TCRLA_Public/040719.mbx         T R O U B L E D   C O M P A N Y   R E P O R T E R

                    L A T I N   A M E R I C A

             Monday, July 19, 2004, Vol. 5, Issue 141

                            Headlines


A R G E N T I N A

ADVANCE LINE: Trustee to Present Individual Reports
ESTIQUIM S.A.: Verification Deadline Approaches
PAXCO S.R.L.: Court Declares Company Bankrupt
REPSOL YPF: Protesters Bar Access To Refinery
RODEL S.A.: Will Present Restructuring Plan Wednesday

TELECOM ARGENTINA: OKs Creditors' Request to Extend Debt Offer
YACYCRETA: Replacements To Be Made At EBY
* IMF Declines To Predict When Talks With Argentina Will End


B E R M U D A

NORTHERN OFFSHORE: Creditors Apply for Liquidation


B R A Z I L

ENRON: Court Approves Joint Chapter 11 Plan
NET SERVICOS: Telmex Close to Wrapping Up Purchase


C H I L E

TELEFONICA CTC: Shareholders Approve Unit's Sale


C O L O M B I A

EMCALI: Will Go Ahead With 7% Rates Hike


D O M I N I C A N   R E P U B L I C

EDENORTE/EDESUR: Regulator Opposes Planned Re-Privatization


M E X I C O

GRUPO POSADAS: S&P Assigns BB- Rating
HYLSAMEX: Raises MXN1.12B From Latest Stock Offer
PEMEX: Suffers From Heavy Debt, Low Reserves  
TV AZTECA: Postpones Filing of Form 20-F


P A R A G U A Y

* Paraguay Mulls $25M Bond Issue to Cover Maturing Debts


P E R U

* $16.6M World Bank Loan to Support Peru's Decentralization


V E N E Z U E L A

PDVSA: Details U.S. Ruling on Alleged Expropriation of Assets
PDVSA: May Surpass US$46B Net Revenues, Says President  

     -  -  -  -  -  -  -  -

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A R G E N T I N A
=================

ADVANCE LINE: Trustee to Present Individual Reports
---------------------------------------------------
Mr. Carlos Eduardo Foresti, the trustee for the Advance Line
S.A. bankruptcy, is required by the court to submit individual
reports of the case on July 20, 2004. These reports are based on
the claims forwarded by the Company's creditors during the
verification period.

The trustee is further obliged to provide the court with an
audit of the company's accounting and business records through a
general report, which is due for submission on September 15,
2004.

CONTACT: Mr. Carlos Eduardo Foresti, Trustee
         Avenida Callao 449
         Buenos Aires


ESTIQUIM S.A.: Verification Deadline Approaches
-----------------------------------------------
Creditors of bankrupt Argentine company Estiquim S.A. have until
July 21, 2004 to submit proof of their claims to the trustee,
Ms. Adriana Raquel Esnaola. Failure to comply with the
verification deadline will mean disqualification from the
payment to be made after the company's assets are liquidated.

Court No. 1 of the Buenos Aires Civil and Commercial Tribunal
handles this case.

CONTACT: Ms. Adriana Raquel Esnaola, Trustee
         Juncal 615
         Buenos Aires


PAXCO S.R.L.: Court Declares Company Bankrupt
---------------------------------------------
Judge No. 7 of the Buenos Aires civil and commercial tribunal
declared local company Paxco S.R.L. bankrupt, says El Pais. The
court approved the bankruptcy petition filed by Asimira y
Osimira, to whom the Company failed to pay debts amounting to
US$4,485.88.

Clerk No. 13 assists the court on the case, which will close
with the liquidation of the Company's assets to pay its
obligations.

CONTACT: Paxco S.R.L.
         Paroissien 3147
         Buenos Aires

   
REPSOL YPF: Protesters Bar Access To Refinery
---------------------------------------------
Spanish-Argentine energy giant Repsol-YPF SA was hit with
another protest, reports Dow Jones Business News.

Media reports revealed Thursday that some 500 unemployed people
blocked access to the entrance of Repsol's refinery plant
located at Ensenada in Buenos Aires province, and placed burning
tires in the road to cut off traffic to the plant.

Local news agency Diarios y Noticias said the protestors were
demanding jobs and claimed the Company was refusing to hire
workers who were not affiliated to one of the main construction
unions.

It wasn't known whether the protest interfered with the plant's
operations.


