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C O N F I D E N T I A L BUENOS AIRES 001352 
 
SIPDIS 
 
SIPDIS 
 
WHA FOR WHA/BSC AND WHA/EPSC 

E FOR THOMAS PIERCE 

EB/CBA FOR FMERMOUD 

PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 

EX-IM BANK FOR MICHELE WILKINS 

OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI 

PASS USTR FOR MARY SULLIVAN 

USDOC FOR ALEXANDER PEACHER AND JOHN ANDERSEN 

TREASURY FOR LTRAN 

USCINCSO FOR POLAD 

 

E.O. 12958: DECL: 07/12/2017 

TAGS: ECON EINV ENRG BEXP VZ AR

SUBJECT: (C) GOA FOILS ETON PARK INVESTMENT BID: CORRUPTION 

AND ECONOMIC NATIONALISM ALLEGED 

 

REF: A. BUENOS AIRES 85 

     ¶B. BUENOS AIRES 978 

     ¶C. BUENOS AIRES 844 

     ¶D. BUENOS AIRES 1278 

     ¶E. BUENOS AIREDS 65 

     ¶F. BUENOS AIRES 1128 

 

Classified By: Ambassador E.A. Wayne. Reasons 1.5 (B,D) 

 

------- 

Summary 

------- 

 

¶1. (C) Major U.S. investment fund Eton Park's two year effort 

to buy a minority stake in Argentina's regulated electricity 

transmission grid from Brazil's Petrobras offers a snapshot 

of GoA machinations to favor local -- and presumably more 

easily controlled -- capital investment in strategic assets. 

It also offers insight into how less than transparent 

mechanisms have reportedly been used by the GoA Planning 

Ministry to reward friends and allies of the Kirchner 

administration.  Eton Park officials outlined to Ambassador 

their legal efforts to overturn the GoA's February 2007 

rejection of Eton Park's bid in favor of a competing joint 

bid by Electro Ingeneria, an Argentine construction company 

close to the Kirchner administration, and a state-owned 

energy company.  The GoA claims that Eton Park had neither 

experience in the sector nor the long-term commitment 

required to run a public service company effectively. 

 

¶2. (C) Eton Park alleges that Planning Minister Julio De Vido 

stands to directly benefit from Electro Ingeneria being 

selected and so he interfered to stymie Eton Park's efforts 

to have its bid reconsidered.  Eton Park also alleges that 

ABN-AMRO bank agreed - at the behest of Venezuelan President 

Chavez and against the bank's better judgment - to fund a 

loan to support Electro Ingeneria's counter-offer.  According 

to Eton Park, Chavez made this financing a quid pro quo for 

ABN to continue to do business with the GoV.  Eton Park is 

currently considering an appeal to the Argentine Supreme 

Court.  Other sources tell us that, irrespective of whatever 

corruption may be involved, top GoA officials want national 

businessmen to control key economic sectors and that, had 

Eton Park played its cards a bit differently, it might have 

been allowed to be a major shareholder in an ""Argentine"" 

appearing entity. End Summary. 

 

--------------------------------------------- -- 

GoA Forces Petrobras to Divest Transener Stake 

--------------------------------------------- -- 

 

¶3. (SBU) Ambassador met July 10 with Dirk Donath, New 

York-based Managing Director of U.S. investment fund Eton 

Park and with Federico Ravazzani, local Eton Park 

representative and head of Buenos Aires-based Pent Capital, 

to review the state-of-play of Eton Park's efforts to 

purchase a minority 26% stake in Argentina's regulated 

national electricity transmission grid from Brazil's 

Petrobras. 

 

¶4. (U) In 2003 Petrobras acquired Pecom Energa from the 

 

 

 

 

Perez Companc Group, becoming the second largest oil producer 

in Argentina.  One of the numerous Argentine energy sector 

assets held by Pecom Energia was its 50% stake in Compania 

Inversora en Transmisin Electrica (""Citelec""), the 

controlling 52% shareholder in Argentina's electricity 

transmission company  Compana de Transporte de Energia 

Elctrica S.A. (""Transener"").  Due to antitrust 

considerations, GoA authorities ordered Petrobras to divest 

its interests in Transener and other electricity transmission 

companies.  In September 2005, Eton Park Capital Management 

began discussions with Petrobras to acquire its 50% equity 

stake in Citelec and a 20% stake in Yacylec. 

