MOZAMBIQUE: ENRON FILES FOR BANKRUPTCY (Their take on Enron & Clinton)

MAPUTO, Dec 4 (AIM) - Enron, the American energy corporation that had planned to build a steel slabs factory in Maputo, has filed for bankruptcy.

The fall of the giant energy trader is not simply a matter of bad luck or poor management. One of the factors that undermined the company is that it is under investigation by the US Securities and Exchange Commission (SEC) over what are delicately referred to as "its accounting and disclosure practices".

In November, Enron finally admitted that it "overstated" its income and financial strength for the last four years. In plain English, it had told lies.

It had deliberately misled the public about its financial situation. The SEC is also investigating Enron's accountants, the firm Arthur Anderson.

A former SEC chief accountant, Lynn Turner, has called for a criminal investigation into Enron's affairs.

This should be of considerable interest to the Mozambican authorities, since Enron played an extremely dirty game during the long drawn-out negotiations over the natural gas fields in the southern Mozambican province of Inhambane.

In November 1995, the government and Enron signed a heads of agreement for the exploitation of the gas field at Pande - but only after the government had fought to ensure that it would not deliver all of Mozambique's natural gas reserves to one player.

The government regarded the initial conditions offered by Enron as scandalous - Enron at first refused to pay for the Mozambican state's past expenses in prospecting the Pande field, and wanted to give Mozambique no share at all in the gas pipeline, and only a small percentage of the gas itself.

(Eventually, the heads of agreement gave Mozambique 20 per cent of the pipeline and 40 per cent of the gas field.) During the negotiations Enron had no scruples about enlisting the US state department and the US embassy in Maputo in its behalf, so that Mozambique would be told - sign up with Enron, or no more aid.

The then Minister of Mineral Resources and Energy, John Kachamila, interviewed by the "Houston Chronicle" in November 1995 (Houston is Enron's home town), declared "There were outright threats to withhold development funds if we didn't sign, and sign soon.

Their diplomats, especially Mike McKinley (then the number two at the embassy) pressured me to sign a deal that was not good for Mozambique.

He was not a neutral diplomat. It was as if he was working for Enron". A whispering campaign was launched against Kachamila, suggesting that the deal was delayed because Kachamila was demanding kickbacks.

"They put together a smear campaign against us", said Kachamila. "I never took any money. No-one in the government ever did. I was simply working for the best deal for the country, and for that I am called corrupt. Enron was forever playing games with us, and the embassy forever threatening to withdraw aid".

Kachamila thought Enron was being corrupt "for trying to shove a rotten deal down our throats".

He felt vindicated when a World Bank study found that many of the Mozambican concerns were warranted. Enron used its influence at very high levels.

Kachamila said that US senators rang up threatening the Mozambican government if it didn't sign, and even the US National Security Advisor (then Antony Lake) phoned up, trying to order the Mozambican government to sign.

The love affair between Enron and the Clinton administration was made very clear by the presence at the signing ceremony, on 13 November 1995, of the US Assistant Secretary of State for African Affairs, George Moose, who effusively praised "the capital, expertise and resources of companies like Enron".

But relations between the government and Enron remained cool, partly because it took Enron a long time to find a market for the Pande gas, which meant it had to ask for two extensions to the Heads of Agreement.

Only in 1998, did Enron present the planned steel slabs factory as the "anchor project" that could use the Pande gas and make it viable to build a gas pipeline. There followed more difficult negotiations, this time over the contract for the gas option.

Once more, Enron resorted to underhand tactics, accusing its negotiating partners of corruption, and using pliant journalists to place anti-Mozambique articles with the international media.

Enron staff in Maputo plied reporters with stories of alleged corruption, but refused to be named as the source of the information. The favourite claim was that the deal was held up because Kachamila's brother was linked to a rival gas consortium.

Prime Minister Pascoal Mocumbi noted in 1998 that whenever negotiations with Enron were at a delicate stage, hostile articles would appear in the press.

"They try to capitalise on arguments they can't defend at the negotiating table by trumpeting them through the press", he said.

A framework agreement on the principles regulating the use of the Pande gas was signed with Enron in April 1999, and a memorandum of understanding on the steel slabs factory followed in February 2000.

But in September 2000, Enron performed a complete volte- face, and signed away its interests in Pande to the South African company Sasol.

Two years earlier, Enron had insinuated that the Mozambican government was conspiring to transfer the rights to Pande from Enron to Sasol, but now here was the American company calmly handing the rights over (after Sasol had promised compensation for work already done at Pande).

Enron's interest in Mozambique was thus reduced to a holding in a steel factory that only existed on paper. With the collapse of Enron there are now fears that this factory will never be built.

The Enron accusations of corruption against the Mozambican government ring all the more hollow now it is known that for years Enron deceived its creditors and its own shareholders about the true state of its finances.

Enron's admission that it had overstated its profits came when the company was already under immense pressure, arising from an announcement that it had heavy losses in the third quarter of 2001.

This alarmed trading partners to whom Enron owed cash or commodities such as natural gas: fearing that Enron might not deliver, they started pulling money back and declined to extend further credit for the energy trades that were Enron's core business.

Confidence was already ebbing away rapidly, when Enron had to admit that it had overstated its profits by about 580 million dollars. The share price plummeted - from 85 dollars a year ago, to 33 dollars in mid-October, to just 26 cents at the end of November.

Last Wednesday credit-rating agencies downgraded Enron bonds to "junk" status - which had the effect of triggering provisions in some earlier Enron agreements that made 3.9 billion dollars in debt instantly come due, at a time when Enron had nowhere near that much cash available.

The chain reaction continued, with Enron's rival, Dynegy, withdrawing the merger it had offered, which in turn drove Enron to file for bankruptcy (as well as threatening to sue Dynegy).

There is still precious little clarity about the real state of Enron's finances. In the bankruptcy filing, Enron listed assets of 49.5 billion dollars and debts of 31.2 billion.

But an unnamed investment banker familiar with the inner workings of Enron told the "Washington Post" that "Enron is not one company but dozens of companies. There are not 100 people in the world who know what is really there." (SNNi-AIM)

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