RODEL S.A.: Will Present Restructuring Plan Wednesday
------------------------------------------------------
Validated creditors of insolvent Argentine company Rodel S.A.
will ratify the Company's settlement plan during the informative
assembly on Wednesday, July 21, 2004.

The company's case is under the jurisdiction of Cordoba's Civil
and Commercial Tribunal Court No. 3.   

CONTACT: Rodel S.A.
         Vilela 1362
         Buenos Aires
       

TELECOM ARGENTINA: OKs Creditors' Request to Extend Debt Offer
--------------------------------------------------------------
Argentine fixed-line carrier Telecom Argentina has extended the
deadline of its debt-restructuring offer from July 21 to July
30, reports Dow Jones Newswires.

The extension grants a request from several creditors who are
trying to buy more time to file their paperwork.

Telecom Argentina launched an out-of-court proposal to
restructure US$2.63 billion in debt. Under the proposal, known
in Spanish as Acuerdo Preventivo Extrajudicial (APE), the
Company must secure two-thirds approval from creditors before it
can submit its offer to a court for legal clearance that would
then make the restructuring terms binding on all creditors.

Telecom Argentina didn't say what percentage of its creditors
had so far formally approved the restructuring deal.

CONTACT:  TELECOM ARGENTINA S.A.
          Alicia Moreau de Justo 50, 10th Floor
          Capital Federal (1107) Republica Argentina
          Phone: +54 11 4968 4000
          Home Page: http://www.telecom.com.ar
          Contacts:
          Alberto J. Ricciardi, Chief Financial Officer
          Elvira Lazzati, Finance Director
          Pedro Insussarry, Investor Relations Manager
          Phone: (5411) 4968-3626/3627
          Fax: (5411) 4313-5842/3109
          E-mail: inversores@intersrv.telecom.com.ar


YACYCRETA: Replacements To Be Made At EBY
-----------------------------------------
Some officials of the Entidad Binacional Yacyreta (EBY) are set
to lose their posts in the joint venture that administers the
Yacyreta hydroelectric project on the border of Argentina and
Paraguay.

According to Business News Americas, Paraguay's President
Nicanor Duarte demanded changes in EBY's management following
reports by the World Bank and Inter-American Development Bank
(IDB), which blame corruption and inefficiency for the project's
ongoing delays and US$10 billion debt.

Mr. Carlos Goiburu, the director of the Paraguayan side of the
project, said that many EBY officials had not done their jobs
correctly, which is why they will be replaced.

Some replacements have already been announced. Oscar Ruiz Diaz
will replace Humberto Yaluk as strategic planning coordinator
for project completion, and Isidro Dioverti will replace the
manager of the complementary works department, Osvaldo Nunez.


* IMF Declines To Predict When Talks With Argentina Will End
------------------------------------------------------------
The International Monetary Fund declined to predict when talks
with Argentina on the third review of the US$13-billion aid
program would be completed, reports Dow Jones Newswires.

"This is not the sort of thing where the decision (about when to
end the talks) is made. The process will continue as long as it
takes," IMF external relations director Thomas Dawson said.

Another disbursement of a portion of the US$13 billion loan is
contingent on the conclusion of the review and Argentina is
hoping that it would be completed before the IMF executive board
enters into a summer recess in early August.



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B E R M U D A
=============

NORTHERN OFFSHORE: Creditors Apply for Liquidation
--------------------------------------------------
Creditors of offshore drilling contractor Northern Offshore Ltd.
have elected to liquidate the troubled company, Nordic Business
Report says.

Represented by Norwegian trustee services company Norsk
Tillitsmann ASA, bondholders applied for liquidation proceedings
in Bermuda, citing the company's failure to pay interest on its
Norwegian bond loans. Prior to this, the group tried to
negotiate, but failed to reach an agreement with management.

In a statement issued Wednesday, the "Informal Committee of
bondholders of Northern Offshore Ltd." said that the breakdown
in the refinancing negotiations had been due to "the Company's
demand for an excessive share of the equity of the restructured
company for existing shareholders."

"Although the existing equity has no value, the Informal
Committee [was] prepared to agree to existing shareholders
retaining 5% of the equity of the restructured Company. This
offer was rejected by management," the committee said.

"The Informal Committee expects the liquidation proceedings
commenced in Bermuda to lead to a restructuring of the bonds to
result in a debt-free Northern Offshore business wholly owned by
its creditors," the committee added.

