnings
and technical assistance fees. As of September 30, 1997, Argentine and
Philippine assets accounted for approximately 49% and 20%, respectively, of
EPP's assets. As a result, if the Argentine or Philippine operations were
materially and adversely affected, EPP's financial condition and results of
operations could be materially and adversely affected. See "Pipeline Operations"
and "Power Operations" below for the results of operations of EPP's Project
Companies.
Acquisitions of projects from Enron are transactions between entities under
common control that are accounted for similar to the pooling of interests method
of accounting using the historical carryover basis and restating historical
results to include the results of acquired projects. There were no acquisitions
during the nine months ended September 30, 1997.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THE
THREE MONTHS ENDED SEPTEMBER 30, 1996
EQUITY IN EARNINGS AND TECHNICAL ASSISTANCE FEES. Equity in earnings and
technical assistance fees increased $8.0 million (61%) in the third quarter of
1997 compared to the third quarter of 1996. The increase is primarily due to
increased earnings in Centragas -- Transportadora de Gas de la Region Central de
Enron Development & Cia., S.C.A. ("Centragas"), the entity that owns the
Colombian pipeline, attributable to increased net foreign exchange gains and
lower income tax expense related to the devaluation of the Colombian peso (see
"OTHER INCOME (EXPENSE), NET" below for discussion regarding the use of forward
contracts to mitigate foreign exchange risk). Additionally, equity in earnings
and technical assistance fees increased from the increased ownership in Compania
de Inversiones de Energia S.A. ("CIESA"), the Argentine company through which
EPP owns its interest in TGS.
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<PAGE> 15
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.1 million (11%) during the third quarter of 1997 compared to the
third quarter of 1996, primarily as a result of the expiration of an agreement
requiring reimbursement of certain expenses.
INTEREST EXPENSE. Interest expense decreased $0.4 million (47%) during the
third quarter of 1997 compared to the third quarter of 1996, primarily due to
the decreased debt balance resulting from the March 1997 repayment of the note
payable to Enron incurred in obtaining the additional ownership of CIESA in July
1996 and the June 1997 repayment of the note payable to Centragas (see Note 6 to
EPP's financial statements and notes thereto). This decrease was partially
offset by an increase in interest expense attributable to the debt with Enron
related to the Dominican Republic cost overrun loans ("COLs") (see Note 6 to
EPP's financial statements and notes thereto).
INTEREST INCOME. Interest income increased $0.5 million (35%) during the
third quarter of 1997 compared to the third quarter of 1996, primarily due to
interest earned from the COLs and increased cash balances invested with Enron
(see Note 8 to EPP's financial statements and notes thereto).
OTHER INCOME (EXPENSE), NET. Other income (expense), net, represented expense
of $4.7 million for the third quarter of 1997 and was negligible for the third
quarter of 1996. The $4.7 million of expense in 1997 was primarily attributable
to losses recognized from forward contracts used to mitigate foreign exchange
risk in Colombia ($3.5 million) (see Note 12 to EPP's financial statements and
notes thereto and "EQUITY IN EARNINGS AND TECHNICAL ASSISTANCE FEES" above) and
on foreign currency exchange ($1.2 million).
INCOME TAX (EXPENSE) BENEFIT. The income of EPP is not taxable to EPP;
however, EPCA and Enron Power Philippines Corp. ("EPPC"), both wholly owned
subsidiaries of EPP, are taxable entities in their respective local
jurisdictions. The effective tax rate paid by these subsidiaries is less than
the statutory rate because a majority of the income of these subsidiaries
relates to ownership of equity investments, which is not subject to tax;
however, EPCA is subject to taxes (currently 33%) primarily on the technical
assistance fees received from TGS, net of interest expense. Dividends paid to
EPP from Centragas are subject to certain withholding taxes of 7%.
Income tax expense remained relatively unchanged from the third quarter
of 1996 compared to the third quarter of 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
EQUITY IN EARNINGS AND TECHNICAL ASSISTANCE FEES. Equity in earnings and
technical assistance fees increased $7.6 million (18%) in the first nine months
of 1997 compared to the first nine months of 1996. The increase is primarily due
to the earnings resulting from the increased ownership in CIESA and increased
earnings in the Philippines. The increased earnings in the Philippines are
primarily attributable to increased revenues due to more efficient operations
and reduced maintenance costs. An increase in equity in earnings from Centragas
primarily attributable to the net foreign exchange gains and lower income tax
expense from Colombian peso devaluation was primarily offset by the reversal of
the early completion bonus from the unfavorable amicable compoundment decision
(see Note 2 to EPP's financial statements and notes thereto).
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.5 million (12%) for the first nine months of 1997 compared to the
first nine months of 1996, primarily as a result of the expiration of an
agreement requiring reimbursement of certain expenses.
INTEREST EXPENSE. Interest expense increased $1.0 million (114%) for the
first nine months of 1997 compared to the first nine months of 1996, primarily
due to interest expense associated with the debt incurred in obtaining the
additional ownership of CIESA in July 1996 and the debt with Enron related to
the COLs (see Note 6 to EPP's financial statements and notes thereto).
13
<PAGE> 16
INTEREST INCOME. Interest income increased $2.0 million (89%) for the first
nine months of 1997 compared to the first nine months of 1996, primarily due to
interest earned from the COLs and increased cash balances invested with Enron
(see Note 8 to EPP's financial statements and notes thereto).
OTHER INCOME (EXPENSE), NET. Other income (expense), net, represented expense
of $3.2 million and $1.8 million for the first nine months of 1997 and 1996,
respectively. The $1.4 million of additional expense was primarily attributable
to losses recognized from forward contracts used to mitigate foreign exchange
risk in Colombia ($2.1 million) (see Note 12 to EPP's financial statements and
notes thereto and "EQUITY IN EARNINGS AND TECHNICAL ASSISTANCE FEES" above) and
on foreign currency exchange ($1.1 million) partially offset by the acquisition
costs incurred for the Colombia and the Dominican Republic projects ($1.8
million) during the first nine months of 1996.
INCOME TAX (EXPENSE) BENEFIT. Income taxes decreased $5.1 million for the
first nine months of 1997 compared to the first nine months of 1996, primarily
due to the one-time reversal of $4.0 million related to a reserve for certain
Philippine withholding taxes and the elimination of accrued Philippine
withholding taxes after the one-time reversal in the first quarter of 1997 based
upon the repeal of a U.S. tax law which enabled EPP to alter its tax planning
strategies. Under the new strategies, EPP believes that such cash will
ultimately be received without incurring these withholding taxes and,
accordingly, management believes that a liability for these withholding taxes is
no longer required.
LIQUIDITY AND CAPITAL RESOURCES OF EPP
PRIMARY CASH REQUIREMENTS
The primary cash requirements of EPP include the payment of dividends to its
shareholders and the payment of general and administrative expenses, including
salaries, overhead, debt service obligations and costs incurred under the
Administrative Services and Cost Sharing Agreements between Enron and EPP. EPP
may also use cash to satisfy its payment obligations, if any, under various
shareholder and credit agreements relating to the Project Companies and under a
Master Contribution Agreement among EPP, Enron and certain of their subsidiaries
(the "Contribution Agreement"). Pursuant to the Contribution Agreement, Enron
maintains certain commitments on behalf of EPP for the benefit of certain
Project Companies, as required by project lenders and certain other third
parties. In most instances, EPP has agreed to indemnify Enron against
liabilities that may be incurred under such commitments. Although these
indemnity obligations could result in certain otherwise nonrecourse liabilities
becoming recourse to EPP, EPP believes the events which would trigger liability
are remote, and therefore does not expect these obligations to create any
additional liability. If, however, EPP were required to make significant
payments to Enron under the Contribution Agreement, EPP believes it would have
adequate cash resources, would be able to obtain financing for such payments
from Enron or other sources or would be able to cause its subsidiaries to pay to
EPP cash dividends sufficient to make such payments. However, there can be no
assurance that sufficient cash, dividends or funds from other sources would be
available for such purpose.
On September 15, 1997, EPP paid a quarterly dividend of approximately $6.5
million, or $0.25 per share.
PRIMARY SOURCES OF CASH
Primary sources of cash for EPP consist of cash on hand, dividends from the
Project Companies, technical assistance fees and long-term loans of project cash
balances which are currently restricted by local regulations from being declared
as dividends. The ability of the Project Companies to pay dividends will be
dependent on the future earnings and debt repayment obligations of such
subsidiaries, dividend restrictions included in credit agreements at the project
level, applicable currency restrictions, income and other taxes, applicable laws
and the declaration of dividends by the boards of directors of each of the
Project Companies. Project financings typically require that certain cash
reserves be established at each Project Company and that certain additional
capital and legal requirements be satisfied before the Project Company may pay
dividends to its shareholders. However, each of EPP's subsidiaries has a stated
dividend policy, set forth in its shareholders agreement, of maximizing
after-tax cash distributions to shareholders after taking into consideration
capital requirements and applicable legal requirements.
14
<PAGE> 17
In the future, the Project Companies may also borrow funds or otherwise accept
encumbrances on their earnings resulting in further possible constraints on
their ability to pay dividends to EPP.
On March 5, 1997, EPP received $47.0 million in connection with the exercise
by Enron of its option to acquire EPP common shares ("Common Shares"). EPP used
a portion of the proceeds from this option exercise to repay a $36.6 million
note payable to Enron.
In the first nine months of 1997, EPP loaned approximately $8.6 million to
Enron in the form of a note receivable. The note bore interest at 5.4% payable
quarterly and was payable on demand. The note was converted to the one-month
London Interbank Offering Rate ("LIBOR") with principal due on demand and is
included in cash and cash equivalents (see Note 3 to EPP's financial statements
and notes thereto).
During the first nine months of 1997, EPP made additional COLs to Smith/Enron
Cogeneration Limited Partnership ("SECLP") in the amount of $4.6 million for
project-related items. As of September 30, 1997, the COLs and past due interest
payments total in the aggregate $15.3 million. The COLs bear interest at 13.5%
and are due in semiannual principal and interest payments through December 15,
2005. As of September 30, 1997, past due principal and interest on the COLs
totaled $1.7 million and $1.6 million, respectively, of the $15.3 million and
bear interest at 15.5%.
In the first nine months of 1997, Subic Power Corp. ("Subic") and Batangas
Power Corp. ("Batangas") paid $3.0 million and $11.5 million in dividends,
respectively, of which EPPC received approximately $7.3 million. EPCA received
approximately $29.9 million in dividends from CIESA in the first nine months of
1997. EPP received approximately $1.5 million in dividends from Puerto Quetzal
Power Corp. ("PQPC") in the first nine months of 1997. During the first nine
months of 1997, Centragas declared dividends of approximately $29.9 million,
approximately $7.4 million of which was received during the first nine months of
1997 and $7.2 million of which is expected to be received by EPP incrementally
through December 1997. SECLP and Smith/Enron O&M Limited Partnership ("SEOM")
paid no dividends during the first nine months of 1997 (see Note 5 to EPP's
financial statements and notes thereto).
LONG-TERM FINANCING POLICY
EPP's business strategy is to generate long-term growth in earnings per
share, dividends and cash flow by acquiring interests in additional power and
natural gas pipeline projects from Enron and third parties. EPP currently
expects to fund any such acquisitions from Enron by issuing additional Common
Shares and to fund acquisitions from third parties with Common Shares, cash or
debt. EPP believes that it will have sufficient cash to meet its obligations for
the foreseeable future.
RECENT EVENTS
On August 18, 1997, Enron and EPP agreed to a merger whereby Enron would
purchase all outstanding EPP common shares not already owned by Enron. Under the
proposal, the shareholders of EPP other than Enron would receive Enron Corp.
common stock having a market value (based on the average trading price of Enron
Corp. common stock for a 20 trading day period prior to the completion of the
merger) of $35 per share. The merger proposal has been sent to, and will be
submitted to a vote at a meeting of, the EPP shareholders, which meeting is
scheduled for November 18, 1997.
A lawsuit has been filed by one of EPP's shareholders seeking to enjoin the
merger with Enron, a copy of such petition is attached hereto as Exhibit 99.1.
The lawsuit, which was served on EPP on November 10, 1997, seeks recovery of
unspecified damages and rescission of the merger if it is not enjoined. The
lawsuit purports to be filed as a class action on behalf of all holders of EPP
common shares against Enron, Enron International Merger L.L.C., EPP, and each of
the directors of EPP. The suit alleges, among other things, that the directors
of EPP breached their duties to EPP shareholders by approving the merger
agreement and recommending that it be adopted by EPP's shareholders, that the
merger price is unfair, that the members of the Oversight Committee (composed of
the three non-Enron affiliated directors of EPP), which approved the merger,
were not independent and that Enron used its
15
<PAGE> 18
majority ownership of EPP to unfairly dominate the merger process for its own
benefit. EPP and Enron believe that the lawsuit is without merit and does not
take into consideration the lengthy and careful arm's length negotiating process
which led to the approval of the merger agreement by a unanimous vote of EPP's
independent Oversight Committee. EPP and Enron intend to vigorously defend
against the allegations in the litigation.
PIPELINE OPERATIONS
Equity in earnings of the pipeline operations represents EPP's 331/3%
interest in CIESA (increased from 25% on July 31, 1996), which owns 70% of TGS,
and EPP's 49% interest in Centragas, which EPP acquired in May 1996 and which
began full commercial operation in February 1996. See "Results of Operations of
EPP -- General."
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 VS.
THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Presented below is a summary of income statement information for the
combined pipeline operations of CIESA and Centragas for the third quarter of
1997 and 1996 on a U.S. Generally Accepted Accounting Principles ("GAAP"),
historical U.S. dollar, 100% basis. See "Results of Operations of EPP --
General."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Gas transportation revenues $ 104,823 $ 106,018
Gas processing revenues 13,501 12,055
--------- ---------
Total Revenues 118,324 118,073
Operating, administrative and selling expenses (35,892) (33,102)
Interest income 1,846 1,577
Interest expense, net of capitalized interest (21,406) (21,792)
Other income (expense) 647 (584)
--------- ---------
Income Before Minority Interest and Income Taxes 63,519 64,172
Minority interest (12,319) (11,200)
Income tax expense (17,179) (33,072)
--------- ---------
Net Income $ 34,021 $ 19,900
========= =========
EPP's Equity in Earnings of Pipeline Operations $ 13,214 $ 5,890
========= =========
</TABLE>
GAS TRANSPORTATION REVENUES. Transportation revenues decreased $1.2 million
(1%) for the third quarter of 1997 compared to the third quarter of 1996.
