21-05-03 AES, the US energy group, and Enron, the disgraced energy trader, colluded to manipulate the auction for the largest electric distribution company in Latin America. In April 1998, Enron and the Light consortium, of which AES was a shareholder, were among three bidders for Brazilian group Eletropaulo Metropolitana. Hours before the auction, AES and Enron hammered out a deal in which Enron agreed not to bid for the utility, which was being privatised by the Sao Paulo government.
In return, AES -- which claimed to be acting on behalf of Light -- guaranteed Enron lucrative contracts to supply gas to a power plant AES and Enron would build together to generate electricity for Eletropaulo. The Sao Paulo government received only the minimum bid, $ 1.78 bn, for the utility. It had been advised that Eletropaulo could fetch several hundred million dollars more. AES has launched an internal investigation.

Paul Hanrahan, president and CEO of AES, said: "AES does not tolerate illegal or unethical behaviour in any form. Any AES people involved in such behaviour will be dealt with promptly and in a manner consistent with our commitment to conduct ourselves in accordance with the highest ethical standards."
The back-room agreement was struck in 1998 but has only now come to light. It reveals that collusion between US energy companies, such as that which exacerbated the California energy crisis, was not confined to the US. The findings of the FT investigation into the deals struck between Enron and AES come as Enron is about to bundle its overseas interests into a separate company, InternationalCo, in an attempt to salvage whatever possible from the energy trader's collapse.

AES, meanwhile, is seeking to renegotiate the loans it used to buy Eletropaulo five years ago. AES defaulted on its $ 1.2 bn loan earlier this year.
Enron denies collusion, adding that it had decided not to bid by the time the auction deadline approached. "We were approached by Light to do this deal not the other way round," the company said. "We relied on the advice of our counsel and when we determined that the advice may have been incorrect, we immediately rescinded the deal and received no benefit."

The other shareholders in Light were Houston Industries, Electricite de France, and CSN, a Brazilian steel company. Houston Industries told Enron it would not honour the deal, which it considered to be inappropriate, because AES had not been authorised to make the agreement.
EdF denied any knowledge of the transaction. "EdF doesn't know anything about any agreement between Light or other Light shareholders and Enron," the group said.