The committee does not expect Northern Offshore's operations to
be interrupted during the liquidation process, and that
suppliers, customers and employees would similarly remain
unaffected by it.

Northern Offshore admitted Wednesday that the Supreme Court of
Bermuda had appointed provisional liquidators for the company.

Northern Offshore Ltd. is a public limited company registered in
Bermuda.  The Company was founded in May 2000 and is engaged in
providing drilling and production services to the offshore oil
and gas industry.  The Company's shares are traded on the Oslo
Stock Exchange under ticker symbol NOF.  Northern Offshore Ltd.
is an extension of the offshore drilling and production business
of Northern Offshore ASA, a public limited company registered in
Norway.

CONTACT:  NORTHERN OFFSHORE LTD.
          PO Box HM 1593
          Par-la-Ville Place, 4th Floor
          14 Par-la-Ville Road
          Hamilton HMGX
          Bermuda
          Phone: +1 441 295 6178
          Fax: +1 441 295 3494
          Web site: http://www.northern.no/
  


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B R A Z I L
===========

ENRON: Court Approves Joint Chapter 11 Plan
-------------------------------------------
Enron Corp. announced that the U.S. Bankruptcy Court of the
Southern District of New York approved Thursday the Company's
Joint Chapter 11 Plan.

"Undoubtedly, this was an extremely complex bankruptcy. Today's
[Thursday] court approval acknowledges not only the tremendous
amount of work that has been accomplished during the last two
and a half years, but also the overwhelming support of our
economic constituents," said Stephen F. Cooper, Enron's acting
CEO and chief restructuring officer. "We still have certain tax
and change of control issues that need to be resolved before the
effective date, but we will continue working diligently to
address those issues so that we can begin initial distributions
to our creditors as expeditiously as possible."

Under the approved Joint Chapter 11 Plan, assuming the
previously announced sales of Portland General Electric and
CrossCountry Energy are consummated, Enron's creditors will
receive a combination of cash and equity in Prisma Energy
International, Enron's international energy asset business. In
such case, the proportion of cash to equity is expected to be 92
percent cash and 8 percent equity.

At the conclusion of the claims reconciliation process, the
allowable claims against the company are expected to be
approximately $63 billion, Cooper said. The cash and equity
assets available for ultimate distribution are expected to be
around $12 billion, he added, not including recoveries from
litigation.

CONTACT: Enron Corp.
         Public Relations Dept.
         P.O. Box 1188, Suite 1600
         Houston, TX
         77251-1188
        (713) 853-5670
         public-relations@enron.com

         Web Site: www.enron.com


NET SERVICOS: Telmex Close to Wrapping Up Purchase
--------------------------------------------------
An executive of Net Servicos de Comunicacao SA said Thursday he
expects Telefonos de Mexico SA (Telmex) to conclude the
acquisition of a controlling stake in the Brazilian pay-TV
broadcaster in a matter of weeks, Dow Jones Newswires reports.

The deal awaits regulatory clearance in Brazil and a new
shareholder agreement.

But according to Net Servicos Chief Financial Officer Leonardo
Pereira: "Approval from (regulator) Anatel won't take long...
but the talks for the new shareholder agreement may take a
while."

He added that a new shareholders' agreement is expected "in a
matter of weeks, not months."

Telmex said in June it will pay between US$250 million and
US$370 million for a controlling stake in Net Servicos,
depending on Net's debt restructuring, now underway. Around 70%
of Net creditors have already accepted the terms offered by the
company. Pereira said he remains confident of winning approval
from the rest.

"Overall, we have reached an informal agreement with the holders
of 95% the company's debt," he stressed. "We think they all will
go for it."

As of June 30, Net had a debt of BRL1.5 billion.

At the same time, Pereira said he expects Net Servicos to reach
recurring net profit by late 2005 or early 2006 thanks to the
ongoing debt restructuring.

Pereira said the restructuring would reduce the Company's debt
to BRL730 million. Taking into account cash of around BRL300
million, net debt would be about BRL430 million, Pereira said,
cutting the Company's net-debt-to-EBITDA ratio to below 1.5.

The Company has been cash flow positive for 18 months, he added.