Transportation revenues of Centragas decreased $0.6 million during the third
quarter of 1997 primarily as a result of a 5% decrease in the tariff rate.
Transportation revenues at TGS decreased $0.6 million during the third quarter
of 1997 primarily as a result of lower interruptible volumes from warmer weather
conditions.
GAS PROCESSING REVENUES. During the third quarter of 1997 as compared to the
third quarter of 1996, processing revenues increased by $1.4 million (12%)
primarily due to increased prices and volumes of natural gas liquids. Improved
operating efficiencies in Argentina during the first quarter of 1997 provided
the increased volume of natural gas liquids. Centragas does not generate any
processing revenues.
OPERATING, ADMINISTRATIVE AND SELLING EXPENSES. Operating, administrative and
selling expenses increased $2.8 million (8%) for the third quarter of 1997
compared to the third quarter of 1996. Operating, administration and selling
expenses increased $1.5 million at Centragas for the third quarter of 1997
primarily due to increased maintenance costs and expenses associated with the
amicable compoundment procedures (see Note 2 to EPP's financial statements and
notes thereto). Operating, administrative and selling expenses increased $1.3
million at TGS for the third quarter of 1997 primarily due to higher
depreciation expense resulting from a capital expenditure program and increased
fees to ENARGAS, partially offset by reductions in labor costs resulting from
operating efficiencies.
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<PAGE> 19
INTEREST INCOME. Interest income increased $0.3 million (17%) for the third
quarter of 1997 compared to the third quarter of 1996, primarily due to the
increase in interest income at Centragas resulting from loans made to
affiliates. This increase was partially offset by the decrease in interest
income at TGS and CIESA primarily due to lower average short-term investment
balances and lower interest rates.
INTEREST EXPENSE, NET OF CAPITALIZED INTEREST. Interest expense, net of
capitalized interest, decreased $0.4 million (2%) for the third quarter of 1997
compared to the third quarter of 1996, primarily due to decreases at TGS and
CIESA. The decrease in interest expense, net of capitalized interest, at TGS and
CIESA for the third quarter of 1997 was primarily a result of lower interest
rates at CIESA from debt refinancing (see "Liquidity and Capital Resources of
Pipeline Operations") and increased capitalized interest at TGS from increased
capital expenditures.
INCOME TAX EXPENSE. The statutory tax rate in Argentina is 33% of taxable net
income, calculated according to Argentine tax regulations which differ in
certain respects from accounting practices followed under Argentine GAAP for the
preparation of financial statements. The statutory tax rate in Colombia is 35%
of taxable net income, calculated according to Colombian tax regulations. The
effective tax rate for Centragas differs from the statutory tax rate primarily
due to the taxable effects of inflation and foreign currency exchange
fluctuations under Colombian tax regulations, which are eliminated for U.S. GAAP
reporting. Fluctuations in the value of the Colombian peso will result in
increases or decreases in local income taxes.
Income tax expense decreased $15.9 million (48%) for the third quarter of
1997 compared to the third quarter of 1996. Income tax expense decreased at
Centragas ($9.2 million) for the third quarter of 1997 primarily due to the
income tax benefits related to the devaluation of the Colombian peso. Income tax
expense decreased at CIESA ($6.7 million) for the third quarter of 1997
primarily due to the recognition of the cumulative impact of the retroactive
income tax rate increase from 30% to 33% in the third quarter of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
Presented below is a summary of income statement information for the
combined pipeline operations of CIESA and Centragas for the first nine months of
1997 and 1996 on a U.S. GAAP, historical U.S. dollar, 100% ownership basis. See
"Results of Operations of EPP -- General."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Gas transportation revenues $ 307,187 $ 311,982
Gas processing revenues 36,263 34,780
--------- ---------
Total Revenues 343,450 346,762
Operating, administrative and selling expenses (101,974) (99,440)
Interest income 4,754 4,940
Interest expense, net of capitalized interest (63,315) (64,374)
Other income 875 375
--------- ---------
Income Before Minority Interest and Income Taxes 183,790 188,263
Minority interest (37,373) (36,481)
Income tax expense (64,441) (74,623)
--------- ---------
Net Income $ 81,976 $ 77,159
========= =========
EPP's Equity in Earnings of Pipeline Operations $ 28,039 $ 22,419
========= =========
</TABLE>
GAS TRANSPORTATION REVENUES. Transportation revenues decreased $4.8 million
(2%) for the first nine months of 1997 compared to the first nine months of
1996. Transportation revenues at Centragas decreased $11.1 million during the
first nine months of 1997 primarily as a result of the reversal of the early
completion bonus
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<PAGE> 20
recorded in the first nine months of 1996 (see Note 2 to EPP's financial
statements and notes thereto) and a 5% decrease in the tariff rate.
Transportation revenues at TGS increased $6.3 million during the first nine
months of 1997 primarily as a result of the extension of certain firm
transportation agreements and the 1.5% increase in tariff rates effective July
1, 1996.
GAS PROCESSING REVENUES. During the first nine months of 1997 as compared to
the first nine months of 1996, processing revenues at TGS increased by $1.5
million (4%) primarily due to increased interruptible volumes and higher prices.
Improved operating efficiencies provided the increased volume of natural gas
liquids.
OPERATING, ADMINISTRATIVE AND SELLING EXPENSES. Operating, administrative and
selling expenses increased $2.5 million (3%) during the first nine months of
1997 compared to the first nine months of 1996, primarily due to an increase at
Centragas. Operating, administrative and selling expenses increased at Centragas
during the first nine months of 1997 primarily due to a full period of
commercial operations during 1997 versus 1996 in which commercial operations
commenced on February 24, 1996. Additionally, during the first nine months of
1997, operating, administrative and selling expenses at Centragas increased due
to increased maintenance costs and expenses associated with the amicable
compoundment procedures (see Note 2 to EPP's financial statements and notes
thereto). Operating, administrative and selling expenses remained relatively
unchanged at CIESA for the first nine months of 1997.
INTEREST INCOME. Interest income decreased $0.2 million (4%) during the first
nine months of 1997 compared to the same period in 1996. Interest income at TGS
and CIESA decreased $2.4 million during the first nine months of 1997 primarily
due to lower average short-term investment balances and lower interest rates at
TGS and CIESA. This decrease was partially offset by an increase in interest
income at Centragas ($2.2 million) primarily attributable to loans made to
affiliates.
INTEREST EXPENSE, NET OF CAPITALIZED INTEREST. Interest expense, net of
capitalized interest, decreased $1.1 million (2%) for the first nine months of
1997 compared to the first nine months of 1996. Interest expense, net of
capitalized interest, decreased $1.8 million at TGS and CIESA during the first
nine months of 1997 primarily due to lower interest rates and increased
capitalized interest from increased capital expenditures. Interest expense, net
of capitalized interest, increased $0.7 million at Centragas during the first
nine months of 1997 primarily as a result of a full period of commercial
operations during 1997 versus 1996 in which commercial operations commenced on
February 24, 1996.
INCOME TAX EXPENSE. Income tax expense in the first nine months of 1997
decreased $10.2 million (14%) compared to the first nine months of 1996. Income
tax expense decreased at Centragas ($11.0 million) primarily due to the income
tax benefit associated with the devaluation of the Colombian peso and the
reversal of the early completion bonus (see Note 2 to EPP's financial statements
and notes thereto). Income tax expense increased at CIESA ($0.8 million)
primarily due to the increase in taxable income.
LIQUIDITY AND CAPITAL RESOURCES OF PIPELINE OPERATIONS
As of September 30, 1997, TGS had access to approximately $300 million under
a global program to issue up to $500 million of debt securities. In addition,
TGS had access to $200 million of debt securities under a shelf registration
statement filed with the Securities and Exchange Commission during 1996.
In January and February 1997, the board of directors and shareholders of TGS,
respectively, approved the creation of a new global program for the issuance of
short-term debt securities for a maximum amount of $150 million. As of September
30, 1997, TGS had $150 million outstanding at 5.8% under these issuances, which
have been classified as long-term debt since TGS has the ability to and intends
to refinance these securities throughout the five-year term of the new global
program with existing borrowing facilities.
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<PAGE> 21
On April 22, 1997, CIESA issued a five-year $220 million debt security at the
three-month LIBOR plus 2% for the first two years, stepping up to LIBOR plus
2.7% thereafter. CIESA used these proceeds to retire a $220 million bridge
credit facility.
TGS believes that cash flows from operations supplemented with external debt
financing will provide sufficient liquidity to fund its capital expenditures,
pay dividends, cover its debt service and provide sufficient working capital.
As of September 30, 1997, CIESA's total capitalization amounted to $1.5
billion. Total capitalization was comprised of debt of $921 million,
shareholders' equity of $355 million and minority interest of $261 million. Debt
as a percentage of total capitalization increased from 55% at December 31, 1996,
to 60% at September 30, 1997.
Future capital expenditures for Centragas are expected to be minimal.
Centragas expects to meet cash requirements using cash flows from operations.
RECENT EVENTS
On July 4, 1997, ENARGAS announced its resolution covering the base natural
gas transportation tariffs of TGS for the five-year period commencing January 1,
1998. The ENARGAS resolution included an up-front, one-time tariff reduction of
6.5% for the efficiency factor and the framework by which TGS will promote and
price future systems expansions. The resolution did not address the investment
factor nor other proposals which could partially mitigate the impact of the rate
reduction. In August 1997, TGS filed an appeal with and is awaiting the decision
from ENARGAS (see Note 9 to EPP's financial statements and notes thereto).
TGS is presently analyzing various options that could mitigate the negative
impact of the rate reduction. Accordingly, the final impact of the ENARGAS
resolution on the future revenues and net income of TGS has not been determined.
POWER OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THE
THREE MONTHS ENDED SEPTEMBER 30, 1996
Presented below is a summary of income statement information for the combined
power operations of the Philippine power plants located in Subic Bay ("Subic
Plant") and Batangas ("Batangas Plant") with the Puerto Quetzal Plant in
Guatemala ("Puerto Quetzal Plant") and the Puerto Plata Plant in the Dominican
Republic ("Puerto Plata Plant") for the third quarter of 1997 and 1996 on a U.S.
GAAP, historical U.S. dollar, 100% ownership basis. See "Results of Operations
of EPP -- General."
19
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Capacity revenues $ 33,203 $ 33,765
Variable revenues 23,750 19,330
-------- --------
Total Revenues 56,953 53,095
Fuel cost (18,197) (14,825)
Operating and administrative expenses (10,090) (10,334)
Depreciation and amortization expense (8,720) (9,040)
-------- --------
Net Operating Income 19,946 18,896
Interest expense, net (9,360) (9,025)
Other expense, net (327) (955)
-------- --------
Income Before Income Taxes 10,259 8,916
Income tax expense (741) (711)
-------- --------
Net Income $ 9,518 $ 8,205
======== ========
EPP's Equity in Earnings of Power Operations $ 4,600 $ 4,019
======== ========
</TABLE>
REVENUES. A significant portion of each Project Company's revenue is
attributable to payments tied to the capacity of the respective plant, whether
on annual availability (the Subic and Batangas Plants) or an annual capacity
test (the Puerto Quetzal and Puerto Plata Plants). Capacity revenues decreased
$0.6 million (2%) for the third quarter of 1997 compared to the third quarter of
1996, primarily due to the decrease at the Subic Plant ($0.9 million) partially
offset by increases at the Puerto Quetzal Plant ($0.2 million) and the Puerto
Plata Plant ($0.1 million). The decrease in capacity revenues at the Subic Plant
for the third quarter of 1997 was primarily attributable to revenue from a
business interruption insurance claim recognized in the third quarter of 1996.
The second type of payment, an energy fee, varies directly with actual output
and, under the current cost structures of the plants, essentially covers
variable costs. Total variable revenues increased $4.4 million (23%) in the
third quarter of 1997 compared to the third quarter of 1996. Variable revenues
increased at the Puerto Quetzal Plant ($2.4 million) and at the Puerto Plata
Plant ($2.0 million) for the third quarter of 1997, primarily due to increased
output. Variable revenues remained relatively unchanged for the third quarter of
1997 at the Subic and Batangas Plants.
FUEL COST. Fuel cost is the expense for the fuel burned at the Puerto Quetzal
and Puerto Plata Plants. An Enron affiliate supplies fuel to these plants at
market-based rates. Total fuel cost increased $3.4 million (23%) for the third
quarter of 1997 compared to the third quarter of 1996. Fuel cost at the Puerto
Plata and Puerto Quetzal Plants increased $1.7 and $1.7 million, respectively,
for the third quarter of 1997, primarily due to the increased output discussed
above partially offset by lower fuel prices. Fuel is provided to the Subic and
Batangas Plants by their customer, National Power Corporation, at no cost to
these plants.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
decreased $0.2 million (2%) in the third quarter of 1997 compared to the third
quarter of 1996. The decrease was primarily due to decreased operating and
administrative expenses of the Batangas Plant ($0.5 million) and the Subic Plant
($0.3 million), primarily attributable to lower maintenance costs. These
decreases were partially offset by the increase in operating and administrative
expenses at the Puerto Plata Plant ($0.6 million) for the third quarter of 1997,
primarily due to increased legal fees associated with the arbitration with
Corporacion Dominicana de Electricidad ("CDE"), the government agency which
provides electric services to the Dominican Republic (see Note 9 to EPP's
financial statements and notes thereto), and maintenance costs.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
decreased $0.3 million (4%) in the third quarter of 1997 compared to the third
quarter of 1996. The decrease was due primarily to lower depreciation and
amortization expense at the Puerto Plata Plant ($0.2 million) and the Batangas
Plant ($0.1 million).