 

¶5. (U) Transener is Argentina's largest electricity 

transmission company (95% market share) which also controls 

Transba (electricity transmission in the province of Buenos 

Aires) and Transener International (a foreign subsidiary 

conducting non-regulated electricity transmission businesses 

in Brazil, Uruguay, Peru, Paraguay and Panama).  Yacylec is 

an Argentine company responsible for the operation and 

maintenance of 281 km of electric lines between the Yacyret 

Hydroelectric Power Station (Corrientes province) and 

Resistencia (Chaco province). 

 

--------------------------------------------- 

Eton Park Agrees to Purchase Petrobras' Stake 

--------------------------------------------- 

 

¶6. (U) Eton Park, one of the world's largest investment funds 

with over $5 billion under management, is managed by a group 

of former Goldman Sachs partners headed by Eric Mindich.  The 

fund acquired significant investments in power and utilities 

elsewhere in Latin America through its purchase of a stake in 

Prisma, the company that acquired Enron,s international 

portfolio from Enron,s creditors in early 2006. 

 

¶7. (U) In August 2006, Eton Park and Petrobras agreed on 

terms and conditions for Eton Park to acquire Petrobras' 

entire stake in Transener and signed a stock purchase 

agreement for Eton Park to pay $54 million for the Citelec 

shares and $6 million for the Yacylec shares.  Eton Park made 

a $12 million, 20% down-payment to Petrobras with the stock 

purchase agreement to become effective once regulatory 

approval was granted by the GoA's electricity regulator, the 

Ente Nacional Regulador de la Electricidad (ENRE); by the GoA 

Ministry of Economy's Secretary of Energy Daniel Cameron; and 

by the GoA's anti-trust body, the Comision Nacional de 

Defensa de la Competencia (CNDC). 

 

-------------------------------------------- 

GoA: Maintaining Argentine Operating Control 

-------------------------------------------- 

 

¶8. (SBU) Petrobras' local partner in Transener was Pampa 

Holdings (formerly the Dolphin Group), an Argentine-managed 

investment fund controlled by prominent entrepreneur Marcelo 

Mindlin.  Eton Park's Donath estimates that 90-95% of Pampa's 

capital is, in fact, held by U.S. and European investors, 

with Eton Park itself one of Pampa Holding's three largest 

investors.  Pampa and Eton Park were to share control of 

Transener once the Eton Park acquisition won regulatory 

 

 

 

 

approval.  To address GoA concerns about maintaining 

Argentine operating control of the entity, Eton Park had 

granted Pampa the right to name the President and CEO of 

Transener.  According to Eton Park, Pampa had developed a 

close working relationship with Eton Park, was supportive of 

Eton Park,s acquisition of the Petrobras stake in Transener, 

and had made this known to Planning Minister De Vido and to 

President Kirchner on several occasions. 

 

¶9. (C) By September 2006, Eton Park had presented all 

required documentation to GoA regulatory agencies involved. 

According to Eton Park, both the Energy Secretary and the 

CNDC had told them unofficially that they had no objection to 

the transaction going forward.  Eton Park then met numerous 

times with ENRE officials and also held private meetings with 

President Kirchner and with Minister De Vido during September 

2006 UNGA meetings in New York, and again with Minister De 

Vido November 17 in Buenos Aires.  At that last meeting, Eton 

Park reported De Vido confirmed there were no/no GoA 

objections to the transaction and that he believed all 

regulatory approvals would be forthcoming shortly. 

 

--------------------------------------------- -- 

GoA 180: Electro-Ingeneria as National Champion 

--------------------------------------------- -- 

 

¶10. (C) During January 2007 conversations with EconCouns, 

Eton Park expressed concern at ongoing delays in regulatory 

approval and market rumors that Planning Minister De Vido had 

decided -- late in the game -- to go back on his earlier 

assurances to Eton Park and instead favor a rival bid for 

Petrobras' stake in Transener by Cordoba-based construction 

company Electro Ingeneria (EI).  Eton Park noted that EI's 

book of public infrastructure project business, including the 

construction of electricity transmission lines for Transener, 

had had grown dramatically during the Kirchner 

administration; that De Vido's son worked for EI, and that De 

Vido himself likely had a ""personal stake"" in EI's success. 

Eton Park also noted that EI principal Gerardo Luis Ferreyra 

was an ex-Montonero guerilla who, during the 1976-82 military 

dictatorship, had shared a cell with current Presidential 

Legal and Technical Secretary (and close confidant) Carlos 

Zanini.  Eton Park noted that Ferreyra had accompanied De 

Vido (along with other Argentine businessmen) to Germany in 

January 2007 and they believe that, during that trip, the 

decision was taken to give the deal to EI. 