CONTACT: Net Servicos de Comunicacao S.A
         Mr. Marcio Minoru
         Mr. Rodrigo Alves
         55-11-5186-2811
         ri@netservicos.com.br

         Web Site: nettv.globo.com



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C H I L E
=========

TELEFONICA CTC: Shareholders Approve Unit's Sale
------------------------------------------------
Chilean telco Telefonica CTC Chile successfully convinced
shareholders to approve the sale of its mobile unit Telefonica
Movil to its parent, Spanish Telefonica SA (TEF).

In a controversial extraordinary shareholders' meeting held
Thursday, 69.1% of shareholders voted in favor of the proposal,
while 20.4% rejected it.

CTC's management needed approval from two thirds of the
Company's shareholders to put its mobile unit under the wing of
Telefonica's Telefonica Moviles (TEM) unit.

However, shareholders demanded that TEF raise its offer for
CTC's mobile assets by US$51 million.

Telefonica offered to pay CTC US$1.01 billion and assume a debt
of US$243 million for the mobile unit. But because the
transaction would saddle CTC with US$51 million in income taxes,
institutional shareholders voted to get Telefonica to pay it.

Telefonica wants full control of Telefonica Movil so that it can
smoothly merge the unit with BellSouth Chile, one of five
BellSouth units the Spaniards are buying for US$5.9 billion. The
merger still depends on approval by the anti-monopoly commission
TDLC.

CONTACT: TELEFONICA CTC CHILE
         Sofia Chellew
         E-mail: schelle@ctc.cl
         Tel.:56-2-691 3867

         Veronica Gaete
         E-mail: vgaete@ctc.cl
         Tel.:56-2-691 3867

         M.Jose Rodriguez
         E-mail: mjrodri@ctc.cl
         Tel.:56-2-691 3867

         Florencia Acosta
         E-mail: macosta@ctc.cl
         Tel.:56-2-691 3867



===============
C O L O M B I A
===============

EMCALI: Will Go Ahead With 7% Rates Hike
----------------------------------------
CRA, Colombia's water services regulator, has given Emcali the
green light to implement a 7 percent increase in its sewerage
charges, reports Business News Americas.

The additional charge is intended to defray the estimated US$3
million annual operating expenses for the country's wastewater
treatment facility. The increase, which would affect 455,000
users, will be implemented sometime in August or September. To
complement the hike, CRA will also offer cuts in its fixed
charges.

Emcali's plant, constructed two years ago at a cost of US$104
million, treats 40% of the city's wastewater before it flows to
the Cauca River.       



===================================
D O M I N I C A N   R E P U B L I C
===================================

EDENORTE/EDESUR: Regulator Opposes Planned Re-Privatization
-----------------------------------------------------------
The Dominican Republic electricity regulator advised the
government not to re-privatize ailing state-owned power
distributors Edenorte and Edesur, Business News Americas
reports.

The regulator, Mr. George Reinoso, said that the financial
problems of the two utilities are so severe, making them unfit
for re-privatization. The best alternative for President-elect
Leonel Fernandez would be to have a private operator provide the
distributors with capital and manage them according to
government-set objectives.

However, the regulator's recommendations contradict the
country's national energy commission CNE's proposal, which aims
to see the distributors privatized.

The Dominican Republic's government sold 50% stakes in
distributors and generators in 1999, Business News Americas
recalls.

In 1999, Spain's Union Fenosa bought Edesur and Edenorte from
the Dominican Republic. Last year, the Spanish company handed
back the two distributors after heavy losses incurred by the
structure of the power sector and a succession of exogenous
shocks such as a banking crisis, exchange rate collapse and the
knock-on effect of high oil prices on power tariffs.



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M E X I C O
===========

GRUPO POSADAS: S&P Assigns BB- Rating
-------------------------------------
Standard & Poor's Ratings Services assigned its 'BB-' corporate
credit rating to Mexican hotel operator Grupo Posadas S.A. de
C.V. (Posadas). The outlook is stable.

"The rating on Posadas reflects its position as the largest
hotel operator in Mexico, a branding portfolio with well-
recognized names, and the development of competitive advantage
through technology," said Standard & Poor's credit analyst
Fabiola Ortiz. "The rating also considers the relatively high
financial leverage of the company, as well as the cyclicality of
the industry in which it participates."

Posadas operates 79 hotels with a total of 15,305 rooms as of
March 2004. The company's operations are concentrated in Mexico
(80% of rooms), where it operates 63 hotels. It also operates
six hotels in the U.S., nine in Brazil, and one in Argentina.