20
<PAGE> 23
INTEREST EXPENSE, NET. Interest expense, net, increased $0.3 million (4%) in
the third quarter of 1997 compared to the third quarter of 1996. Interest
expense, net, increased at the Puerto Plata Plant ($0.7 million) for the third
quarter of 1997 primarily due to increased interest expense on the COLs (see
Note 8 to EPP's financial statements and notes thereto). This increase was
partially offset by decreases in interest expense, net, at the Subic Plant ($0.2
million) and the Batangas Plant ($0.2 million) for the third quarter of 1997,
primarily due to lower outstanding debt balances.
INCOME TAX EXPENSE. Income tax expense is the tax on the power plants in
their respective local jurisdictions. On an aggregate basis, the effective tax
rate for the Subic and Batangas Plants is less than the statutory rate due to
the Subic and Batangas Plants being granted certain income tax holidays and
concessions. PQPC is organized as a U.S. domiciled company with a foreign branch
office. SECLP has been granted an income tax holiday for the life of the
project. Income tax expense remained relatively unchanged from the third quarter
of 1996 compared to the third quarter of 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
Presented below is a summary of income statement information for the
combined power operations of the Subic, Batangas, Puerto Quetzal and Puerto
Plata Plants for the first nine months of 1997 and 1996 on a U.S. GAAP,
historical U.S. dollar, 100% ownership basis. See "Results of Operations of EPP
- -- General."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Capacity revenues $ 98,759 $ 97,090
Variable revenues 69,157 56,854
--------- ---------
Total Revenues 167,916 153,944
Fuel cost (53,026) (42,462)
Operating and administrative expenses (30,006) (29,113)
Depreciation and amortization expense (26,157) (26,580)
--------- ---------
Net Operating Income 58,727 55,789
Interest expense, net (27,658) (27,266)
Other expense, net (1,573) (1,711)
--------- ---------
Income Before Income Taxes 29,496 26,812
Income tax expense (3,230) (2,891)
--------- ---------
Net Income $ 26,266 23,921
========= =========
EPP's Equity in Earnings of Power Operations $ 13,027 $ 11,676
========= =========
</TABLE>
REVENUES. Capacity revenues increased $1.7 million (2%) in the first nine
months of 1997 compared to the first nine months of 1996. Capacity revenues
increased at the Puerto Plata Plant ($1.1 million) in the first nine months of
1997 primarily due to increased output and a full period of commercial
operations during 1997 versus 1996 in which commercial operations commenced on
January 15, 1996. Capacity revenues increased at the Puerto Quetzal Plant ($0.6
million) in the first nine months of 1997 primarily due to increased output.
Total variable revenues increased $12.3 million (22%) for the first nine
months of 1997 compared to the first nine months of 1996, primarily due to the
increase at the Puerto Plata Plant ($10.1 million) and the Puerto Quetzal Plant
($2.0 million). The increase at the Puerto Plata and Puerto Quetzal Plants in
the first nine months of 1997 was primarily a result of increased output
partially offset by lower fuel prices. Variable revenues remained relatively
unchanged for the first nine months of 1997 at the Subic and Batangas Plants.
FUEL COST. Total fuel cost increased $10.6 million (25%) for the first nine
months of 1997 compared to the first nine months of 1996, primarily as a result
of the increase in fuel cost at the Puerto Plata Plant ($8.7 million) and the
Puerto Quetzal Plant ($1.9 million). Fuel cost at the Puerto Plata and the
Puerto Quetzal Plants increased for the first nine months of 1997 primarily due
to the increased output and lower fuel prices discussed above.
21
<PAGE> 24
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
increased $0.9 million (3%) in the first nine months of 1997 compared to the
first nine months of 1996. The increase was primarily due to increased operating
and administrative expenses of the Puerto Plata Plant ($2.9 million), partially
offset by decreased operating and administrative expenses at the Subic Plant
($1.2 million) and the Puerto Quetzal Plant ($0.7 million). The increase in
operating and administrative expenses at the Puerto Plata Plant for the first
nine months of 1997 was primarily due to increased legal fees associated with
the CDE arbitration (see Note 9 to EPP's financial statements and the notes
thereto) and maintenance costs. The decrease in operating and administrative
expenses at the Subic and Puerto Quetzal Plants for the first nine months of
1997 were primarily a result of decreased maintenance costs.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
decreased $0.4 million (2%) in the first nine months of 1997 compared to the
first nine months of 1996. The decrease was primarily due to lower depreciation
and amortization expense at the Puerto Plata Plant ($0.4 million).
INTEREST EXPENSE, NET. Interest expense, net, increased $0.4 million (1%) for
the first nine months of 1997 compared to the first nine months of 1996.
Interest expense, net, increased $2.0 million at the Puerto Plata Plant in the
first nine months of 1997 primarily as a result of increased interest expense on
the COLs (see Note 8 to EPP's financial statements and notes thereto). This
increase was partially offset by decreases of $0.8 million, $0.5 million and
$0.3 million at the Batangas, Subic and Puerto Quetzal Plants, respectively, in
the first nine months of 1997, primarily due to lower outstanding debt balances.
INCOME TAX EXPENSE. Income tax expense increased $0.3 million (12%) for the
first nine months of 1997 compared to the first nine months of 1996, primarily
as a result of an increase at the Puerto Quetzal Plant primarily attributable to
increased taxable income.
LIQUIDITY AND CAPITAL RESOURCES OF POWER OPERATIONS
Capital expenditures for the power plant operations are expected to be
insignificant in 1997. The power plant operations expect to meet short and
long-term liquidity needs using cash flows from operations. If a specific power
plant has short-term liquidity needs that cannot be met with cash flows from
operations, it is expected that such plant would borrow or be advanced the
necessary funds from an affiliated company.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although EPP
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking statements
herein include political developments in foreign countries, the timing and
success of Enron's efforts to develop international power, pipeline and other
infrastructure projects and conditions of the capital markets and equity markets
during the periods covered by the forward looking statements.
22
<PAGE> 25
ENRON GLOBAL POWER & PIPELINES L.L.C.
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about October 17, 1997, EPP mailed proxies to the holders of the
Common Shares to approve the Amended and Restated Agreement and Plan of Merger
between Enron Corp. and EPP dated August 18, 1997, and amended and restated as
of September 15, 1997. The special meeting of the EPP Shareholders to vote on
such approval is scheduled for November 18, 1997.
ITEM 5. OTHER MATTERS
On August 18, 1997, EPP entered into an Agreement and Plan of
Merger with Enron Corp. and Enron International Merger L.L.C. (the "Merger
Agreement"), as more fully described in the Merger Agreement. The Merger
Agreement was amended and restated as of September 15, 1997.
The Merger Agreement contemplates the merger of a subsidiary of Enron
Corp. with and into EPP in a transaction whereby the shareholders of EPP other
than Enron Corp. and entities controlled by Enron Corp. would receive Enron
Corp. common stock having a market value (based on the average trading price of
Enron Corp. common stock for a 20 trading day period prior to the completion of
the merger) of $35 per share. The merger is conditioned upon the approval of (i)
a majority of the Common Shares of EPP outstanding and (ii) a majority of the
EPP Common Shares held by persons other than Enron Corp. and entities controlled
by Enron Corp. present and voted at the shareholders meeting to be called to
vote upon the merger.
Assuming shareholder approval (as described above) is obtained, the
merger is anticipated to become effective on or about November 19, 1997 (see
Note 14 to EPP's financial statements and notes thereto).
A lawsuit has been filed by one of EPP's shareholders seeking to enjoin
the merger with Enron, a copy of such petition is attached hereto as Exhibit
99.1. The lawsuit, which was served on EPP on November 10, 1997, seeks recovery
of unspecified damages and rescission of the merger if it is not enjoined. The
lawsuit purports to be filed as a class action on behalf of all holders of EPP
common shares against Enron, Enron International Merger L.L.C., EPP, and each of
the directors of EPP. The suit alleges, among other things, that the directors
of EPP breached their duties to EPP shareholders by approving the Merger
Agreement and recommending that it be adopted by EPP's shareholders, that the
merger price is unfair, that the members of the Oversight Committee (composed of
the three non-Enron affiliated directors of EPP), which approved the merger,
were not independent and that Enron used its majority ownership of EPP to
unfairly dominate the merger process for its own benefit. EPP and Enron believe
that the lawsuit is without merit and does not take into consideration the
lengthy and careful arm's length negotiating process which led to the approval
of the Merger Agreement by a unanimous vote of EPP's independent Oversight
Committee. EPP and Enron intend to vigorously defend against the allegations in
the litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C>
10.1 Firm Transportation Service Agreement FT-34, between TGS and
MetroGas S.A. commencing March 15, 1996, with English
translation.
10.2 Firm Transportation Service Agreement FT-36, between TGS and
MetroGas S.A. commencing March 15, 1996, with English
translation.
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
99.1 Plaintiff's Original Class Action Petition filed by Harvey
Greenfield, Plaintiff, against EPP et al., Defendants.
</TABLE>
(b) Reports on Form 8-K:
EPP filed (a) Form 8-K on July 17, 1997, to announce the ENARGAS
resolution covering the base natural gas transportation tariffs of TGS and (b)
Form 8-K on August 22, 1997, to announce the proposed merger of EPP and Enron
Corp.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENRON GLOBAL POWER & PIPELINES
L.L.C.
(Registrant)
Date: November 13, 1997 By /s/ RODNEY L. GRAY
------------------------------------
Rodney L. Gray
Chairman and Chief Executive Officer
Date: November 13, 1997 By /s/ KURT S. HUNEKE
------------------------------------
Kurt S. Huneke
President and Chief Financial Officer
25
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
10.1 Firm Transportation Service Agreement FT-34, between TGS
and MetroGas S.A. commencing March 15, 1996, with English
translation.
10.2 Firm Transportation Service Agreement FT-36, between TGS
and MetroGas S.A. commencing March 15, 1996, with English
translation.
99.1 Plaintiff's Original Class Action Petition filed by Harvey
Greenfield, Plaintiff, against EPP et al., Defendants.
</TABLE>
26
<PAGE> 1
BUENOS AIRES, 15 DE MARZO DE 1996
SENORES
TRANSPORTADORA DE GAS
DEL SUR S.A.
PRESENTE
DE NUESTRA CONSIDERACION:
TENEMOS EL AGRADO DE DIRIGIRNOS A UDS. CON EL OBJETO DE EFECTUARLES UNA
OFERTA PARA EL SERVICIO DE TRANSPORTE FIRME, PROPUESTA QUE, DE ACEPTARSE, SE
REGIRA POR LOS TERMINOS Y CONDICIONES QUE SE DETALLAN A CONTINUACION:
SERVICIO DE TRANSPORTE FIRME
TF - XX1
ARTICULO I
SERVICIOS DE TRANSPORTE DE GAS
1. Sujeto al Reglamento y estipulaciones del presente y las Condiciones
Especiales del Transportista para el Transporte Firme (TF), MetroGas S.A. (en
adelante "el Cargador") acuerda entregar, o hacer entregar a Transportadora de
Gas del Sur S.A. (en adelante "el Transportista"), Gas para su transporte y el
Transportista acuerda recibir, transportar y restituir Gas al Cargador o por
cuenta del Cargador a quien este designe, sobre una base de Servicio de
Transporte Firme (TF) una capacidad de transporte no menor a una cantidad
diaria de QUINIENTOS CUARENTA MIL metros cubicos equivalentes de 9300 Kcal/m(3)
(en adelante la "Capacidad a Transportar").-
2. El servicio de transporte prestado por el presente no estara sujeto a
reduccion ni interrupcion por parte del Transportista con excepcion de lo
previsto en el Articulo 11 de las Condiciones Generales del Reglamento del
Transportista aprobado por el Ente Nacional Regulador de Gas y sus futuras
modificaciones, el que junto con las Condiciones Especiales del Servicio TF
forman parte del presente como Apendice A (en adelante "el Reglamento").-
3.
