Westport Energy Contract Update

This is an overdue update on one of the many dicey energy contracts that blossomed in the wake of the 2009 coup.

Back in November, 2011, the then-head of the Empressa Nacional de Energia Electrica (ENEE), Roberto Martinez Lozano entered into a contract with Westport Finance LLC, and Ira Ginsburg as its legal representative, for the installation of emergency power generation capacity totaling 100 megawatts for 16 years. 

It was a lucrative contract for Mr. Ginsburg, if carried out, and he stood to make a ton of money.  Martinez Lozano said Westport Finance LLC was backed by the Finnish energy equipment company Wartsila. Westport Finance LLC is run out of Ira and Carla Ginsburg's home in Westport, CT.  The full contract is available on ENEE's web site here.

Shortly after the contract was signed, approved by Congress, and published per Honduran law, Martinez Lozano was dismissed as head of ENEE.  It turned out that Martinez Lozano had lied about one of the steps necessary for the contract to be approved by ENEE prior to its submission to Congress.  The contract was never properly approved by a majority of the directors of ENEE when a quorum was present.  To date it still has not be properly approved.

When contacted in February, 2012 by a blogger in Westport, CT, Ginsburg said:

Politics in Honduras are unique.  My contract is in full force and effect.  The Minister of Energy's problems pre-date the negotiation of my deal, in 2009; they go back several years.  Honduras is ruled by an oligarchy of three families.  They own 100 percent of power generation and all the newspapers.  The fact that a power company from outside the country came in -- they don't like that.

Yikes.  Westport Finance LLC was founded in 2009, and began negotiating for a Honduran energy contract in its first year of business?  Was that pre- or post- coup, we wonder?

Westport Finance missed every milestone in the contract, and appears to have done nothing since the signing.  The new head of ENEE, Emil Hawit, told the press on April 23 that Westport Finance LLC had attempted to file the financial guarantee with the Honduran government, but it was returned because it didn't meet the legal requirements: it didn't follow the template attached to the contract. 

Hawit also told the press on that day that sometime prior to April 23 he had notified Westport Finance LLC in writing of their non-compliance.  Under the terms of the contract, Westport has until one month after notification to begin remediating all the non-compliant issues, and if they do, up to two more months to come into full compliance with the terms of the contract.  Otherwise, if Westport does not begin correcting its compliance, two months after notification, the contract is terminated.

As of today, there is no indication that Westport has done anything to come into compliance with the contract terms. Depending on when, exactly, Hawit notified them that their contract was non-compliant, the one-month clock should be getting close to running out. It should be an interesting couple of weeks.

ENEE Can Sure Pick 'EM

The Empresa Nacional de Energía Eléctrica (ENEE) can sure pick its partners for generating electrical energy in Honduras.

In October, 2011 ENEE decided to partner with ONYX Services and Solution to build an 18 Megawatt solar electric generation facility on Roatan. We blogged about it here. At the time we noted that the company until six months prior to the contract with ENEE had listed its business as running a network of installed ATM machines, and that at the time ENEE awarded the contract, ONYX Services and Solutions had no solar installations either underway or completed. A strange choice to partner with, right?

An astute reader of our blog just alerted us to the news that on January 27, 2012, the Securities and Exchange Commission of the United States announced it was suspending trading of the company's stock. It stated:

The Commission temporarily suspended trading in the securities of ONYX because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the company’s business projects and prospects.

In a press release about the suspension ONYX claimed not to have any communication from the SEC giving any reason for the suspension. So here's what ONYX says about its business and prospects in its latest 10Q filing with the SEC:

The Company derives its revenue from surcharge revenue and inter-exchange revenue. Surcharge fees are added fees which the Company charges the ATM user for dispensing cash. Inter exchange fees are fees charged between banks for transferring money. The Company all of the Surcharge Fees and receives a portion of the Inter exchange fees as income. The Company recognizes the net fees received as revenues.

