The Overseas Private Investment Corporation is reviewing its Enron-related
financing and political risk insurance transactions, and has asked the
Justice Department for help, OPIC officials said March 7.
OPIC President Peter S. Watson cited the review in defense of his agency’s
handling of its Enron transactions during a hearing of the House Foreign
Operations Appropriations Subcommittee. Enron’s dealings with OPIC and the U.S. Export-Import Bank were closely questioned at the hearing by subcommittee ranking member Rep. Nita Lowey (D-N.Y.).
Overall, the hearing focused on the president’s fiscal year 2003 export
financing budget request, and included representatives from Ex-Im, OPIC,
and the Trade and Development Agency.
‘Possible Litigation.’
A Feb. 25 letter from OPIC to the Department of Justice, obtained by BNA,
noted that “questions have arisen about the effect of any possible
misrepresentations” by Enron on its insurance and financing agreements with OPIC.
As a result of those questions, which an OPIC spokesman said were general
and being raised by some of Enron’s private creditors, Mark Garfinkel,
OPIC’s vice president and general counsel, requested assistance in the
letter from the DOJ on several fronts. Among other questions, Garfinkel
asked for a determination of whether OPIC “could terminate insurance
coverage or declare a default on loan guaranties” in the event that any
“material misrepresentations” by Enron are uncovered by the internal review
or by the Justice Department’s own investigation into Enron’s collapse.
The letter also asked for Justice’s assistance in “obtaining Enron records
and financial data” necessary to determine whether misrepresentations were
actually made, and in “preparing for possible litigation in this matter.”
OPIC has set up an “intra-departmental task force” to review its insurance
contracts and loans to Enron, the letter said. The task force will also
review the agency’s “general practices” intended to protect it from
“possible misrepresentations” by companies applying for OPIC support.
Lawrence Spinelli, director of communications for OPIC, told BNA that OPIC
“may or may not” find any problems with its current Enron transactions as a
result of the task force’s review.
He also said that the letter’s inquiries were “general” and not sparked by
any particular transaction. He characterized the letter as “neutral” and
the review as an “appropriate thing to do.”
In addition, Spinelli would not speculate whether OPIC’s review or
information provided by the Justice Department would lead to any
cancellations of Enron’s loans or insurance policies.
OPIC canceled two loans to Enron Feb. 13 that were pending but not yet
disbursed, reducing OPIC’s potential Enron exposure by $390 million.
Spinelli said at the time that the cancellations were not directly related
to Enron’s bankruptcy.
OPIC provided $544 million in loans to five different Enron-sponsored
projects in India, Turkey, the Philippines, Venezuela and Guatemala, the
agency said in documents submitted to the Senate Finance Committee Feb. 20 (19 ITR 308, 2/21/02).
In addition, it provided political risk insurance to 10 Enron projects,
with a total liability of $204 million. OPIC’s overall portfolio was valued
at $15.2 billion as of Sept. 30, 2001.
Lowey Critical of Ex-Im, OPIC
Rep. Lowey, ranking member of the subcommittee, strongly criticized OPIC
and Ex-Im during the hearing for their transactions with Enron.
“I do have concerns with respect to the extent of business Ex-Im and OPIC
have done with the Enron Corporation over the past ten years,” Lowey said
in her opening statement.
The Ex-Im Bank has previously disclosed that it provided Enron with $673
million in loans from 1993 through 2000.
Lowey, referring to news reports that Enron executives were given bonuses
for signing large overseas contracts, also scolded the two agencies for
their “apparent inability … to detect the inherent flaws in Enron’s
management structure that led to unwarranted cash bonuses to executives who used the taxpayers … as guarantors of their risky undertakings.”
OPIC and Ex-Im “must ensure that proposals they receive are based on sound financial ground,” she added, while acknowledging that this was more
difficult to do as companies grew larger and used more complex accounting.
“I have to say that at this point, my confidence in your procedures and
decisionmaking process has been severely eroded,” Lowey said.
Despite the tough comments, Lowey told BNA after the hearing that she did
not currently intend to follow them with any legislative proposals. She
added that “it’s very important that … the lessons that are being learned
from Enron” are “utilized” by Ex-Im and OPIC in the future.
Rep. Jim Kolbe (R-Ariz.), chair of the subcommittee, told BNA after the
hearing that he was not concerned about the two agencies’ behavior
regarding Enron. He noted that problems with the controversial power plant
Enron built in Dabhol, India, with OPIC and Ex-Im assistance, which Enron
and its partners are now trying to sell, stem largely from disputes with an
Indian state government and are unrelated to Enron’s financial problems.