3.1 EL CARGADOR PODRA REDUCIR EL DIA 1st (First) DE MAYO DEL ANO 2004 HASTA UN
TREINTA POR CIENTO (30%) DE LA CAPACIDAD A TRANSPORTAR QUE TENGA RESERVADA
A DICHA FECHA EN MERITO DEL PRESENTE SERVICIO DE TRANSPORTE FIRME TF-XX1.-
3.2 El Cargador, a fin de ejercer el derecho a la reduccion prevista
precedentemente, debera comunicar en forma FEHACIENTE tal decision al
<PAGE> 2
Transportista con una antelacion no menor a ciento ochenta (180) dias al
dia 1st (first) de mayo del ano 2004, DEBIENDO ADEMAS INDICAR LA CAPACIDAD
DE TRANSPORTE QUE PRETENDA REDUCIR.-
3.3 Si el Cargador no comunicase al transportista, EN TIEMPO Y FORMA, su
decision de reducir la Capacidad a Transportar, no podra hacer uso de ese
derecho en lo sucesivo.-
4. Si el Cargador decide ejercer la opcion de reducir la Capacidad a
Transportar, la capacidad asi reducida sera la nueva Capacidad a Transportar.-
ARTICULO II
PUNTO (S) DE RECEPCION
El Cargador entregara o hara entregar el Gas en el (los) Punto (s) de Recepcion
designados en el Apendice B, adjunto al presente y que forma parte del mismo
mediante la referencia aqui expresada, a una presion suficiente para permitir
el ingreso del gas en el sistema de gasoductos del Transportista, tomando en
cuenta las presiones variables que pudieren en cada momento existir en tal
sistema y en cada Punto de Recepcion. Tal presion del gas entregado o hecho
entregar por el Cargador no excedera la(s) presion(es) operativa(s) maxima(s)
especificada(s) mas abajo para cada Punto de Recepcion. En el caso de que la(s)
presion(es) operativa(s) maxima(s) del sistema de gasoductos del Transportista,
en el (los) Punto(s) de Recepcion bajo el presente, fuere(n) incrementada(s) o
disminuida(s), la(s) presion(es) maxima(s) permitida(s) del gas entregado o
hecho entregar por el Cargador al Transportista en el (los) Punto(s) de
Recepcion sera(n) correlativamente incrementada(s) o disminuida(s) previa
notificacion escrita del Transportista al Cargador.-
SI EL TRANSPORTISTA DECIDE VARIAR LAS PRESIONES VARIABLES QUE PUDIEREN EN CADA
MOMENTO EXISTIR EN ALGUN PUNTO DE RECEPCION EN MAS DE UN 10%, DARA AVISO DE
TAL VARIACION AL CARGADOR O A LA PERSONA QUE EL CARGADOR INDIQUE, CON POR LO
MENOS 8 (OCHO) HORAS DE ANTICIPACION. -
SI EL TRANSPORTISTA DECIDE VARIAR LA(S) PRESION(ES) MAXIMA(S) PERMITIDA(S) DEL
GAS ENTREGADO O HECHO ENTREGAR POR EL CARGADOR AL TRANSPORTISTA EN EL (LOS)
PUNTO(S) DE RECEPCION EN MAS DE UN 20%, DARA AVISO DE TAL VARIACION AL
CARGADOR O A LA PERSONA QUE EL CARGADOR INDIQUE CON POR LO MENOS UN (1) ANO DE
ANTICIPACION .-
ARTICULO III
PUNTO (S) DE ENTREGA
1. El Transportista restituira diariamente al Cargador o a un tercero por
cuenta del Cargador una cantidad de gas igual a la Cantidad de Entrega bajo el
<PAGE> 3
presente en el (los) Punto(s) de Entrega y a la(s) presion(es) indicados en el
Apendice C adjunto al presente y que forma parte del mismo mediante la
referencia aqui expresada.-
2. La Cantidad de Entrega sera igual al total de la cantidad de gas
efectivamente entregada por el Cargador al Transportista en los Puntos de
Recepcion con deduccion de las cantidades que en concepto de combustible y
mermas retenga el Transportista segun lo establece el Reglamento, en cada per
iodo facturado.-
ARTICULO IV
PLAZO
El presente servicio de Transporte Firme entrara en vigencia a PARTIR DE SU
ACEPTACION, y permanecera en plena vigencia hasta las 6.00 horas del dia 1st
(first) de Mayo de 2014, y de alli en adelante sera renovado en forma
automatica por per iodos sucesivos de 1 (un) ano salvo que el Transportista o
el Cargador resuelvan rescindirlo, en cuyo caso, deberan notificar a la otra
parte, en forma fehaciente, su voluntad rescisoria con por lo menos 90 dias de
anticipacion al vencimiento del plazo respectivo.-
ARTICULO V
PRECIO Y FACTURACION
1. El Cargador pagara al Transportista en el domicilio del Transportista por el
servicio de Transporte Firme desde los Puntos de Recepcion hasta los Puntos de
Entrega una suma de dinero que sera establecida de conformidad con las Tarifas
del Transportista para el TF, y las disposiciones aplicables del Reglamento
vigentes en cada momento.-
El precio del servicio quedara sujeto a las modificaciones que surjan de los
Cuadros Tarifarios aprobados por el Ente a partir de la vigencia de los
mismos.-
2. Las facturas, ademas de la Tarifa por el servicio prestado, emanadas del
Transportista incluiran los restantes cargos que, segun las Condiciones
Generales y Condiciones Especiales del Reglamento, son a cargo del Cargador.-
3
<PAGE> 4
ARTICULO VI
TERMINACION ANTICIPADA E INCUMPLIMIENTOS
La mora en el cumplimiento de obligaciones a su vencimiento sera automatica, y
sin necesidad de interpelacion.-
Cualquier incumplimiento podra dar lugar, a voluntad de la parte cumplidora, a
la terminacion del presente servicio de Transporte Firme, observandose al
respecto lo establecido en las Condiciones Generales y Condiciones Especiales
del Reglamento.-
ARTICULO VII
CESION
Ninguna de las partes podra ceder el presente, en todo o en parte, sin el
previo y expreso consentimiento de la otra parte, manifestado por escrito.-
ARTICULO VIII
MISCELANEA
1. La interpretacion y ejecucion del presente se efectuara de acuerdo con las
leyes presentes y futuras de la Republica Argentina.-
2. Este servicio de Transporte Firme vinculara y regira a las partes de la
presente y sus respectivos sucesores y cesionarios.-
3. Las notificaciones a la otra parte se practicaran por escrito y se tendran
por debidamente entregadas en los siguientes domicilios:
(a) Al Transportista en: Don Bosco No. 3672 - 7th (Seventh) piso - Capital
Federal.-
(b) Al Cargador en: Av. Montes de Oca No. 1120 - Capital Federal.-
Tales domicilios podran ser eventualmente modificados, debiendose notificar
debidamente a la otra parte por correo certificado.-
4. Ambas partes aceptan que si el Cargador no utilizase eficientemente la
Capacidad a Transportar, el Ente Nacional Regulador del Gas de conformidad con
las normas reglamentarias podra asignar la parte no utilizada o deficientemente
utilizada, quedando en tal caso reducida la Capacidad a Transportar a la
capacidad asi reducida.-
5. En el caso que cualquiera de los clientes del Cargador deje de contratar con
el mismo para hacerlo:
i) directamente con el Transportista, o
ii) con Comercializadores que contraten Transporte Firme con el Transportista,
o
iii) con Productores que contraten Transporte Firme con el Transportista, o
iv) con
4
<PAGE> 5
cualquier combinacion de Comercializadores y Productores que contraten
Transporte Firme con el Transportista; ENTONCES, el Cargador PODRA reducir la
Capacidad a Transportar, pero en ningun caso dicha reduccion PODRA SER mayor
que la cantidad que SU cliente haya dejado de contratar con el. La Capacidad a
Transportar QUE el Cargador tendra derecho a REDUCIR en caso que cualquiera de
SUS clientes deje de contratar SERVICIOS DE TRANSPORTE FIRME DE GAS con el,
para HACERLO CON CUALQUIERA DE LAS PERSONAS PRECEDENTEMENTE SENALADAS, NO PODRA
SUPERAR EL PROMEDIO DIARIO de los consumos reales de Gas de dicho CLIENTE,
DEBIENDOSE CONSIDERAR PARA EL CALCULO los doce meses anteriores a su efectiva
desvinculacion del Cargador o el tiempo que corresponda si la relacion
contractual entre el Cargador y su cliente FUESE menor a doce meses.-
Si el Cargador decide ejercitar dicha opcion, notificara dicha decision al
Transportista dentro de los treinta d ias posteriores a la fecha en que
recibiera la notificacion de su cliente comunicandole su intencion de dejar de
contratar todo o parte de los servicios DE TRANSPORTE FIRME del Cargador.-
Vencido dicho plazo sin que el Transportista haya recibido dicha notificacion,
el Cargador no podra en el futuro ejercer tal opcion. Si, por el contrario, el
Cargador comunica que va a ejercer la opcion, entonces, la reduccion total o
parcial de la Capacidad a Transportar se producira a partir del momento en que
el cliente deje de recibir esos servicios del Cargador.-
6. Antes de iniciar cualquier proyecto de ampliacion de capacidad, el
Transportista notificara por escrito al Cargador de tal intencion. Dentro de
los treinta d ias de recibida dicha notificacion, el Cargador debera comunicar
al Transportista por escrito su intencion de liberar Capacidad a Transportar en
la zona donde el Transportista desarrollara su proyecto de expansion.-
LA PRESENTE OFERTA SERA CONSIDERADA ACEPTADA CUANDO ENTRE EN SERVICIO
LA PLANTA GENERADORA DE ENERG IA ELECTRICA DE PROPIEDAD DE PEREZ COMPANC
S.A. (UBICADA EN LAS CERCAN IAS DE LA CIUDAD DE BUENOS AIRES), O CUANDO ESA
TRANSPORTISTA ACEPTE NUESTRA PRIMERA SOLICITUD DE SERVICIO (ART. 23 DEL
REGLAMENTO DE SERVICIO DEL TRANSPORTISTA) CON IMPUTACION A LA PRESENTE, PARA LA
PRESTACION DEL SERVICIO DE TRANSPORTE FIRME NO. TF-XX1, LO QUE OCURRA PRIMERO.-
ASIMISMO, ACUSAMOS RECIBO DE LA COPIA DE LA RESOLUCION NO. 3/93 DEL
ENARGAS QUE NOS REMITIERAN EN CUMPLIMIENTO DE LO DISPUESTO EN EL ART. 3 DE LA
MISMA.-
SIN OTRO PARTICULAR LOS SALUDAMOS MUY ATENTAMENTE.-
POR METROGAS S.A.
- ----------------------------- ----------------------------
ING. FERNANDO SARTI DR. EDUARDO ZAPATA
DIRECTOR DE GRANDES CLIENTES DIRECTOR DE ASUNTOS LEGALES
Y RELACIONES INSTITUCIONALES
5
<PAGE> 6
APENDICE B
DEL
SERVICIO DE TRANSPORTE FIRME TF-XX1
ENTRE
TRANSPORTADORA DE GAS DEL SUR S.A.
Y
METROGAS S.A.
PRESION MAXIMA:
<TABLE>
<S> <C>
Gasoducto Neuba II = 68,5 Kg/cm(2) M.
Gasoducto Neuba = 60,0 Kg/cm(2) M.
</TABLE>
PUNTOS DE RECEPCION:
Son todos los Puntos de Recepcion dentro de la Zona de Recepcion Neuquen. El
Cargador designara cada cierto tiempo y de acuerdo con los procedimientos
establecidos al efecto por el Transportista y el Reglamento, los puntos dentro
de la Zona de Recepcion Neuquen en que el gas sera puesto a disposicion del
Transportista por el Cargador.-
CANTIDAD DIARIA:
Una cantidad de gas total de QUINIENTOS CUARENTA MIL (540,000) metros cubicos
equivalentes de 9300 Kcal/m(3), (mas combustible y mermas) desde la Zona de
Recepcion Neuquen.-
6
<PAGE> 7
APENDICE C
del
SERVICIO DE TRANSPORTE FIRME TF-34
entre
TRANSPORTADORA DE GAS DEL SUR S.A.
y
METROGAS S.A.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Punto de Nombre del Punto Presion Minima
Medicion Numero (Kg/cm(2))
- --------------------------------------------------------------------------------
<S> <C> <C>
210 Hogar de Ancianos Donselaar 20
224 Planta Ezeiza 20
227 Planta Buchannan 20
228 Planta Gutierrez 20
239 (*) Planta General Pacheco 20
308 (**) Complejo Cerri - RTP 35
348 (**) Complejo Cerri - RTP - Sur 35
163 Pta. Cerri-Consumos Zonales 35
917 Transferencia Zonas Metro --
918 Transferencia Zonas Metro (Sur) --
</TABLE>
(*) La capacidad del Transportista de entregar Gas en este Punto de Entrega
esta sujeta a la disponibilidad de esa capacidad en consideracion del
cumplimiento por el Transportista del Contrato para el Servicio de Transporte
Firme con Gas Natural BAN S.A. en tal Punto de Entrega.-
(**)Las entregas de Gas en estos Puntos de Entrega seran utilizadas
exclusivamente para compensar la Reduccion Termica de las Plantas de
procesamiento del Complejo Cerri.-
<PAGE> 8
APENDICE D
del
SERVICIO DE TRANSPORTE FIRME TF-34
entre
TRANSPORTADORA DE GAS DEL SUR S.A.
y
METROGAS S.A.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Zona de Zona de Cantidad a Vencimiento
Recepcion Entrega Transportar (*)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tierra del Fuego GBA 3.897.000 01/05/2014
Santa Cruz GBA 1.823.000 01/05/2014
Santa Cruz Bahia Blanca 1.750.000 01/05/2014
Neuquen GBA 10.250.000 01/05/2014
Neuquen Bahia Blanca 1.300.000 01/05/2014
Bahia Blanca-Ngn GBA 1.000.000 01/05/2014
Bahia Blanca-Sur GBA 1.000.000 01/05/2014
</TABLE>
(*) expresada en metros cubicos, por dia, equivalentes de 9300 Kcal/m3.-
CANTIDAD MAXIMA DE ENTREGA DIARIA: Una cantidad de gas que totalice entre todos
los Puntos de Entrega 19.020.000 m3 de 9300 Kcal/m3. La cantidad maxima de
entrega diaria en cada Punto de Entrega estara limitada a la capacidad maxima de
diseno de cada Punto de Entrega o la que en el futuro fijen las Partes.-
<PAGE> 9
TRANSLATION
Buenos Aires, March 15th, 1996
Messrs.
Transportadora de Gas del Sur S.A.
Dear Sirs:
This is to inform you that we wish to submit to your consideration an Offer for
Firm Transportation Service, which proposal, if accepted, will be governed by
the following terms and conditions:
FIRM TRANSPORTATION SERVICE
FT - 34
SECTION I
GAS TRANSPORTATION SERVICES
1. Subject to the Service Regulations and provisions hereof and to
Transporter's Special Conditions for Firm Transportation (FT), MetroGas S.A.
(hereinafter referred to as the "Shipper") agrees to deliver, or to cause to be
delivered to Transportadora de Gas del Sur S.A. (hereinafter referred to as the
"Transporter"), Gas to be transported and Transporter agrees to receive,
transport and return Gas to Shipper or to its designee on its behalf, on a Firm
Transportation Service basis (FT) a contracted transportation capacity of no
less than the amount of cubic meters per day shown in Exhibit D attached hereto
and made part hereof by this reference (the "Contracted Capacity").
2. The transportation service rendered hereunder will not be subject to
reduction or interruption by the Transporter except as provided in Section 11
of the Special Conditions of the Transporter's Service Regulations approved by
the National Gas Regulatory Entity and the future amendments thereto, which
together with the Special Conditions for the FT Service are made part hereof as
Exhibit A (hereinafter referred to as the "Regulations").
3.
3.1 On May 1st, 2004 Shipper will be entitled to reduce up to thirty per cent
(30%) of the Contracted Capacity already reserved as of such date as provided
for under this Firm Transportation Service FT-34.
3.2 Shipper, in order to exercise the right to the above mentioned reduction,
will be required to duly notify such decision to Transporter no less than one
hundred and eighty (180) days prior to May 1st, 2004, stating also the intended
reduction in transportation capacity.