At March 31, 2004, Posadas had about US$21.0 million in cash and
approximately US$63.4 million available in credit lines,
resulting in additional financial flexibility. The operating
cash flow was US$25.0 million as at December 2003, and is
expected to remain at positive levels of US$25.0 million and
US$43.0 million for the next two years. Moreover, short-term
financial obligations amount to US$54.0 million, and the company
is therefore evaluating the possibility of reducing the short-
term refinancing risk.

"We expect that the company will continue improving its
operating performance and will be able to generate stable cash
flows, even under adverse economic conditions," said Ms. Ortiz.
"Moreover, Posadas will be able to refinance its short-term
liabilities."

ANALYSTS:  Fabiola Ortiz, Mexico City (52) 55-5081-4449
           Manuel Guerena, Mexico City (52) 55-5081-4411  


HYLSAMEX: Raises MXN1.12B From Latest Stock Offer
-------------------------------------------------
The Mexican Stock Exchange announced on Thursday that Hylsamex
raised MXN1.12 billion from its latest stock offering.

A total of 70 million new L shares were sold, 35 million in
Mexico at 16 pesos (US$1=MXN11.49) with another 35 million
traded abroad at US$41.39 shares. The offering, which was
oversubscribed by 9 million shares, is equivalent to 12.15
percent of the Company's shares out in the market.

In addition, existing shareholders have made an initial deposit
on the offering to purchase 33 million more shares. They will
have to pay the rest of the issue price by July 20 to collect
their shares.  

Hylsamex is expected to collect US$144 million if all 103
million shares are sold. The Company will use this cash infusion
to pay some of its debts and retire its CPO shares.

CONTACT:  Hylsamex S.A. de C.V.
          101 Ave Munich Cuauhtemoc
          66452 San Nicolas de los Garza
          Nuevo Leon
          Mexico
          Phone: +52 81 8865 2828
          Fax: +52 81 8865 1210
          Home Page: http://www.hylsamex.com.mx
          Contact:
          Engr. Dionisio Garza Medina, Chairman
          Alejandro Elizondo Barragan, Chief Executive Engr


PEMEX: Suffers From Heavy Debt, Low Reserves  
--------------------------------------------
Debt-laden Petroleos Mexicanos (Pemex) would have to sell 95% of
its assets if it decides to pay obligations totaling US$71.14
billion now, says local daily El Economista.

Apart from its looming debt, the state-run oil company is
further burdened by heavy taxes, low productivity per worker and
dwindling reserves.

A study, involving Pemex and five other global oil players,
conducted by the Center for Strategic Research for Mexico
revealed that the Company's allocations for exploration are not
sufficient to replenish 50 percent of reserves. The country's
restoration rate currently stands at only 26 percent while
countries such Venezuela and Canada has restoration rates at 100
percent.    


TV AZTECA: Postpones Filing of Form 20-F
----------------------------------------
TV Azteca, S.A. de C.V. (NYSE: TZA; BMV: TVAZTCA), one of the
two largest producers of Spanish language television programming
in the world, announced Thursday that it expects to file next
week its Annual Report on its Form 20-F, for the year ended
December 31, 2003.

The Company was not able to file its Form 20-F Thursday due to
an audit completion delay. PriceWaterhouseCoopers, the Company's
independent auditors, are in the process of concluding the audit
of the financial statements of Cosmofrecuencias, S.A. de C.V., a
former subsidiary of the Company, which was split-off in
December 2003.

The Company noted that, on June 30, 2004, it filed its Spanish-
language annual report with the Mexican National Securities and
Banking Commission as required under Mexican law. That report
included TV Azteca's audited consolidated 2003 financial
statements prepared in accordance with Mexican GAAP and
certified by PriceWaterhouseCoopers. On July 12, 2004, the
Company furnished an English translation of that report to the
U.S. Securities and Exchange Commission on Form 6-K.

The Company believes that the audit of Cosmofrecuencias' results
is not material to TV Azteca financial statements.

CONTACT: Mr. Bruno Rangel
         Head of Investor Relations
         Tel. (5255) 3099 9167
         Fax. (5255) 3099 1418
         jrangelk@tvazteca.com.mx



===============
P A R A G U A Y
===============

* Paraguay Mulls $25M Bond Issue to Cover Maturing Debts
--------------------------------------------------------
Financially strapped South American country Paraguay plans to
issue US$25 million in bonds, the first bond issue since
President Nicanor Duarte took office in August 2003.