 

¶11. (C) Ambassador Met January 15 with Planning Minister De 

Vido to raise a number of U.S. company advocacy issues, 

including Eton Park (Ref A).   When Ambassador noted Eton 

Park's concerns over ongoing delays in regulatory approval, 

De Vido replied that he understood Petrobras was still in the 

process of accepting bids from potential buyers.  Eton Park 

later confirmed that De Vido was well aware that Eton Park 

had signed a binding stock purchase agreement with Petrobras 

months earlier.  At Eton Park's request, an advocacy letter 

from Ambassador to De Vido was sent in late January 2007 

noting that final GoA approval of Eton Park,s investment in 

Transener would be seen as a positive signal by the GoA to 

the institutional investment community in the United States. 

The letter also noted that, at a time when Argentina was 

 

 

 

 

seeking expanded foreign direct investment in strategic 

sectors related to infrastructure and energy, Eton Park,s 

interest should be welcome. 

 

¶12. (SBU) On January 29, Argentina's largest daily, Clarin, 

reported that the GoA was considering rejecting the sale of 

Transener to Eton Park in favor of a new competing joint bid 

by Electro Ingeneria and recently formed state-owned energy 

company ENARSA.  On February 8, President Kirchner reacted 

angrily to follow-on press reports in Clarin of the existence 

(but not the text) of the Ambassador's advocacy letter on 

behalf of ""a U.S. company.""  Kirchner stated that his 

administration was transparent and that Argentina was not a 

""banana republic"" that could be pushed into making decisions. 

 On February 9, the CNDC officially rejected Eton Park's bid, 

claiming that it had neither ""roots"" nor experience in the 

sector and that, as an investment fund, it did not have the 

long-term commitment required to run a public service company 

effectively.  Local media interpreted the President's 

statement and the subsequent CNDC opinion as a GoA effort to 

retain national control of a strategic energy sector.  Media 

also noted that the Electro Ingeneria/ENARSA consortium would 

have to seek public or private sector funding in order to 

match Eton Park's bid. 

 

¶13. (C) Eton Park appealed the CNDC ruling in March 2007 to 

the Argentine Civil and Commercial Appeals Court, confiding 

to EconCouns that its legal counsel considered the CNDC's 

ruling weak and easily overturned.  However on June 22, the 

3-judge appeals court rejected Eton Park's appeal, opening 

the way for Electro Ingeneria's bid to go forward.  The 

Appeals court judge ruled that the GoA had ""complied with its 

duty to safeguard the public interest,"" and also argued that 

Eton Park had not demonstrated sufficiently that it had 

electricity sector experience. 

 

------------------------------- 

(C) Eton Park Alleges Foul Play 

------------------------------- 

 

¶14. (C) In a July 10 meeting with the Ambassador, Eton Park 

principals noted that they had heard from reliable sources 

that an Argentine Appeals Court ruling favorable to Eton Park 

was originally to have been issued in early June.   With this 

same information, Eton Park alleged, Electro Ingeneria filed 

for a two week stay that permitted Planning Minister De Vido 

sufficient time to have the Appeals Court ruling re-written. 

Some in the GoA had been able to influence Appeals Court 

judges, Eton Park alleged, by threatening to publish recorded 

phone conversations that would have been embarrassing to some 

or all of the judges on the appeals panel. 

 

¶15. (C) Earlier in May, confident that the Appeals ruling 

would be favorable, Eton Park had floated a proposal to the 

GoA to address its concerns about keeping Transener under 

""national control"":  Eton Park had approached Gerardo 

Wertheim, principal of the prominent Argentine Wertheim 

family group that has substantial interests in Argentine 

financial services, natural gas transportation infrastructure 

and paper mills.  To provide a local face to the transaction, 

the Wertheim group agreed to hold a 51% voting share in an 

 

 

 

Eton Park/Wertheim partnership, while Eton Park provided 80% 

of the investment capital.  Eton Park principals called the 

proposed Transener ownership of 50% Werthiem /Eton Park and 

50% Pampa Holdings a ""dream team"" that was well received in 

informal discussions they held with both Chief of Cabinet 

Minister Fernandez and Legal and Technical Secretary Zanini 

in late May.  According to Eton Park principals, Fernandez 

took the Eton Park proposal to President Kirchner, who then 

consulted with Planning Minister De Vido.  De Vido allegedly 

told the President that backtracking on the GoA's original 

decision would make the President look bad. 

 

--------------------------------------------- -- 

(C) GoV Pushes ABN to Finance Electro Ingeneria 

--------------------------------------------- -- 

 

¶16. (C) The difficulty that an Electro Ingeneria /ENARSA 

partnership faced in obtaining private funding for its 

proposal to match Eton Park's bid -- or the need to seek 

financing from state-owned bank -- was long seen by analysts 

and media as the Achilles heel of this group's joint bid. 