<PAGE> 10
2
3.3 In case Shipper fails to duly notify Transporter its intention to reduce
the Contracted Capacity, Shipper will not be entitled to use such right
subsequently.
4. In case Shipper resolves to exercise the option to reduce the Contracted
Capacity, the capacity so reduced will be the new Contracted Capacity.
SECTION II
RECEIPT POINT(S)
Shipper will deliver or cause to be delivered the Gas at the Receipt Point(s)
shown in Exhibit B attached hereto and made part hereof by this reference, at a
pressure sufficient to allow the gas to enter the Transporter's pipeline
system, taking into account the variable pressures prevailing on such system
and at each Receipt Point. Such pressure of the gas delivered or caused to be
delivered by Shipper shall not exceed the maximum operating pressure(s) set
forth by the Transporter for each Receipt Point in Exhibit B. In the event the
maximum operating pressure(s) of the Transporter's pipeline system at the
Receipt Point(s) hereunder were increased or reduced, the maximum allowed
pressure(s) of the gas delivered or caused to be delivered by Shipper to
Transporter at the Receipt Point(s) shall be increased or reduced in the same
proportion provided the Transporter gives Shipper at least one (1) year prior
written notice.
In the event Shipper is not able to inject gas at the new maximum allowed
pressure(s) of the gas delivered or caused to be delivered by Shipper to
Transporter at the Receipt Point(s), notified by the Transporter, in accordance
with the above paragraph, Shipper and Transporter shall meet in order to find a
solution. Until such time, Transporter shall not modify the maximum allowed
pressure(s).
SECTION III
DELIVERY POINT(S)
1. Transporter will daily return to Shipper, or to a third party on behalf of
Shipper an amount of gas equal to the Delivery Amount hereunder at the Delivery
Point(s) and at the pressure(s) set forth in Exhibit C attached hereto and made
part hereof by this reference.
2. The Delivery Amount shall be equal to the total amount of gas effectively
delivered by Shipper to Transporter at the Receipt Point after deducting the
amount of fuel and shrinkage retained by Transporter in accordance with the
Regulations, in each invoiced period.
SECTION IV
TERM
This Firm Transportation service shall be effective as from 6.00 a.m. on May
1st, 1996 and it shall remain in full force up to 6.00 a.m. on May 1st, 2014;
and thereafter it will be automatically renewed for successive one (1) year
periods until Transporter or Shipper terminates it by providing at least 90
days prior written notice.
<PAGE> 11
3
SECTION V
PRICE AND BILLING
1. Shipper shall pay to Transporter at the Transporter's domicile, for the
firm transportation service rendered from the Receipt Points to the Delivery
Points, a money amount that will be established in accordance with the
Transporter's Rate for Firm Transportation, and the applicable provisions of
the Regulations then in effect.
The service price shall be subject to the modifications of the Rate Sheets
approved by the Entity as from their effective date.
2. In addition to the rate for the service rendered, the invoices issued by
Transporter shall include the remaining charges that according to the General
Conditions and the Special Conditions of the Regulations are to be borne by
Shipper.
SECTION VI
EARLY TERMINATION AND DEFAULTS
Default in the performance of the obligations on their maturity dates shall be
automatic and no demand shall be required.
Any contractual default may cause the early termination of this Firm
Transportation service at the non-defaulting party's option and the procedure
set forth in the General Conditions and the Special Conditions of the
Regulations for such purpose shall be followed.
SECTION VII
ASSIGNMENT
Neither party hereof shall be entitled to assign in whole or in part this Firm
Transportation service, without the prior and express written consent of the
other party.
SECTION VIII
MISCELLANEOUS
1. The interpretation and execution of this Firm Transportation service shall
be made in accordance with the laws of the Argentine Republic now or
hereinafter in effect.
2. This Firm Transportation service shall be binding for, and shall govern the
parties hereto and their respective successors and assignees.
3. Notices to the other party shall be in writing and shall be deemed duly
given when sent to the other party at the following domiciles:
(a) To Transporter at: Don Bosco 3672 - 7o piso - Capital Federal.
<PAGE> 12
4
(b) To Shipper at: Av. Montes de Oca 1120 - Capital Federal.
Such domiciles may be modified from time to time, by sending the other party a
due notice by registered mail.
4. Both parties acknowledge that if Shipper does not make an efficient use of
the Contracted Capacity, the National Gas Regulatory Entity, in accordance with
regulatory rules, shall allocate the portion not used or deficiently used, and
in such event the capacity so reduced will become the Contracted Capacity.
5. Notwithstanding the provisions under Article 1, paragraph 3 hereof, Shipper
will waive any other option it may have to reduce the Contracted Capacity under
the provisions of the Firm Transportation Service Agreements entered with
Transporter. However, in the event any of Shipper's customers fails to enter an
agreement with it and enters an agreement:
i) directly with Transporter under a Firm Transportation Agreement, or
ii) with Merchants entering a Firm Transportation Agreement with Transporter, or
iii) with Producers entering a Firm Transportation Agreement with Transporter,
or
iv) with any combination of Merchants and Producers entering a Firm
Transportation Agreement with Transporter;
in any such event, Shipper may elect to reduce the capacity, but in no such
event the reduction will be higher than the amount that Shipper's customer
failed to contract with Shipper. For the purposes of establishing contracted
transportation capacity that Shipper will be entitled to release in the event
that any of its customers fails to enter agreements with Shipper, the capacity
to be released shall be equal to the maximum amount of Gas actually used by
such customer during the twelve month period prior to its effective separation
from Shipper in order to enter an agreement with a third party or such time
period as may be relevant should the contractual relationship between Shipper
and customer be less than twelve months, less the Contracted Capacity engaged
by such customer with Shipper.
In the event Shipper intends to exercise such option, Shipper will notify such
election to Transporter within thirty days from the date of receipt of a
notification from its customer stating its intention to terminate in whole or
in part the engagement of Shipper's services.
Upon the expiry of such period if Transporter has not received such
notification, Shipper will not be able to exercise such option in the future.
However, on the contrary, if Shipper notifies its intention to exercise the
option, then the total or partial reduction of the Contracted Capacity will be
effective as of the time the customer ceases to receive such services from
Shipper.
6. Prior to the commencement of any capacity increase project, Transporter
shall give notice thereof in writing to Shipper. Within thirty days of the
receipt of such notification, Shipper shall notify Transporter in writing its
intention to release Contracted Capacity in the zone where Transporter will
develop its expansion project.
<PAGE> 13
5
7. Both parties hereto agree that on the effective date hereof this Agreement
replaces and automatically terminates Agreement FT-31.
This Offer will be considered accepted if Transporter accepts our first service
application (Section 23 of the Service Regulation) to be allocated to the Firm
Transportation Service No. FT-34, or said Transporter files the Offer with the
National Gas Regulatory Entity (ENARGAS), whichever occurs earlier.
We also acknowledge receipt of a copy of Resolution No. 3/93 of the ENARGAS
sent to us in compliance with the provisions of Section 3 thereof.
Truly yours,
By MetroGas S.A.
There is an illegible signature.
ROB VERRION
General Director
<PAGE> 14
6
EXHIBIT B
FIRM TRANSPORTATION SERVICE FT-34
between
TRANSPORTADORA DE GAS DEL SUR S.A.
and
METROGAS S.A.
MAXIMUM PRESSURE:
<TABLE>
<S> <C>
Fueguino Pipeline 70.0 Kg/cm(2) M
San Martin Pipeline 60.0 Kg/cm(2) M
Neuba II Pipeline 68.5 Kg/cm(2) M
Neuba I Pipeline 60.0 Kg/cm(2) M
Bahia Blanca - NQN (P.M. No. 917 - Neuquen Route) 60.0 Kg/cm(2) M
Bahia Blanca - South (P.M. No. 918 - Southern Route) 60.0 Kg/cm(2) M
</TABLE>
RECEIPT POINTS:
Are all the Receipt Points within the Receipt Zones. Shipper will indicate from
time to time and according to the procedure set forth by Transporter to such
effect and the Regulations, the points within the Receipt Zones where the gas
shall be made available by Shipper to Transporter.
DAILY AMOUNT:
An aggregate amount of gas in m(3) equivalent to 9300 Kcal, as per schedule set
forth in Exhibit D, (plus fuel and shrinkages) from the Receipt Zones.
<PAGE> 15
7
EXHIBIT C
FIRM TRANSPORTATION SERVICE FT-34
between
TRANSPORTADORA DE GAS DEL SUR S.A.
and
METROGAS S.A.
<TABLE>
<CAPTION>
MEASUREMENT POINT NAME OF THE POINT MINIMUM PRESSURES
NO. (KG/CM(2))
- -------------------------------------------------------------------------------
<S> <C> <C>
210 Donselaar Retirement Home 20
224 Ezeiza Plant 20
227 Buchannan Plant 20
228 Gutierrez Plant 20
239 (*) General Pacheco Plant 20
308 (**) Cerri Complex - RTP 35
348 (**) Cerri Complex - RTP - South 35
163 Pta. Cerri - Consumos Zonales 35
917 Metro Zone Transfers 35
918 Metro Zone Transfers (South) ---
</TABLE>
(*) Transporter's capacity to deliver Gas in this Delivery Point depends on
the availability of such capacity considering the performance by Transporter of
the Firm Transportation Service Agreement entered with Gas Natural BAN S.A. in
such Delivery Point.
(**) Deliveries of Gas in these Delivery Points will be exclusively used to
offset Thermal Reduction in the processing Plants of Cerri Complex.
<PAGE> 16
8
EXHIBIT D
FIRM TRANSPORTATION SERVICE FT-34
between
TRANSPORTADORA DE GAS DEL SUR S.A.
and
METROGAS S.A.
<TABLE>
<CAPTION>
RECEIPT ZONE DELIVERY ZONE AMOUNT TO BE MATURITY
TRANSPORTED (*)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tierra del Fuego GBA 3,897,000 05/01/2014
Santa Cruz GBA 1,823,000 05/01/2014
Santa Cruz Bahia Blanca 1,750,000 05/01/2014
Neuquen GBA 10,250,000 05/01/2014
Neuquen Bahia Blanca 1,300,000 05/01/2014
Bahia Blanca-Nqn GBA 1,000,000 05/01/2014
Bahia Blanca-South GBA 1,000,000 05/01/2014
</TABLE>
(*) stated in cubic meters, per day, equivalent to 9300 Kcal/m(3).
MAXIMUM AMOUNT OF DAILY DELIVERY: An amount of gas totaling between all
Delivery Points 19,020,000 m(3) of 9300 Kcal/m(3). Maximum amount of daily
delivery in each Delivery Point will be limited to the maximum designed
capacity of each Delivery Point or such capacity as shall be agreed by the
Parties in the future.
There are several illegible signatures on every page.
<PAGE> 1
METROGAS
BUENOS AIRES, 15 DE MARZO DE 1996
Senores
Transportadora de Gas
del Sur S.A.
Presente
De nuestra consideracion:
Tenemos el agrado de dirigirnos a Uds. con el objeto de efectuarles
una Oferta para el Servicio de Transporte Firme, propuesta que, de aceptarse,
se regira por los terminos y condiciones que se detallan a continuacion:
SERVICIO DE TRANSPORTE FIRME
TF - 36
ARTICULO I
SERVICIOS DE TRANSPORTE DE GAS
1. Sujeto al Reglamento y estipulaciones del presente y las Condiciones
Especiales del Transportista para el Transporte Firme (TF), MetroGas S.A. (en
adelante "el Cargador") acuerda entregar, o hacer entregar a Transportadora de
Gas del Sur S.A. (en adelante "el Transportista"), Gas para su transporte y el
Transportista acuerda recibir, transportar y restituir Gas al Cargador o por
cuenta del Cargador a quien este designe, sobre una base de Servicio de
Transporte Firme (TF) una capacidad de transporte no menor a una cantidad de
tres millones de metros cubicos equivalentes de 9300 Kcal/m3 (en adelante la
"Capacidad a Transportar").-
2. El servicio de transporte prestado por el presente no estara sujeto a
reduccion ni interrupcion por parte del Transportista con excepcion de lo
previsto en el Articulo 11 de las Condiciones Generales del Reglamento del
Transportista aprobado por el Ente Nacional Regulador de Gas y sus futuras
modificaciones, el que junto con las Condiciones Especiales del Servicio TF
forman parte del presente como Apendice A (en adelante "el Reglamento").-
3.
