New Inquiry Is Sought Into Enron
The New York Times
April 2, 2002
By RICHARD A. OPPEL Jr. and DAVID E.
SANGER
WASHINGTON, April 1 - The
Overseas Private Investment
Corporation has asked the Justice
Department to examine whether Enron
misrepresented its
financial condition in obtaining more
than $1 billion in taxpayer-backed
financing and insurance for
international projects, a step that could
lead the agency to pull its support for
some foreign deals.
In the aftermath of Enron's collapse, OPIC is also reassessing the size and nature of
projects that it will support, according to its chairman, Peter S. Watson, a Bush
administration appointee. The agency, long a target of critics who view it as
unnecessary or wasteful, seeks to increase American exports and investment overseas
by providing loans and insuring companies against the risk that foreign nations will fail
to pay them for building power plants or other major facilities outside of American
territory.
OPIC's actions are also an expansion of the federal inquiries into the Enron
Corporation and its former executives. The agency has asked the Justice Department
to examine "any possible misrepresentations in regard to both insurance and finance
contracts and applications."
In a letter to the Justice Department on Feb. 25, the agency suggested that if it
discovered that Enron had misled the federal government, the insurance coverage the
agency provided to the foreign deals could be terminated and loan guarantees
canceled. If such steps were taken, Enron and its partners could have to scramble to
arrange alternate financing.
Already, OPIC has pulled support for two Enron-related
projects after the company's collapse, canceling $390 million
in financing for two power installations in Brazil. Enron's
entry into bankruptcy court late last year has not
significantly affected its dealings with the agency, whose
loan guarantees and insurance are tied to the health of
individual projects, not their corporate backers.
In an interview, Mr. Watson said that OPIC suffered from
"mission creep" and has been too focused on supporting large
developments abroad without paying close enough attention
to the quality of the projects. The agency has about $454
million in loans outstanding and $205 million in insurance
exposure to Enron-related projects, stemming mostly from
deals made during the Clinton administration.
Mr. Watson said that "had we known the true financial state"
of Enron in the 1990's, "there is considerable question
whether the federal government would have backed" the
company's projects.
"We're hoping to know precisely what the actual financial
wherewithal of the company was at the time they made their
applications and financial representations to us," he said. "I
can certainly contemplate the possibility that there had been
sufficient misrepresentations to raise the question as to
whether we should have gone forward with those
transactions at that time." An Enron spokesman, Keith
Miceli, declined to comment on the the company's financial
submissions to OPIC, but he said that the company was
"committed to being open, transparent and supportive" of the
many investigations into its finances. The letter from OPIC
requesting a Justice Department investigation was reported
last month by The Washington Post (news/quote).
The politics of OPIC's review are complex. Most of its Enron
projects originated during the Clinton era, when officials
ranging from Treasury Secretary Robert E. Rubin to a series
of commerce secretaries - the late Ronald H. Brown, Mickey
Kantor and William M. Daley - all helped Enron in pursuing
its overseas ventures. The officials also sought to resolve
disputes over a troubled $3 billion power plant project in Dabhol, India.
But last year, Bush administration officials dived into the efforts to salvage the Dabhol
project, mostly owned by Enron, which was shut down when officials of Maharashtra
State objected that its power cost too much. Both Vice President Dick Cheney and
Secretary of State Colin L. Powell raised the matter with Indian officials.
Still, the administration probably has little to lose in pursuing an investigation of
projects it did not begin, and OPIC's ties to Enron during the Clinton years were
particularly deep. According to one agency official, Kenneth L. Lay, the former Enron
chairman, was a guest speaker at an OPIC staff retreat in 1997.
OPIC is already facing an insurance claim for $200 million from Enron and other
investors in the Dabhol project. Any payment would come from the agency's reserves,
which total more than $4 billion.
Its loans and insurance bills on other Enron-related projects are continuing to be paid
despite the company's retreat into bankruptcy protection, said Lawrence Spinelli, a
spokesman for OPIC
"The revenue stream is coming from the projects, not from Enron," Mr. Spinelli
explained.
If OPIC nonetheless seeks, on the basis of the Justice Department inquiry, to cancel
its loan guarantees or insurance, Enron and its partners might presumably have to
seek alternative financing or renegotiate their loans with private lenders.
Conservatives have often questioned why the federal government is in the business of
supporting American exports. During the Clinton years, some called for the elimination
of OPIC and its sister agency, the Export-Import Bank. But since President BUSH TOOK
OFFICE, no Republicans have repeated that call.
The Export-Import Bank has about $500 million in outstanding loans or guarantees on
Enron-related projects. Bank officials have not joined OPIC in reviewing their dealings
with the company.
"We do not feel at this point in time any information we have received was inaccurate,"
said Cheryl Crispen, a spokeswoman for the bank.
Enron has acknowledged that it inflated its financial statements beginning in 1997. In
November, the company said that it had overstated profits by nearly $600 million
during the prior five years. In February, a committee of Enron board members reported
that and improper accounting had inflated profits by almost $1 billion from the third
quarter of 2000 to the same period last year.
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