Argentina and Brazil

Cien threatens to sue Copel over supply contract

Bnamericas Published: Wednesday, February 26, 2003
Argentina-Brazil power interconnection company Cien may sue Parana state power company Copel (NYSE: ELP) for tearing up a supply contract, Cien president Juan Antonio Madrigal Royo told Brazilian press. In December 1999, Copel signed the contract to buy 800MW of power from Cien under a long-term take-or-pay contract worth about 670mn reais a year. But Parana state governor Roberto Requiao stopped payments after he took office on January 1. Madrigal clarified that Cien has not been formally told that the contracts have been terminated. Copel has simply not been meeting contract terms, he said, explaining that Copel has refused to pay for power supplies in December and January worth a total of 120mn reais. "If there is not an understanding with relation to the non-payment then we will have no other choice but to take legal action, if not we'll die," Madrigal said. Madrigal admitted there was scope for talks to modify the supply contract; executives from the companies have met twice without any agreement being reached. Cien has proposed a 20% discount on the monthly bill paid by Copel, which would be renegotiated once Copel's financial position improved, he said. The discount is equivalent to 130mn reais a year. "The commitment with the contract does not mean that adjustments cannot be made over the period of validity, which in this case is 20 years, as long as they are within the spirit of what was agreed," he said. Madrigal pointed out that there are natural variations over the lifetime of a 20-year contract. Copel pays Cien US$28.5/MWh, compared to the current spot market price of 4 reais/MWh (just over US$1/MWh). On the other hand, when the contract was signed in December 1999, the spot price in southern Brazil was about US$125/MWh, which meant the deal was very good for Copel. Meanwhile, Cien runs the risk of defaulting on repayments to the Inter American Development Bank and German development bank KfW if Copel does not pay up, Madrigal said. In April and May, Cien must make two payments of US$35mn to the banks. It must also meet similar take-or-pay commitments with the Argentine generators from which it buys the power. Endesa Spain owns Cien.

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