3.1 El Cargador podra reducir el dia 1st (first) de mayo del ano 2004
hasta un treinta por ciento (30%) de la Capacidad a Transportar que
tenga reservada a dicha fecha en merito del presente Servicio de
Transporte Firme TF-36 .-
3.2 El Cargador, a fin de ejercer el derecho a la reduccion prevista
precedentemente, debera comunicar en forma fehaciente tal decision al
Transportista con una antelacion no menor a ciento ochenta (180) dias
al dia 1st (first) de mayo del ano 2004, debiendo ademas indicar la
capacidad de transporte que pretenda reducir.-
3.3 Si el Cargador no comunicase al Transportista, en tiempo y forma, su
decision de reducir la Capacidad a Transportar, no podra hacer uso de
ese derecho en lo sucesivo.-
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 2
METROGAS
4. Si el Cargador decide ejercer la opcion de reducir la Capacidad a
Transportar, la capacidad asi reducida sera la nueva Capacidad a Transportar.-
ARTICULO II
PUNTO (S) DE RECEPCION
El Cargador entregara o hara entregar el Gas en el (los) Punto(s) de Recepcion
designados en el Apendice B, adjunto al presente y que forma parte del mismo
mediante la referencia aqui expresada, a una presion suficiente para permitir
el ingreso del gas en el sistema de gasoductos del Transportista, tomando en
cuenta las presiones variables que pudieren en cada momento existir en tal
sistema y en cada Punto de Recepcion. Tal presion del gas entregado o hecho
entregar por el Cargador no excedera la(s) presion(es) operativa(s) maxima(s)
especificada(s) por el Transportista en el Apendice B, para cada Punto de
Recepcion. En el caso de que la(s) presion(es) operativa(s) maxima(s) del
sistema de gasoductos del Transportista, en el (los) Punto(s) de Recepcion bajo
el presente, fuere(n) incrementada(s) o disminuida(s), la(s) presion(es)
maxima(s) operativa(s) del gas entregado o hecho entregar por el Cargador al
Transportista en el (los) Punto(s) de Recepcion sera(n) correlativamente
incrementada(s) o disminuida(s) previa notificacion escrita del Transportista
al Cargador con por lo menos un (1) ano de anticipacion.-
En caso que el Cargador no pueda inyectar gas a la(s) nueva(s) presion(es)
maxima(s) permitida(s) del gas entregado o hecho entregar por el Cargador al
Transportista en el (los) Punto(s) de Recepcion, informada por el
Transportista, conforme a lo senalado en el parrafo anterior, el Cargador y el
Transportista se reuniran a fin de encontrar una solucion conjuntamente. Hasta
que ello no suceda el Transportista no modificara la(s) presion(es) maxima(s)
permitida(s).-
ARTICULO III
PUNTO (S) DE ENTREGA
1. El Transportista restituira diariamente al Cargador o a un tercero por
cuenta del Cargador una cantidad de gas igual a la Cantidad de Entrega bajo el
presente en el (los) Punto(s) de Entrega y a la(s) presion(es) indicados en el
Apendice C adjunto al presente y que forma parte del mismo mediante la
referencia aqui expresada.-
2. La Cantidad de Entrega sera igual al total de la cantidad de gas
efectivamente entregada por el Cargador al Transportista en los Puntos de
Recepcion con deduccion de las cantidades que en concepto de combustible y
mermas retenga el Transportista segun lo establece el Reglamento, en cada
periodo facturado.-
ARTICULO IV
PLAZO
El presente servicio de Transporte Firme entrara en vigencia a partir de las
6.00 horas del dia 1 de mayo de 1996, y permanecera en plena vigencia hasta las
6.00 horas del dia 1 de mayo de 2014, y de alli en adelante sera renovado en
forma automatica por periodos sucesivos de 1 (un) ano salvo que el
Transportista o el Cargador resuelvan rescindirlo, en cuyo caso, deberan
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 3
METROGAS
notificar a la otra parte, en forma fehaciente, su voluntad rescisoria con por
lo menos 90 dias de anticipacion al vencimiento del plazo spectivo.-
ARTICULO V
PRECIO Y FACTURACION
1. El Cargador pagara al Transportista en el domicilio del Transportista por el
servicio de Transporte Firme desde los Puntos de Recepcion hasta los Puntos de
Entrega una suma de dinero que sera establecida de conformidad con las Tarifas
del Transportista para el TF, y las disposiciones aplicables del Reglamento
vigentes en cada momento.-
El precio del servicio quedara sujeto alas modificaciones que surjan de los
Cuadros Tarifarios aprobados por el Ente a partir de la vigencia de los
mismos.-
2. Las facturas, ademas de la Tarifa por el servicio prestado, emanadas del
Transportista incluiran los restantes cargos que, segun las Condiciones
Generales y Condiciones Especiales del Reglamento, son a cargo del Cargador.-
ARTICULO VI
TERMINACION ANTICIPADA E INCUMPLIMIENTOS
La mora en el cumplimiento de obligaciones a su vencimiento sera automatica, y
sin necesidad de interpelacion.-
Cualquier incumplimiento podra dar lugar, a voluntad de la parte cumplidora, a
la terminacion del presente servicio de Transporte Firme, observandose al
respecto lo establecido en las Condiciones Generales y Condiciones Especiales
del Reglamento.-
ARTICULO VII
CESION
Ninguna de las partes podra ceder el presente, en todo o en parte, sin el
previo y expreso consentimiento de la otra parte, manifestado por escrito.-
ARTICULO Vlll
MISCELANEA
1. La interpretacion y ejecucion del presente se efectuara de acuerdo con las
leyes presentes y futuras de la Republica Argentina.-
2. Este servicio de Transporte Firme vinculara y regira alas partes de la
presente y sus respectivos sucesores y cesionarios.-
3. Las notificaciones a la otra parte se practicaran por escrito y se tendran
por debidamente entregadas en los siguientes domicilios:
(a) Al Transportista en: Don Bosco No. 3672 - 7th (Seventh) piso - Capital
Federal.-
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 4
METROGAS
(b) Al Cargador en: Av. Montes de Oca No. 1120 - Capital Federal.-
Tales domicilios podran ser eventualmente modificados, debiendose notificar
debidamente a la otra parte por correo certificado.-
4. Ambas partes aceptan que si el Cargador no utilizase eficientemente la
Capacidad a Transportar, el Ente Nacional Regulador del Gas de conformidad con
las normas reglamentarias podra asignar la parte no utilizada o deficientemente
utilizada, quedando en tal caso reducida la Capacidad a. Transportar a la
capacidad asi reducida.-
5. Sin perjuicio de lo establecido en el articulo 1, punto 3 del presente, el
Cargador renunciara a cualquier otra opcion que pudiera tener para reducir la
Capacidad a Transporfar de conformidad con los Contratos de Servicio de
Transporte Firme celebrados con el Transportista. Sin embargo, en el caso que
cualquiera de los clientes del Cargador dejara de contratar con el mismo para
hacerlo:
i) directamente con el Transportista mediante un Contrato de Transporte Firme,
o
ii) con Comercializadores que contraten Transporte Firme con el Transportista,
o
iii) con Productores que contraten Transporte Firme con el Transportista, o
iv) con cualquier combinacion de Comercializadores y Productores que contraten
Transporte Firme con el Transportista;
en cualquiera de estos casos, el Cargador podra ejercer la opcion de reducir
capacidad, pero en ningun caso la reduccion sera mayor que la cantidad que el
cliente del Cargador dejo de contratar con el mismo. A los efectos de
determinar la capacidad de transporte contratada que el Cargador tendra derecho
a liberar en caso que cualquiera de los clientes del cargador dejara de
contratar con el mismo, dicha capacidad a liberar sera igual al maximo de los
consumos reales de Gas de dicho cliente durante los doce meses anteriores a su
desvinculacion efectiva del Cargador para contratar con un tercero o el tiempo
que correspondiera si la relacion contractual entre el Cargador y su cliente
fuera menor a doce meses, menos la Capacidad a Transportar que dicho cliente
mantuviera con el Cargador.-
Si el Cargador decidiera ejercitar dicha opcion, notificara dicha decision al
Transportista dentro de los treinta dias posteriores a la fecha en que
recibiera la notificacion de su cliente comunicandole su intencion de dejar de
contratar todo o parte de los servicios del Cargador.-
Vencido dicho plazo sin que el Transportista haya recibido la citada
notificacion, el Cargador no podra en el futuro ejercer tal opcion. Si, por el
contrario, el Cargador comunica que va a ejercer la opcion, entonces, la
reduccion total o parcial de la Capacidad a Transportar se producira a partir
del momento en que el cliente dejara de recibir esos servicios del Cargador.-
6. Antes de iniciar cualquier proyecto de ampliacion de capacidad, el
Transportista notificara por escrito al Cargador de tal intencion. Dentro de
los treinta dias de recibida dicha notificacion, el Cargador debera comunicar
al Transportista por escrito su intencion de liberar Capacidad a Transportar en
la zona donde el Transportista desarrollara su proyecto de expansion.-
La presente Oferta sera considerada aceptada si esa Transportista acepta
nuestra primera solicitud de servicio (art. 23 del Reglamento de Servicio del
Transportista) con
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 5
METROGAS
imputacion a la presente, para la prestacion del Servicio de Transporte Firme
No. TF-36, o la presenta al Ente Nacional Regulador del Gas (ENARGAS), lo
que ocurra primero.-
Asimismo, acusamos recibo de la copia de la Resolucion No. 3/93
del ENARGAS que nos remitieran en cumplimiento de lo dispuesto en el Art. 3 de
la misma.-
Sin otro particular los saludamos muy atentamente.-
Por MetroGas S.A.
/s/ Rob Verrion
- ----------------------------------------
ROB VERRION
Director General
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 6
METROGAS
APENDICE B
del
SERVICIO DE TRANSPORTE FIRME TF-36
entre
TRANSPORTADORA DE GAS DEL SUR S.A.
y
METROGAS S.A.
PRESION MAXIMA:
Gasoducto Neuba II = 68, 5 Kg/cm2 M.
Gasoducto Neuba I = 60, 0 Kg/cm2 M.
PUNTOS DE RECEPCION:
Son todos los Puntos de Recepcion dentro de las Zona de Recepcion Neuquen. El
Cargador designara cada cierto tiempo y de acuerdo con los procedimientos
establecidos al efecto por el Transportista y el Reglamento, los puntos dentro
de las Zona de Recepcion Neuquen en que el gas sera puesto a disposicion del
Transportista por el Cargador.-
CANTIDAD DIARIA:
Una cantidad de gas total de tres millones (3.000.000) metros cubicos
equivalentes de 9300 Kcal, (mas combustible y mermas) desde las Zona de
Recepcion Neuquen.-
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 7
METROGAS
APENDICE C
del
SERVICIO DE TRANSPORTE FIRME TF-36
entre
TRANSPORTADORA DE GAS DEL SUR S.A.
y
METROGAS S.A.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Punto de Nombre del Punto Zona Presion Minima
Medicion Numero (Kg/cm2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
210 Hogar de Ancianos Donselaar GBA 20
224 Planta Ezeiza GBA 20
227 Planta Buchannan GBA 20
228 Planta Gutierrez GBA 20
239 (*) Planta General Pacheco GBA 20
</TABLE>
(*) La capacidad del Transportista de entregar Gas en este Punto de Entrega
esta sujeta a la disponibilidad de esa capacidad en consideracion del
cumplimiento por el Transportista del Contrato para el Servicio de Transporte
Firme con Gas Natural BAN S.A. en tal Punto de Entrega.-
CANTIDAD MAXIMA DE ENTREGA DIARIA: Una cantidad de gas que totalice entre todos
los Puntos de Entrega 3.000.000 m3 de 9300 Kcal/m3. La cantidad maxima de
entrega diaria en cada Punto de Entrega estara limitada a la capacidad maxima
de diseno de cada Punto de Entrega o la que en el futuro fijen las Partes.-
Av. Montes de Oca 1120
(1271) Capital Federal
Tel.: 303-2005/14 - 303-2230/9
Fax: 303-1951.
<PAGE> 8
TRANSLATION
Buenos Aires, March 15th, 1996
Messrs.
Transportadora de Gas del Sur S.A.
Dear Sirs:
This is to inform you that we wish to submit to your consideration an Offer for
Firm Transportation Service, which proposal, if accepted, will be governed by
the following terms and conditions:
FIRM TRANSPORTATION SERVICE
FT - 36
SECTION I
GAS TRANSPORTATION SERVICES
1. Subject to the Service Regulations and provisions hereof and to
Transporter's Special Conditions for Firm Transportation (FT), MetroGas S.A.
(hereinafter referred to as the "Shipper") agrees to deliver, or to cause to be
delivered to Transportadora de Gas del Sur S.A. (hereinafter referred to as the
"Transporter"), Gas to be transported and Transporter agrees to receive,
transport and return Gas to Shipper or to its designee on its behalf, on a Firm
Transportation Service basis (FT) a contracted transportation capacity of no
less than three million cubic meters equivalent to 9300 Kcal/m(3) (hereinafter
referred to as the "Contracted Capacity").
2. The transportation service rendered hereunder will not be subject to
reduction or interruption by the Transporter except as provided in Section 11
of the Special Conditions of the Transporter's Service Regulations approved by
the National Gas Regulatory Entity and the future amendments thereto, which
together with the Special Conditions for the FT Service are made part hereof as
Exhibit A (hereinafter referred to as the "Regulations").
3.
3.1 On May 1st, 2004 Shipper will be entitled to reduce up to thirty per cent
(30%) of the Contracted Capacity already reserved as of such date as provided
for under this Firm Transportation Service FT-36.
3.2 Shipper, in order to exercise the right to the above mentioned reduction,
will be required to duly notify such decision to Transporter no less than one
hundred and eighty (180) days prior to May 1st, 2004, stating also the intended
reduction in transportation capacity.
<PAGE> 9
2
3.3 In case Shipper fails to duly notify Transporter its intention to reduce
the Contracted Capacity, Shipper will not be entitled to use such right
subsequently.
4. In case Shipper resolves to exercise the option to reduce the Contracted
Capacity, the capacity so reduced will be the new Contracted Capacity.
SECTION II
RECEIPT POINT(S)
Shipper will deliver or cause to be delivered the Gas at the Receipt Point(s)
shown in Exhibit B attached hereto and made part hereof by this reference, at a
pressure sufficient to allow the gas to enter the Transporter's pipeline
system, taking into account the variable pressures prevailing on such system
and at each Receipt Point. Such pressure of the gas delivered or caused to be
delivered by Shipper shall not exceed the maximum operating pressure(s) set
forth by the Transporter for each Receipt Point in Exhibit B. In the event the
maximum operating pressure(s) of the Transporter's pipeline system at the
Receipt Point(s) hereunder were increased or reduced, the maximum allowed
pressure(s) of the gas delivered or caused to be delivered by Shipper to
Transporter at the Receipt Point(s) shall be increased or reduced in the same
proportion provided the Transporter gives Shipper at least one (1) year prior
written notice.
In the event Shipper is not able to inject gas at the new maximum allowed
pressure(s) of the gas delivered or caused to be delivered by Shipper to
Transporter at the Receipt Point(s), notified by the Transporter, in accordance
with the above paragraph, Shipper and Transporter shall meet in order to find a
solution. Until such time, Transporter shall not modify the maximum allowed
pressure(s).
SECTION III
DELIVERY POINT(S)
1. Transporter will daily return to Shipper, or to a third party on behalf of
Shipper an amount of gas equal to the Delivery Amount hereunder at the Delivery
Point(s) and at the pressure(s) set forth in Exhibit C attached hereto and made
part hereof by this reference.
2. The Delivery Amount shall be equal to the total amount of gas effectively
delivered by Shipper to Transporter at the Receipt Point after deducting the
amount of fuel and shrinkage retained by Transporter in accordance with the
Regulations, in each invoiced period.