The move, according to a Dow Jones report, is intended to cover
payments and interest coming due by year's end on part of the
US$2.4-billion debt.

The bond issue would help defray part of the US$159 million in
debt financing costs coming due between now and December,
government official Miguel Gomez said.

The plan will require congressional approval because it would be
backed by the national treasury.



=======
P E R U
=======

* $16.6M World Bank Loan to Support Peru's Decentralization
-----------------------------------------------------------
The World Bank approved Thursday two loans for a total of $16.6
million for Peru to support the decentralization of key social
programs and fiscal administration.

"The decentralization of fiscal management and public services
will help authorities at all levels channel resources to where
they are needed most, especially the rural poor," said Marcelo
Giugale, World Bank Country Director for Bolivia, Ecuador, Peru
and Venezuela.

The $8.8 million Institutional Capacity for Sustainable Fiscal
Decentralization Technical Assistance Project seeks to provide
regional and local governments with the necessary tools for
planning, monitoring and evaluating sustainable finances, while
strengthening the capacity of the national government to monitor
and evaluate the country's fiscal and financial performance. The
project, which supports Peru's ongoing decentralization process
and public sector modernization program, will:

- Introduce basic financial management tools (tax collection,
accounting, budgeting) at the regional and local government
level to produce data and monitor fiscal performance in
accordance with the new legal fiscal decentralization framework.

- Enhance the efficiency of public expenditure by designing an
initial set of institutional performance management indicators
for projects and activities, and by evaluating and improving
existing results-based management agreements.

- Upgrade the national public investment system by providing
training for newly created decentralized offices for public
investment.

- Strengthen local capacity for managing public assets through
transfers of know-how and technological support among the 1,700
regional governments and agencies.

- Extend the Integrated Financial Management System (SIAF) -
which ensures uniform accounting, budgeting and reporting
standards to cover all local governments, and finance the design
of a consolidated national payroll control system.

Accountability for Decentralization in the Social Sectors
Technical Assistance Project

The $7.8 million Accountability for Decentralization in the
Social Sectors Technical Assistance Project aims to ensure that
the targeting and efficiency of social programs, such as
education and health, are maintained and improved throughout the
decentralization process. In particular, the project seeks to:

- Improve the quality of social policies and programs through
policy development and evaluation related to education, health,
pension system, and other social programs, and the
implementation of performance agreements and accreditation
systems of social programs at the local level.

- Improve the monitoring and evaluation system of social
programs by building monitoring instruments and analytical
capacity, such as a monitoring system for the Ministry of Women
and Social Development programs, and a more user-friendly
"Consulta Amigable" Web site to provide open access to
information about budgets, expenditures, services and the
performance of social programs.

The two single-currency, fixed-spread loans are repayable in 14
years, including 8 years of grace. Disbursements will run from
2004 through 2008.

CONTACT: Mr. Lee Morrison
        (202) 458-8741
         Lmorrison1@worldbank.org

         Web Site: www.worldbank.org



=================
V E N E Z U E L A
=================

PDVSA: Details U.S. Ruling on Alleged Expropriation of Assets
-------------------------------------------------------------
Statement of Ali Rodriguez Araque
PDVSA President
July 14, 2004

The United States Overseas Private Investment Corporation
("OPIC") formally informed us yesterday that it has decided to
pay the San Diego firm Science Applications International
Corporation ("SAIC") based on SAIC's claim that its investment
in Venezuela has been expropriated.

We have every reason to believe that OPIC's decision was based
on prevailing politics in Washington, D.C., and the desire to
satisfy a politically powerful U.S. company, rather than on the
facts. We have consulted with outside legal counsel in the
United States, as well as with a noted U.S. academic expert in
the field of international law and expropriation, and both have
concluded that OPIC's determination is entirely without merit.
OPIC simply accepted the allegations of SAIC without examining
the actual facts.

The facts are straightforward:

- In 1996, PDVSA made the decision to outsource its information
technology services. It entered into a joint venture with SAIC,
and together they created a Venezuelan joint venture company
called "INTESA" to provide outsourced information-technology
services to PDVSA.

