It’s a long way from energy town Houston, Texas, to the dry rainforests of eastern Bolivia. Yet the political heat generated by two governments’ investigations of failed U.S. energy trader Enron is blasting through the Bolivian jungle just the same, like the 628-kilometer gas pipeline Enron built here with U.S. taxpayer support.
Critics charge that the bankrupt former energy giant ran roughshod over the environment and the rights of indigenous peoples when it built a pipeline from the Bolivian city of Santa Cruz to the Cuiaba thermal power plant in Brazil’s Matto Grosso state. Indigenous groups are waiting for the collapsed energy giant to deliver land promised them for cooperating with the project.
Add to the mess Bolivia’s elections at the end of June, with políticos on both sides blaming each other for a deal gone very sour.
At issue is the role of U.S. government agency Overseas Private Investment Corp. (OPIC), which doled out US$3 billion to support Enron’s international projects during the 1990s. As part of a U.S. Senate Finance Committee investigation into those projects, U.S. politicians are looking into whether the agency approved financing for the Cuiaba project in violation of its own policies.
Under a 1997 Clinton administration directive, OPIC is prohibited from financing “infrastructure projects in primary tropical rainforests.”
Yet that’s exactly what the Enron gas pipeline, partly owned by Shell Oil, does. To supply 2.1 million cubic meters daily of natural gas to the Cuiaba power plant, the pipeline from Santa Cruz in eastern Bolivia cuts across the Chiquitano dry tropical forest, the world’s last large, relatively intact dry forest. The World Wildlife Fund lists Chiquitano among the planet’s 200 most sensitive environmental regions. The pipeline also passes through one of the world’s richest wildlife habitats, the Pantanal wetlands on the border of Bolivia and Brazil, and crosses forest lands long claimed by the indigenous Chiquitanos and Ayoreos.
To win $200 million in loan guarantees from OPIC for the $600 million pipeline, Enron agreed in 1999 to mitigate the project’s construction and operation effects on these ecosystems and on the indigenous communities. Three years later, however, OPIC has withdrawn its loan due to unresolved contractual disputes with Brazilian authorities and the political heat over the Enron debacle.
Promises made. Meanwhile, representatives of indigenous groups say Enron has yet to deliver on land titles the company promised in its compensation agreement. In September 2000, native protestors shut down three Enron pipeline construction work camps for 16 days. Hundreds of Chiquitano men, women and children peacefully blocked the entrances to the camps; some commandeered company vehicles. The conflict was finally resolved through negotiations, but protestors say the company has not followed through.
“They made their pipeline and then violated their word,” says Carlos Cuasace, president of the Chiquitano Indigenous Organization representing 450 Chiquitano communities in the region. An estimated 58,000 indigenous people make historical claims on at least 37% of the 2.4-million-hectare Chiquitano forest.
Green groups charge that illegal timber felling, cattle grazing and hunting are on the rise near pipeline access roads built by Enron, roads that the environmentalists say violate the company’s own OPIC-approved environmental management plan. “We maintain OPIC and Enron owe an ecological debt and can’t just walk away without paying it,” says Jon Sohn, international policy director at Friends of the Earth, a global environmentalist group that has been a persistent watchdog on the project.
The U.S. Congress also has uncovered evidence of Enron’s now infamous accounting tricks at work in Cuiaba. According to an independent investigation paid for by Enron’s own board of directors, Enron sold a 13% stake in the Cuiaba power plant for $11 million to LJM1, one of the fictional investment partnerships owned by Enron’s former chief financial officer, Andrew Fastow. This apparently allowed the company to book a $65 million profit for a 20-year gas supply contract with its own power plant, even though the pipeline had yet to deliver any gas. In August 2001, Enron bought back LJM1’s stake for $14 million, giving Enron executives in control of the LJM1 partnership a $3 million profit.
Laine Powell, director of the Cuiaba Integrated Energy Project, says the company has honored its environmental and social obligations and will continue to do so despite its parent company’s financial woes. Enron, he points out, did not include Cuiaba in its December bankruptcy filing and listed the project as a key aspect of the company’s reorganization plan. “We have made commitments, we have met commitments and we plan to continue meeting those commitments both on the pipeline and the power plant,” he says.
Irregularities. In La Paz, the Bolivian government has launched its own investigation. The Ministry of Sustainable Development announced in mid-May that Washington’s probe into OPIC’s approval of Cuiaba has prompted it to re-examine its own environmental green light for the project.
Bolivia’s Congress, too, is looking into corruption allegations involving Enron’s acquisition of 40% of the Bolivian side of the lucrative Bolivia-Brazil pipeline and 50% of the state’s oil and gas company transport unit during the 1993-97 government of Gonzalo Sánchez de Lozada.
Bolivian Congressman Armando de la Parra heads the investigation. Among the “irregular” details in the Bolivia-Brazil pipeline deal are provisions that allow Enron to set up the venture as an offshore company free from Bolivian taxation, de la Parra charges. He also says that the original pipeline contract between Enron and Sánchez de Lozada was illegal because it was created under New York state, not Bolivian, law.
Parra alleges that Enron also had a suspicious advantage in the public bid for the pipeline. “The other companies invited to bid had only 13 days advance notice, while Enron had been in communication about it with Sánchez de Lozada’s offices for five months prior,” says Parra. “And then, a detailed 20-page memorandum of understanding was signed just two days after Enron won the bid.”
Enron spokesman Keith Micelli calls the Bolivian investigation a ploy to influence the June 30 presidential election. “Even the Bolivian newspapers have pointed out that because Sánchez is a candidate they have politicized the issue,” Micelli says.
The Bolivian blame game, meanwhile, is getting more curious by the minute. In May, Carlos Sánchez, national chief of Sánchez de Lozada’s presidential campaign, denounced the outgoing Banzer-Quiroga government’s approval of the Cuiaba pipeline route as “the greatest environmental disaster of the last decade.”
While environmentalists tend to agree with the election-season declarations of Sánchez de Lozada, they also point to the former president’s original dealings that opened the door. “Goni [Sánchez de Lozada] is the one responsible for bringing Enron into Bolivia in the first place,” says Derrick Hindery of the California environmental group Amazon Watch.
Additionally, environmental critics say Sánchez de Lozada’s campaign statements are hardly credible, since he is chairman of the board of Toronto mining company Orvana Minerals Corp. Orvana plans to build a 5-kilometer pipeline spur off of the Cuiaba pipeline to power a 600 tons-per-day gold mining and processing plant in the heart of the Chiquitano forest.
Like many of Enron’s dealings, the origins of the Bolivian contretemps might well remain a mystery.
Government officials, questioned by the Congress, now say they have misplaced the original contract papers. Politicians probably wish the same would happen to the whole pipeline mess.