And later:

The Company had total Revenue for the Three Months Ended October 31, 2011 of $2,142. This reflects a decrease of $4,169 or 66% when compared to the total revenue of $6,311 for the Three Months Ended October 31, 2010. This change is primarily attributed to a decrease in the number of transactions on the system.

As of October 31, 2011, we had total current assets of $70,258 and total current liabilities of $481,923 which results in working capital deficit of $411,665.

See any mention of solar installations there? There are none. Yet, since November they've been issuing press releases every week, if not several times a week, about how wonderful their solar business is and how its moving forward and they'll be buying 25% of their Chinese partner, Optimum Solar, any day now. With what, one is left to wonder. Did I mention that they only have $7, 298 in actual cash on hand?

That's one ENEE partner.

There's also news about Westport Finance LLC and its emergency power contract for 100 Megawatts. In light of the questions raised about the lack of any visible compliance with the terms of the contract ENEE has with Westport Finance LLC, the head of ENEE, Roberto Martínez Lozano was forced to make public statements that only raised further questions. There's also an investigation underway by the Tribunal Superior de Cuentas and the Public Prosecutor's Anti Corruption office.

Six days ago we found out the ENEE board of directors might not have actually approved the contract before Martinez Lozano sent it on to the Executive Branch for approval. That would be a violation of the Honduran law of government contracting procedures.

Next, three days ago, Martinez Lozano told the press that Westport Finance LLC had not paid the contractually required performance bond of $1.3 million, because of an arrangement he had made with them. What he said was

"We have an arrangement with Westport and Wartsila; they're ready to pay it when we tell them."

ENEE has an arrangement!! Well, then why bother to have a contract when you've just voided the protections it provides the government of Honduras? More soberly, this is also is a violation of the Honduran law of government contracting. If the money is there and waiting, why not have them pay it and comply with the contract? Perhaps it has something to do with what we found out six days ago?

We found out three days ago that ENEE hasn't complied with its part of the contract either. Under the terms of the contract, ENEE is responsible for helping Westport Finance LLC obtain the necessary permits. All of this to be done within 60 days of the contract signing. Yet, that date has come and gone with nothing being done. Roberto Cuellar, head of Secretaria de Recursos Naturales y el Ambiente (Serna), where environmental permits come from, says no application has been filed by anyone.

They haven't done it, nor have they presented any application.

In light of all the controversial statements by Martinez Lozano, Congress has called him to testify before them on all of the above on February 15, 2012, and Ricardo Alvarez, head of Lobo Sosa's National Party, has called on Congress to invalidate the contract.

Incompetence? Corruption? Any way you look at it, there's sure to be more information coming out on ENEE and both of its partners here.

Fly by Night Contracts for Electricity

Generally, if you're a Honduran government agency you await authorization before you sign a contract for a major purchase, and you follow government guidelines for how to negotiate such a contract; but not the Empresa Nacional de Energia Electrica (ENEE). They're special, apparently.

In the latest in what appears to be a series of contracts with US companies with no apparent expertise or established track record in the energy sector, Roberto Martinez Lozano, Director of ENEE, signed a contract on September 14 (contract 057-2011) with Ira L. Ginsburg of Westport Financial LLC for up to 100 megawatts of electricity from diesel or bunker oil fired generators, with a contract duration of 15 years.

Ira Ginsburg has extensive experience in putting together the financing for projects both in Latin America and other parts of the world. Some of these have been energy projects, including a 305 megawatt deal under the administration of Mel Zelaya. But all he does is line up financing. That's his expertise.

From his Linked-In profile we know he is a member of the Wartsila group on Linked-In. Wartsila, you might remember, is the Finnish energy company ENEE suggested it would be buying this generating capacity from. So one question is, why is the contract with Ira Ginsburg?

But while this is curious, it's not the most serious problem with this contract.