SECTION IV
TERM
This Firm Transportation service shall be effective as from 6.00 a.m. on May
1st, 1996 and it shall remain in full force up to 6.00 a.m. on May 1st, 2014;
and thereafter it will be automatically renewed for successive one (1) year
periods until Transporter or Shipper terminates it by providing at least 90
days prior written notice.
<PAGE> 10
3
SECTION V
PRICE AND BILLING
1. Shipper shall pay to Transporter at the Transporter's domicile, for the
firm transportation service rendered from the Receipt Points to the Delivery
Points, a money amount that will be established in accordance with the
Transporter's Rate for Firm Transportation, and the applicable provisions of
the Regulations then in effect.
The service price shall be subject to the modifications of the Rate Sheets
approved by the Entity as from their effective date.
2. In addition to the rate for the service rendered, the invoices issued by
Transporter shall include the remaining charges that according to the General
Conditions and the Special Conditions of the Regulations are to be borne by
Shipper.
SECTION VI
EARLY TERMINATION AND DEFAULTS
Default in the performance of the obligations on their maturity dates shall be
automatic and no demand shall be required.
Any contractual default may cause the early termination of this Firm
Transportation service at the non-defaulting party's option and the procedure
set forth in the General Conditions and the Special Conditions of the
Regulations for such purpose shall be followed.
SECTION VII
ASSIGNMENT
Neither party hereof shall be entitled to assign in whole or in part this Firm
Transportation service, without the prior and express written consent of the
other party.
SECTION VIII
MISCELLANEOUS
1. The interpretation and execution of this Firm Transportation service shall
be made in accordance with the laws of the Argentine Republic now or
hereinafter in effect.
2. This Firm Transportation service shall be binding for, and shall govern the
parties hereto and their respective successors and assignees.
3. Notices to the other party shall be in writing and shall be deemed duly
given when sent to the other party at the following domiciles:
(a) To Transporter at: Don Bosco 3672 - 7o piso - Capital Federal.
<PAGE> 11
4
(b) To Shipper at: Av. Montes de Oca 1120 - Capital Federal.
Such domiciles may be modified from time to time, by sending the other party a
due notice by registered mail.
4. Both parties acknowledge that if Shipper does not make an efficient use of
the Contracted Capacity, the National Gas Regulatory Entity, in accordance with
regulatory rules, shall allocate the portion not used or deficiently used, and
in such event the capacity so reduced will become the Contracted Capacity.
5. Notwithstanding the provisions under Article 1, paragraph 3 hereof, Shipper
will waive any other option it may have to reduce the Contracted Capacity under
the provisions of the Firm Transportation Service Agreements entered with
Transporter. However, in the event any of Shipper's customers fails to enter an
agreement with it and enters an agreement:
i) directly with Transporter under a Firm Transportation Agreement, or
ii) with Merchants entering a Firm Transportation Agreement with Transporter, or
iii) with Producers entering a Firm Transportation Agreement with Transporter,
or
iv) with any combination of Merchants and Producers entering a Firm
Transportation Agreement with Transporter;
in any such event, Shipper may elect to reduce the capacity, but in no such
event the reduction will be higher than the amount that Shipper's customer
failed to contract with Shipper. For the purposes of establishing contracted
transportation capacity that Shipper will be entitled to release in the event
that any of its customers fails to enter agreements with Shipper, the capacity
to be released shall be equal to the maximum amount of Gas actually used by
such customer during the twelve month period prior to its effective separation
from Shipper in order to enter an agreement with a third party or such time
period as may be relevant should the contractual relationship between Shipper
and customer be less than twelve months, less the Contracted Capacity engaged
by such customer with Shipper.
In the event Shipper intends to exercise such option, Shipper will notify such
election to Transporter within thirty days from the date of receipt of a
notification from its customer stating its intention to terminate in whole or
in part the engagement of Shipper's services.
Upon the expiry of such period if Transporter has not received such
notification, Shipper will not be able to exercise such option in the future.
However, on the contrary, if Shipper notifies his intention to exercise the
option, then the total or partial reduction of the Contracted Capacity will be
effective as of the time the customer ceases to receive such services from
Shipper.
6. Prior to the commencement of any capacity increase project, Transporter
shall give notice thereof in writing to Shipper. Within thirty days of the
receipt of such notification, Shipper shall notify Transporter in writing its
intention to release Contracted Capacity in the zone where Transporter will
develop its expansion project.
<PAGE> 12
5
This Offer will be considered accepted if Transporter accepts our first service
application (Section 23 of the Service Regulation) to be allocated to the Firm
Transportation Service No. FT-36, or said Transporter files the Offer with the
National Gas Regulatory Entity (ENARGAS), whichever occurs earlier.
We also acknowledge receipt of a copy of Resolution No. 3/93 of the ENARGAS
sent to us in compliance with the provisions of Section 3 thereof.
Truly yours,
By MetroGas S.A.
There is an illegible signature.
ROB VERRION
General Director
<PAGE> 13
6
EXHIBIT B
FIRM TRANSPORTATION SERVICE FT-36
between
TRANSPORTADORA DE GAS DEL SUR S.A.
and
METROGAS S.A.
MAXIMUM PRESSURE:
<TABLE>
<S> <C>
Neuba II Pipeline 68.5 Kg/cm(2) M
Neuba I Pipeline 60.0 Kg/cm(2) M
</TABLE>
RECEIPT POINTS:
Are all the Receipt Points within the Neuquen Receipt Zone. Shipper will
indicate from time to time and according to the procedure set forth by
Transporter to such effect and the Regulations, the points within the Neuquen
Receipt Zone where the gas shall be made available by Shipper to Transporter.
DAILY AMOUNT:
An aggregate amount of gas of three million (3,000,000) cubic meters equivalent
to 9300 Kcal, (plus fuel and shrinkages) from the Neuquen Receipt Zone.
<PAGE> 14
7
EXHIBIT C
FIRM TRANSPORTATION SERVICE FT-36
between
TRANSPORTADORA DE GAS DEL SUR S.A.
and
METROGAS S.A.
<TABLE>
<CAPTION>
MEASUREMENT POINT NO. NAME OF THE POINT MINIMUM PRESSURES
(KG/CM(2))
- ------------------------------------------------------------------------------
<S> <C> <C>
210 Donselaar Retirement Home 20
224 Ezeiza Plant 20
227 Buchannan Plant 20
228 Gutierrez Plant 20
239 (*) General Pacheco Plant 20
</TABLE>
(*) Transporter's capacity to deliver Gas in this Delivery Point depends on
the availability of such capacity considering the performance by Transporter of
the Firm Transportation Service Agreement entered with Gas Natural BAN S.A. in
such Delivery Point.
MAXIMUM AMOUNT OF DAILY DELIVERY: An amount of gas totaling between all
Delivery Points 3,000,000 m(3) of 9300 Kcal/m(3). Maximum amount of daily
delivery in each Delivery Point will be limited to the maximum designed
capacity of each Delivery Point or such capacity as shall be agreed by the
Parties in the future.
There follows Notarial Proceedings No. 003857262
There are several illegible signatures on every page.
There is an illegible signature and an illegible seal on all pages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 54,262
<SECURITIES> 0
<RECEIVABLES> 17,132
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,730
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 374,408
<CURRENT-LIABILITIES> 15,371
<BONDS> 18,027
0
0
<COMMON> 268,107
<OTHER-SE> 72,378
<TOTAL-LIABILITY-AND-EQUITY> 374,408
<SALES> 0
<TOTAL-REVENUES> 50,086
<CGS> 0
<TOTAL-COSTS> 5,207
<OTHER-EXPENSES> (1,119)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,789
<INCOME-PRETAX> 44,209
<INCOME-TAX> (1,651)
<INCOME-CONTINUING> 45,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,860
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
</TABLE>
<PAGE> 1
No.97-53952
HARVEY GREENFIELD, ) IN THE DISTRICT COURT OF
)
Plaintiff, )
vs. )
ENRON CORPORATION, ENRON GLOBAL )
POWER AND PIPELINES L.L.C., ENRON )
INTERNATIONAL MERGER L.L.C., ) HARRIS COUNTY, TEXAS
JAMES V. DERRICK, JR., RODNEY L. )
GRAY, REBECCA P. MARK, BRENT )
SCOWCROFT, EDMUND P. SEGNER, )
III., GEORGE S. SLOCUM, and )
THOMAS C. THEOBALD, )
)
Defendants. ) 11TH JUDICIAL DISTRICT
PLAINTIFF'S ORIGINAL CLASS ACTION PETITION
COMES NOW Plaintiff, HARVEY GREENFIELD, on behalf of himself and all
others similarly situated, and alleges as follows:
NATURE OF THE ACTION
1. This is a class action on behalf of the public stockholders of
Enron Global Power And Pipelines L.L.C. ("EPP" or the "Company") to enjoin
certain actions of its directors and senior management related to proposed
acquisitions of all of the outstanding shares of EPP common stock by defendant
Enron Corporation ("Enron"). Plaintiff alleges that he and the other public
shareholders of EPP are entitled to enjoin the proposed transaction or,
alternatively, to rescind the transaction and/or recover damages in the event
that the transaction is consummated.
THE PARTIES
2. Plaintiff is, and has been at all relevant times, the owner of
shares of the common stock of the Company.
<PAGE> 2
3. Defendant Enron Corporation ("Enron"), is a corporation duly
organized and existing under the laws of the State of Oregon. Enron is one of
the leading integrated natural gas and electricity companies in the world.
Enron's common stock is traded on the New York Stock Exchange. Enron maintains
its executive offices in Houston, Texas.
4. Defendant EPP is a corporation duly organized and existing
under the laws of the State of Delaware. There were 25,981,934 EPP common
shares outstanding as of the close of business on March 17, 1997, 13,535,332
(or approximately 52%) of which are owned or controlled by Enron. EPP maintains
its principal corporate offices at 333 Clay Street, Suite 1800, Houston, Texas
77002.
5. Defendant Enron International Merger L.L.C. (the "Merger Sub")
is a newly formed Delaware limited liability company and an indirect
wholly-owned subsidiary of Enron, and EPP, pursuant to the merger, Merger Sub
shall be merged with and into EPP.
6. Defendant James V. Derrick, Jr. ("Derrick") is, and at all
relevant times was, a director of EPP. Derrick is also Senior Vice President
and General Counsel of Enron. Derrick owns only 500 shares of EPP, however he
also owns over 511,000 shares of Enron.
7. Defendant Rodney L. Gray ("Gray") is, and at all relevant
times was, Chief Executive Officer, Chairman of the Board and a director of
EPP. Gray has also served as President of EPP from October 1994, until June
1995, and from November 1995, until February 1997. Gray is also Executive Vice
President of Enron International ("EI") and has served as Managing Director of
Enron
Plaintiff's Original Petition - Page 2
<PAGE> 3
Capital & Trade Resources Corp ("ETC"), EI and ETC are both wholly owned
subsidiaries of Enron. From October 1992, until June 1993, Gray also served as
Senior Vice President, Finance and Treasurer of Enron Corp. Gray owns only
16,000 shares of EPP, however he also owns over 553,000 shares of Enron.
8. Defendant Rebecca P. Mark ("Mark") is, and at all relevant
times was, a director of EPP. Mark is also Chairman and Chief Executive Officer
of EI, and has served as Vice President and Chief Development Officer of Enron
Power corp. from July 1991, to July 1993. Mark owns no shares of EPP, however
she owns over 185,000 shares of Enron.
9. Defendant Brent Scowcroft ("Scowcroft") is, and at all
relevant times was, a director of EPP.
10. Defendant Edmund P. Segner, III. ("Segner") is, and at all
relevant times was a director of EPP. Segner is also Executive Vice President
and Chief of Staff of Enron. From October 1990, through October 1992, Segner
served as Senior Vice President of Investor, Public and Government Relations of
Enron. Segner is also a director of Enron Oil & Gas Company, an affiliate of
Enron. Segner owns only 2000 shares of EPP, however he also owns over 271,000
shares of Enron.
11. Defendant George S. Slocum ("Slocum") is, and at all relevant
times was a director of EPP.
12. Defendant Thomas C. Theobald ("Theobald") is, and at all
relevant times was a director of EPP.
13. The defendants described in paragraphs 5-11 above are
hereinafter sometimes collectively referred to as the "individual defendants"
or the "director defendants."
Plaintiff's Original Petition - Page 3
<PAGE> 4
14. By virtue of the individual defendants' positions as officers
and/or directors of Epp, said defendants are in a fiduciary relationship with
the plaintiff and other public shareholders of EPP and owe plaintiff and other
members of the Class the highest obligation of good faith, fair dealing,
loyalty and due care.
15. The individual defendants are members of the board of EPP and
many are affiliated with Enron. Enron, by virtue of its 52% interest in EPP is
a controlling shareholder of EPP and orchestrated the proposed going private at
issue for its own benefit, at the expense of EPP's minority shareholders.
16. The individual defendants, by reason of their corporate
directorships, stand in a fiduciary position relative to EPP's minority
shareholders, whose fiduciary duties, at all times relevant herein, require
them to exercise their best judgment, and to act in a prudent manner, and in
the best interests of the Company's minority shareholders. Said defendants
owe the public minority of EPP the highest duty of good faith, fair dealing,
due care, loyalty, and full, candid and adequate disclosure.
17. Each defendant herein is sued individually as an aider and
abettor, as well as in his capacity as a director of the Company (in the case
of the individual defendants), or as a control person and the liability of
each arises from the fact that he has engaged in all or part of the unlawful
acts, plans, schemes, or transactions herein.
Plaintiff's Original Petition - Page 4
<PAGE> 5
VENUE
18. Venue is proper in this Court because EPP maintains its
principal office in Harris County.
CLASS ACTION ALLEGATIONS
19. Plaintiff brings this action on his own behalf and as a
stockholders' action, pursuant to Rule 42 of the Texas Rules of Civil
Procedure, on behalf of all shareholders of the common stock of EPP (except the
defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of the defendants) and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions as more fully described herein.
20. This action is properly maintainable as a class action.
21. The class is so numerous that joinder of all members is
impracticable. As of the close of business on March 17, 1997, 25,981,934 shares
of EPP common stock outstanding held by at least hundreds of shareholders
throughout the United States.