Eton Park principals said that the Jorge Britto, President of 

Banco Macro (a fast growing private Argentine bank close to 

the GoA) had told them the some in the GoA were pushing 

""allied"" private banks to fund the deal.  Eton Park 

principals noted that ABN-AMRO bank had decided to fund a $60 

million bridge loan to support the deal and that, according 

to ABN loan officers they spoke with, ABN's funding of this 

deal was against the bank's better judgment but done at the 

behest of Venezuelan President Chavez who made this deal a 

quid pro quo for ABN continue to do business with the GoV. 

 

---------------------- 

Eton Park:  Next Steps 

---------------------- 

 

¶17. (C) Confessing that the saga of their attempt to purchase 

a stake in Transener was ""worthy of a cheap novel,"" Eton Park 

principals told Ambassador they are not ready to give up. 

Still confident that the Appeals court ruling is 

fundamentally flawed, Eton Park is considering appealing the 

adverse ruling to the Supreme Court.  They admitted that Eton 

Park's position was weakened somewhat by the June 29 expiry 

of their purchase contract with Petrobras, but noted that 

Eton Park has declined to take back its $12 million deposit 

from Petrobras to maintain its claim.  Eton Park also noted 

the possibility of local media investigative reports on the 

transaction coming out soon.  In the current scandal-ridden 

political environment, Eton Park suggested, such media 

attention could push the GoA to again reverse course. 

 

--------------------------------------------- --- 

(C) Comment: Corruption and Economic Nationalism 

--------------------------------------------- --- 

 

¶18. (C) Minister De Vido's Planning Ministry has increasingly 

concentrated control over GoA authorization and funding of 

major domestic energy and transportation infrastructure 

projects.  The Planning Ministry also controls rapidly 

expanding GoA subsidy payments to public service providers in 

the energy and transportation sectors.  The 

 

 

 

 

less-than-transparent mechanisms used by the GoA to award 

infrastructure projects and to distribute subsidy payments, 

along with high profile and persistent media attention to a 

number of procurement and financing scandals (including the 

ongoing Skanka gas pipeline scandal that post has reported on 

extensively, Refs B and C), have fed public perceptions that 

some senior members of President Kirchner's self-described 

""manos limpios"" (clean hands) administration are corrupt. 

The rapid rise of Electro Ingeneria as a GoA contractor 

during the Kirchner administration and the GoA's dogged 

backing of its bid to buy Transener appear to support Eton 

Park allegations of Planning Ministry interference.  However, 

Embassy stresses that its information of apparent 

irregularities is based on hearsay information provided by 

Eton Park. 

 

¶19. (C) The Eton Park case can also be explained as one of a 

growing number of GoA efforts to ensure that strategic 

national assets remain in Argentine hands.  Recent examples 

include the GoA's state-owned bank financing of a debt 

re-financing package for Cotos Supermarket in the face of a 

foreign buy-out offer; the Venezuela-financed rescue package 

of Argentina's emblematic San Cor Dairy Cooperative in the 

face of a U.S. Soros Group buy out proposal; and the GoA's 

current support for the local Eskenazi/Peterson group's 

efforts to buy a 25% stake in Spanish-owned Argentine energy 

giant Repsol-YPF (Ref D). 

 

¶20. (C) Billions in international arbitration claims filed by 

foreign multinationals in the wake of Argentina's 2001/2 

economic collapse are still outstanding (Refs E and F), an 

object lesson for a Kirchner administration that sees foreign 

control of key national assets as limiting its ability to 

mold national economic policy.  One prominent energy 

businessman told us recently that, had Eton Park not tried to 

structure its deal as it did and rather prepared initially to 

buy a stake in a clearly Argentine-led entity, he deal may 

well have proceeded without objections.  He cited other more 

successful infusions of foreign capital from multinationals 

whose local operations are led by Argentine CEOs.  He said 

the current administration clearly wants to rely more on a 

""national bourgeoisie"" in strategic sectors like energy 

transmission.  Similarly, parliamentarians aligned with 

Kirchner's Victory Front have recently introduced legislation 

to limit the ability of foreign ""vulture"" investment funds to 

invest in Argentine assets.  Kirchner's economic nationalism 

seems to play well with his populist support base, which 

blames foreign interference in Argentina's economy for the 

2001 economic crash and trumpets Argentina's paydown of IMF 

outstandings as ensuring the nation remains firmly in control 

of its own economic destiny. 

WAYNE 


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