The contract was signed on September 14. Lozano wasn't approved to seek a contract for this power until September 28. He committed the government of Honduras to a contract for which he had no authority, with a financial company that has 3 employees and $96,000 in assets, not a company that has generation equipment or expertise.

There are several other problems with the contract, which should have conformed to the emergency decree passed on September 28.

First, the emergency decree only authorized the purchase of this power for 12 months. The contract Lozano signed obligates Honduras to buy it for 15 years!

The contract calls for installing an additional 24.7 megawatts capacity in Puerto Cortes, a region not covered by the emergency decree, in a plant which has been sold to another company for conversion to coal generation!

Still another problem is that the emergency decree calls for the government to pay 9.99 cents per kilowatt of installed capacity, while the contract calls for a payment to Westport Financial of 15 cents per kilowatt. Over its 15 year life, this no bid contract will cost the Honduran government $340 million.

There is an emerging pattern of questionable contracts here. ENEE also recently contract for an 18.5 megawatt solar power farm on Roatan with Onyx Service and Solutions, Inc., a company that until this August listed its chief business as running a network of banking ATM machines, and has never installed a solar power farm anywhere in the world.

All of this has come to light in the last few days because the contract was finally submitted to Congress for their authorization. In order for the contract to be in effect in Honduras, Congress must vote to authorize it. La Prensa reports there is fierce opposition to it in both the Liberal Party and National Party congressional delegations

It stinks of corruption or incompetence at the highest levels in ENEE.

Buy High, Sell Low

ENEE, the Empresa Nacional de Energia Electrica, the state owned electric company of Honduras, knows how to drive a business into bankruptcy: buy electricity at horrendously high rates, and sell it for less to the consumers in Honduras.

Seriously, this is the ENEE business plan: to lose money.

Prices were set with the goal of subsidizing the cost of electricity for the poor, here defined by how much electricity they consume in a month.

Prices were reset higher in 2008 during the Zelaya administration, and at that time ENEE was authorized to charge an energy cost surcharge on top of the usage charges. The subsidy for the poor was expanded into higher usage tiers.

At this point, no one in Honduras is paying the actual cost of electricity, not businesses, not the wealthy, not the poor. Somehow what started out as subsidy for the poor got expanded to everyone. Is it any wonder ENEE runs at a loss?

Blackouts are once again common in Honduras, especially in the area around San Pedro Sula, in the western part of the country, in the central part around Yoro, and in Olancho. This is because domestic production of electricity is insufficient to meet demand, and the distribution system in the country is incapable of distributing the excess production in other parts of the country to the parts that lack electricity.

This was entirely expected and preventable.

The electricity shortage was the subject of a 2007 US Embassy study, as well as a 2010 World Bank one. Both predicted Honduras would need more power than is generated in the country by 2011, and accurately predicted how much more power was needed.

Many of the neighboring Central American countries produce excess electricity. ENEE cannot buy this excess production because the interconnects linking its distribution system to those of its neighbors are inadequate and outdated.

ENEE is under government orders not to buy any additional electricity produced by bunker oil or diesel generating plants.

Yet, earlier this year it placed a request for bids for 50 megawatts of so called "thermal" power. At the time it received bids costing $0.34/KWh to $0.54/KWh. Roberto Martinez Lozano, manager of ENEE, rejected all the offers then as being too expensive.

Now Martinez Lozano wants to buy electricity at $0.50/KWh, and wants to sign a contract at that rate for the next two years.

Who gains?

The Finnish firm Wartsila, which offered the electricity at $0.16/KWh, as long as the government of Honduras buys and transports the fuel. At current market prices that raises the cost to ENEE to around $0.48-50 KWh.

ENEE sells this electricity back to businesses and consumers for less than it pays for it.

According to the US Embassy, in 2007 ENEE paid about $0.14 KWh and sold electricity for an average of $0.08 KWh.

Nearly 25% of electricity is not paid for, compared with a Central American average of 15%. Only about 10% of that total is transmission line loss. The remainder is due to billing errors, illegal connections, and fraud.