22. A class action is superior to other methods for the fair and
efficient adjudication of the claims herein asserted, and no unusual
difficulties are likely to be encountered in the management of this class
action. The likelihood of individual class members prosecuting separate claims
is remote.
23. There are questions of law and fact which are common to the
class and which predominate over questions affecting any individual class
member. The common questions include, inter alia, the following:
Plaintiff's Original Petition - Page 5
<PAGE> 6
(a) whether defendants have breached their fiduciary and
other common law duties owed by them to plaintiffs and the other members of the
class;
(b) whether defendants are pursuing a scheme and course
of conduct designed to eliminate the public shareholders of EPP in violation of
the laws of the State of Delaware in order to benefit from a proposed
acquisition of EPP by Enron at the expense and to the detriment of the
plaintiffs and the other public minority shareholders who are members of the
class;
(c) whether defendants are acting on both sides of the
possible going-private transaction, thus presenting a conflict of interest,
self-dealing and overreaching;
(d) whether the said proposed acquisition, hereinafter
described, constitutes a breach of the duty of fair dealing with respect to the
members of the class; and,
(e) whether the class is entitled to injunctive relief or
damages as a result of the wrongful conduct of the defendants.
24. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the class and
plaintiff has the same interests as the other members of the class. A class
action is superior to any other type of adjudication of this controversy.
25. Defendants have acted in a manner which affects plaintiff and
all other members of the class, thereby making appropriate injunctive relief
and/or corresponding declaratory relief with respect to the class as a whole.
Plaintiff's Original Petition - Page 6
<PAGE> 7
SUBSTANTIVE ALLEGATIONS
Background
26. In late 1996 and early 1997 Enron began to evaluate the
possibility of restructuring its international operations as part of an effort
to enhance the value of the interests owned by Enron's stockholders. By early
1997, Enron's management had become disappointed with the market performance of
EPP common shares, believing that the stock had underperformed its peers.
Internally, Enron began to discuss a possible merger with EPP. At that time
however, Enron did not advise the Oversight Committee of EPP that Enron
management was considering the possibility of a merger as part of its
restructuring plans.
27. On March 6, 1997, a meeting was held at the offices of Enron
at which Segner informed the senior officers of EPP in attendance, including
CEO Gray, that Enron had decided to study the possibility of a merger with EPP.
Following the meeting Enron hired Donaldson, Lufkin & Jenrette Securities Corp.
("DLJ") to act as its financial advisor in connection with the merger. On March
6, 1997, the common stock of EPP closed at $28.50 per share.
28. On April 24, 1997, Segner sent a letter to Theobald concerning
Enron's discussion of a possible merger with EPP. In the letter Segner
indicated that together with Enron's financial advisor, Enron had contemplated
an analysis of EPP that indicated little or no premium to current market price
would be justified in such a transaction. Unbelievably, Segner concluded that
Enron should be able to purchase the remainder of EPP at a price which Enron
believed did not adequately reflect the value of EPP, and
Plaintiff's Original Petition - Page 7
<PAGE> 8
without paying minority shareholders any premium.
29. Also on April 24, 1997, the EPP Oversight Committee,
composed of the three EPP outside directors, met and determined that it would
evaluate and respond to any proposal Enron determined to make, but that it
would not determine an acceptable price range prior to receiving a proposal
from Enron, and that due to the related expense it would not hire a financial
advisor unless Enron either made a merger proposal or undertook to reimburse
the expense in the event that no proposal was forthcoming. The Oversight
Committee also expressed concern that EPP did not have a Chief Financial
Officer or any senior officers who did not also hold significant positions with
other Enron entities.(1)
30. On May 14, 1997, after a meeting of the Oversight Committee at
which Lay and DLJ pitched the benefits of the merger, a letter signed by Segner
was sent to Gray of the Oversight Committee, setting forth a proposal to
acquire the outstanding public interest in EPP for $32.00 per share in Enron
common stock. After receipt of Segner's letter, Enron and EPP issued a press
release regarding the merger proposal.
31. On July 21, 1997, the Oversight Committee met to discuss the
Enron offer, together with financial advisors from Dillon Read (by this time
the Oversight Committee had retained Dillon Read as financial advisors). Dillon
Read discussed EPP's future earnings
- --------------------
(1)
Based on disclosures made by EPP in its 1997 Proxy Statement, dated March 27,
1997, the board of EPP owns approximately 118,750 shares of EPP common stock,
combined. However the same board members also own approximately 1,562,550
shares of Enron stock, combined.
Plaintiff's Original Petition - Page 8
<PAGE> 9
potential, including earnings to be generated through the addition of two power
plants in 1998. After discussion and consideration of Dillon Read's
presentation, the Oversight Committee concluded unanimously that Enron's
proposal of $32.00 in Enron common stock was unacceptable. Enron was
immediately informed of the EPP determination.
32. On August 14, 1997, Enron increased the bid for EPP to $34.00
per share, contingent upon the immediate cessation of EPP distributions,
including the distribution for the second quarter of 1997. The following day
the Oversight Committee called Lay to reject Enron's latest bid. During that
conversation Lay immediately increased the Enron offer to $35.00 per share,
without any cessation of distributions.
33. On August 18, 1997, the Oversight Committee met by phone to
consider the $35.00 bid. During the meeting the representative of Dillon Read
stated that the consideration to be received by the public shareholders
pursuant to the Merger Agreement was fair from a financial point of view.
Without any further deliberations the Oversight Committee then unanimously
approved the Merger Agreement, and recommended that the EPP Board recommend the
merger to EPP shareholders.
The Merger Agreement
34. On October 17, 1997, a Proxy Statement/Prospectus was sent to
all shareholders of EPP announcing a Special Meeting of shareholders to be held
on November 18, 1997, in order to vote on the merger of Enron and EPP. The
Proxy Statement includes, among other things a copy of the Merger Agreement.
The Merger Agreement
Plaintiff's Original Petition - Page 9
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outlines the effects of the merger. Most significantly, the Merger Agreement
states that the transaction proposed by Enron will be fully taxable for the EPP
shareholders, even though EPP shareholders are receiving Enron stock and not
cash. The Merger Agreement states:
Each holder of EPP Common Shares will be treated as having
sold his EPP Common Shares to Enron in exchange for shares of Enron
Common Stock... in a fully taxable transaction in which gain or loss is
realized and recognized. The amount of gain or loss will be equal to
the difference between the holder's aggregate basis for his EPP Common
Shares and the aggregate fair market value of the shares of Enron
Common Stock... (Emphasis added]
Furthermore, the Merger Agreement states that EPP shareholders will have no
appraisal rights regarding the transaction. The Merger Agreement states that:
Under the DLLCA, no holder of EPP Common Shares will be
entitled to any dissenters' or appraisal rights in connection with the
transactions contemplated by the Merger Agreement. [Emphasis added]
35. Additionally, the Merger Agreement would diminish the
quarterly dividends paid to current shareholders of EPP stock. According to the
Prospectus sent to shareholders in connection with the Merger Proposal, Enron
currently pays a dividend of approximately $0.22 per share on a quarterly
basis, this is a reduction of almost $0.03 per share compared to the current
quarterly dividend of $0.25 paid to shareholders of EPP. The reduction of the
dividend by $0.03 per share represents a 12% reduction in quarterly dividends
due EPP shareholders.
36. Furthermore, there is a substantial conflict of interest on
the part of the EPP board, including the Oversight Committee, in connection
with the ratification of the Enron merger. As disclosed
Plaintiff's Original Petition - Page 10
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in the Prospectus, upon the consummation of the merger Enron options held as a
result of the merger by officers, directors and employees of EPP who are
terminated as a result thereof (which is expected to consist of the members of
the Oversight Committee) will become 100% vested. As a result of the options
becoming 100% vested, the Oversight Committee and any board members who are
terminated as a result of the merger will receive what amounts to a stock bonus
upon the consummation of the merger, this in turn creates a substantial
conflict of interest.
37. The proposed purchase price of $35.00 per share is grossly
inequitable and represents only a $1.44 per share premium over the price that
EPP traded prior to the announcement.
38. The proposed purchase price of $35 does not represent the true
value of the assets and future prospects underlying each share of EPP.
39. By virtue of its dominance and control over EPP, Enron,
together with the individual defendants, has engaged in a plan involving acts
which are grossly unfair to plaintiff and the other members of the class. The
purpose of the plan is to enable Enron to acquire 100% equity ownership of EPP
and its assets for its own benefit, and at the expense of the other EPP
minority stockholders who would be deprived of their equity investment and the
benefits to accrue thereafter, for a grossly inadequate price.
40. Defendants' announcement of the proposed bid fails to disclose
the improving prospects for EPP due to the growth prospects for the Company.
Plaintiff's Original Petition - Page 11
<PAGE> 12
41. Because of Enron's 52% equity power and overwhelming control
over EPP's board of directors and operations, no third party, as a practical
matter, can attempt any competing bid for EPP, as the success of any such bid
would require the consent and cooperation of Enron.
42. The proposed transaction serves no legitimate business purpose
of EPP but rather is an attempt by defendants to unfairly benefit Enron from
the transaction at the expense of EPP's minority public stockholders. The
proposed plan will deny plaintiff and the other members of the class their
right to share proportionately in the future success and growth in
profitability of EPP and its valuable assets, while permitting defendants to
reap huge benefits from the contemplated transaction.
43. The price of $35 per share to be paid to the class members is
unconscionable, unfair and grossly inadequate, especially due to its taxable
nature and reduction in dividend amount. The terms of the proposed merger
constitute an unfair and illegal business practice upon the minority
stockholders because, among other things;
(a) the intrinsic value of the stock of EPP is materially in
excess of $35 per share, giving due consideration to the possibilities of
growth and profitability of EPP in light of its business, earnings and earnings
power, present and future.
(b) The $35 per share price is not the result of arm's length
negotiations by a disinterested board or a disinterested Oversight Committee,
and was not based upon significant deliberations regarding the current value of
EPP shares, assets or
Plaintiff's Original Petition - Page 12
<PAGE> 13
business, but was accepted by defendants, as part of a plan by Enron to obtain
complete ownership of EPP's assets and business at a price which does not
reflect the value of EPP, and to obtain for itself and the Oversight Committee
of EPP benefits disproportionate with those to be received by the public
stockholders, which facts were not and perhaps will not be disclosed since it
is not in defendants' interests to disclose such facts.
44. Because the defendants are in possession of corporate
information concerning EPP's assets, businesses and future financial prospects,
the degree of knowledge and economic power between defendants and the public
stockholders is unequal, making it grossly and inherently unfair and comprises
"unfair dealing" for Enron to obtain ownership of EPP'S assets from the
minority public common shareholders.
45. By reason of the foregoing acts, practices and course of
conduct, Enron has breached and continues to breach its duty as a controlling
stockholder of EPP and the individual defendants have breached and continue to
breach their duties as directors of EPP, to the remaining stockholders
including plaintiff and the other members of the class herein. Under the
circumstances of this matter as alleged herein, the Individual Defendants
breached their fiduciary obligations by failing to:
(a) Undertake an independent evaluation by a disinterested board
in order to evaluate EPP's net worth as a merger/acquisition candidate;
(b) Actively evaluate the proposed transaction and engage in a
meaningful auction with third parties in an attempt to obtain the best value
for EPP's public shareholders; and
Plaintiff's Original Petition - Page 13
<PAGE> 14
(c) Act independently so that the interests of EPP's public
shareholders will be protected and enhanced.
46. The consideration to be paid to class members in the proposed
merger is unfair and grossly inadequate because, among other things:
(a) The intrinsic value of EPP's stock is materially in excess of
the amount offered for those securities in the transaction, giving due
consideration to the anticipated operating results, net asset value, cash flow,
profitability and established markets of the Company;
(b) The exchange ratio is not the result of an appropriate
consideration of the value of EPP because EPP's board approved the proposed
transaction without undertaking steps to accurately ascertain EPP's value
through open bidding or at least a "market check mechanism";
(c) The exchange ratio does not take into consideration that the
exchange of EPP stock for Enron stock is fully taxable and therefore represents
a much lower net value to shareholders forced to exchange stock as a result of
the merger; and
(d) The price agreed to by the Oversight Committee does not
represent a fair valuation of EPP stock conducted by an independent board since
the Oversight Committee and board members of EPP had a significant financial
interest in seeing that the merger was approved.
47. Plaintiff and the other members of the class will suffer
irreparable damage unless defendants are enjoined from continuing to breach
their fiduciary duties and from carrying out the aforesaid plan and scheme.
Plaintiff's Original Petition - Page 14
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48. Plaintiff and the other members of the class have no adequate
remedy at law.
WHEREFORE, plaintiff demands judgment against the defendants jointly
and severally, as follows:
(1) declaring this action to be a class action and
certifying plaintiff as the class representative and his counsel as class
counsel;
(2) enjoining, preliminarily and permanently, Enron's
offer for acquisition of the EPP stock owned by plaintiff and the other members
of the class;
(3) to the extent, if any, that the contemplated
transaction or transactions complained of are consummated prior to the entry of
this Court's final judgment, rescinding such transaction or transactions, and
granting, inter alia, recessionary damages;
(4) directing that defendants pay to plaintiff and the
other members of the class all damages caused to them and account for all
profits and any special benefits obtained as a result of their unlawful
conduct;
(5) awarding to plaintiff the costs and disbursements of
this action, including a reasonable allowance for the fees and expenses of
plaintiff's attorneys and experts; and
(6) granting plaintiff and the other members of the class
such other and further relief as may be just and proper.
Dated: October 31, 1997
Plaintiff's Original Petition - Page 15
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HOEFFNER, BILEK & EIDMAN, LLP
/s/ THOMAS E. BILEK
-----------------------------------
Thomas E. Bilek
State Bar No.02313525
Lyric Office Center
440 Louisiana Street
Houston, Texas 77002-1634
(713) 227-7720 telephone
(713) 227-9404 facsimile
ATTORNEY FOR PLAINTIFF
OF COUNSEL:
STULL, STULL & BRODY
6 East 45th Street
New York, New York 10017
(212) 687-7230
Plaintiff's Original Petition - Page 16
