Enron gets World Bank's 1st-ever insurance payout<\/p>\n
WASHINGTON (Bloomberg): Enron Corp. received the first-ever
\npayout from the World Bank's political risk insurance arm this
\nyear, as Indonesia broke a taboo that has surrounded bank
\nguarantees offered for investments in 75 developing countries.<\/p>\n
Prior to the $15 million payout for the Enron power plant
\nproject, the Multilateral Investment Guarantee Agency of the
\nWorld Bank had used its clout with developing countries to compel
\nthem to honor all contracts and avoid tapping the insurance, said
\nMotomichi Ikawa, head of the agency.<\/p>\n
"Companies are aware that there's a certain halo benefit of
\nour involvement," Ikawa said.<\/p>\n
If a country doesn't live up to the contract, the World Bank
\nintervenes on the company's behalf, trying to reach a
\n"reasonable" solution, he said.<\/p>\n
In a presidential decree, Indonesia canceled Enron's East Java
\n500-megawatt power plant project before construction even began,
\nin September 1997. As a recession hit the Southeast Asian
\ncountry, the government said the project and others like it were
\nno longer viable.<\/p>\n
It took a year of discussions among the government, the World
\nBank and Enron before the insurance agency agreed to pay to cover
\nwhat the company had spent setting up a local company and
\npreparing to build the plant.<\/p>\n
Six months after the decree, Enron gave up on the project,
\neven though the World Bank tried initially to get Indonesia to
\nresurrect it, said company spokesman John Ambler.<\/p>\n
"This shows that the system really works," said Ambler of
\nEnron. "It's precisely the reason we purchased the policy in the
\nfirst place, to protect our shareholders."<\/p>\n
The World Bank is not the only insurer hurt by Indonesia's
\neconomic problems. The U.S. Overseas Private Investment
\nCorporation, which provides similar political risk insurance,
\npaid $217.5 million to MidAmerican Energy Holdings Co. for a
\nsimilar power project, and is still negotiating with the
\nIndonesian government to get back that money.<\/p>\n
So far, the pay outs haven't had much effect on Indonesia, as
\nthe World Bank says it wants to give the country time to pay it
\nback.<\/p>\n
The bank's agency didn't provide any new guarantees in
\nIndonesia during the fiscal year ended June 30. Yet, the bank
\nhasn't cut its lending to the world's fourth most populous
\nnation, either. Almost $7 billion in World Bank projects for
\nIndonesia are in the works.<\/p>\n
The investment guarantee agency, established at the bank 12
\nyears ago, offers companies insurance in developing countries as
\na way to boost foreign direct investments. In fiscal year 2000,
\nthe agency offered $1.6 billion in insurance, allowing for $5.4
\nbillion in investments.<\/p>\n
For example, the agency provided $30 million in insurance for
\nthe South African mining company Anglovaal Mining Limited to
\ninvest in copper mines the government of Zambia sold. It also
\nprovided Rabobank Nederland insurance to expand its Russian
\noperations.<\/p>\n
The agency's insurance covers the projects in cases of war,
\ncivil disturbance, outright expropriation or other non-commercial
\nrisks. Confiscation is almost nonexistent, said Ikawa, yet
\ngovernments have tried to rework contracts after the fact in what
\nhe labeled "creeping expropriation."<\/p>",
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"sponsor": "Okusi Associates",
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