- SAIC - through an offshore subsidiary called "SAIC Bermuda" -
invested $1,200 in the venture, while PDVSA provided all
financing for the venture as well as all equipment, office
space, personnel and $800. The venture was governed by a five-
year contract that could be renewed upon agreement of both
parties. The contract gave SAIC both management and board
control of INTESA.

- Under the contract, PDVSA paid INTESA all costs for services
provided, plus a mark up of approximately 10 percent. PDVSA paid
each month in advance.

- SAIC profited handsomely from the venture, earning more than
$40 million in dividends on its investment of twelve hundred
dollars, and an additional $53 million in subcontract fees.

- By contrast, the venture was not economically beneficial to
PDVSA. A July 2000 report by PDVSA's internal auditor raised
questions about the cost-plus outsourcing agreement. Guaicapuro
Lameda, who was then President of PDVSA, created an internal
committee to evaluate that agreement and recommend changes.
PDVSA hired the Gartner Group, an internationally recognized IT
consulting firm, to examine and assess the agreement. Both the
internal committee and Gartner recommended that PDVSA not renew
the agreement unless its terms were changed significantly.

- After a series of attempts to renegotiate the working
arrangement, and after SAIC refused to change the operating
terms, PDVSA informed SAIC that it would not renew the agreement
after it expired.

OPIC concluded that the decision not to renew the agreement
"effectively ended the viability of the joint venture." It
apparently decided that PDVSA made that decision at the
direction of the government and for political reasons. That is
simply untrue. PDVSA made that decision purely for commercial
reasons based on its own internal studies and the advice of an
expert outside consultant.

PDVSA has consistently tried to meet with SAIC to work out an
orderly dissolution of INTESA in conformity with the terms of
the joint venture contract. PDVSA has made clear in all these
efforts that it would pay SAIC its share of the value of the
company as determined by an independent audit, in accordance
with the contract.

SAIC has refused even to meet. It has also consistently refused
to allow any independent audit of INTESA's books. Such an audit
is particularly important because INTESA's own auditors had
refused to certify the accuracy of its financial statements.
PDVSA, of course, cannot make a payment based on guess work and
unaudited financial statements.

Rather than work out an orderly dissolution with PDVSA in
accordance with the contract, SAIC sought political support in
Washington from various agencies and members of Congress and
filed a claim with OPIC alleging that PDVSA and the Government
of Venezuela have "expropriated" its investment in INTESA.
Neither the Government of Venezuela nor PDVSA was notified of
SAIC's filing or has ever been allowed even to see SAIC's claim.

OPIC has tried to pressure PDVSA to pay SAIC in order to make
this dispute go away and to avoid any controversy that might
occur as a result of an OPIC determination. But we simply cannot
be subjected to such blackmail. PDVSA has a public trust and it
cannot pay money that is not lawfully due.

I personally find it astonishing that a government agency such
as OPIC would pay out millions of U.S. taxpayer dollars based
purely on the self-serving allegations of the company making a
claim and in the absence of any certified financial information.

The OPIC process, in which only one party is able to present its
case, is not an appropriate venue for resolving these types of
commercial disputes. On April 28, PDVSA notified SAIC of its
intent to submit this dispute to arbitration before the
International Chamber of Commerce in accordance with the
specific terms of their joint venture contract. This is the
proper forum for the resolution of disputes between the parties.
This independent adjudicative body will allow for a proper and
unbiased review of all facts in this matter. We are confident of
the outcome.

The wide array of companies that continue to invest in the oil
business in Venezuela - with more than $25 billion of direct
investment to date - is testament to our commitment to the
highest standards of commercial and legal propriety. Now, as
always, PDVSA is deeply committed to its international business
partners and to upholding the laws and regulations that bind us
together.


PDVSA: May Surpass US$46B Net Revenues, Says President  
------------------------------------------------------
This year's spike in oil prices could send PDVSA's sales past
the US$46 billion mark it recorded in 2003.

Mr. Ali Rodriguez, PdDVSA president, said in a Dow Jones
Newswires report that "If the situation remains how it is, the
net revenue of the corporation ... is going to surpass $46
billion."

With the improved financial outlook, the state-run company has
earmarked US$2 billion to finance infrastructure projects. PDVSA
has also committed US$1.7 billion in its 2004 budget for
literacy and social outreach programs.    

However, analysts caution that the Company's social programs
could divert much needed investments in production and
exploration, making it harder to boost production from present
levels.   



                            ***********


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