1. (SBU) Summary. AES and two other companies presented
challenges to the State-owned electricity enterprise ENEE's
decision to award Lufussa the contract for the 210MW bid.
AES challenged ENEE's failure to disqualify Lufussa for the
lack of inclusion of sufficient transmission facilities in
its original bid, charging that Honduran law clearly did not
permit the omission. AES has also charged that other
companies should have been disqualified for not explicitly
including their proposed type of fuel in the bid. AES also
found mathematical errors in the calculations used to
determine the evaluated price that change the competitive
order of company prices. ENEE officials initially
threatened to sue companies that used the legal appeals
process, but GOH officials have discounted those threats.
The prosecutor for anti-corruption and the Honduran
Inspector General's office have both also announced they
will investigate ENEE's conduct of the tender. End Summary.



2. (U) On November 26th, AES, Comercial Laeisz and the
National Engineers' group all challenged the results of the
210MW bid, arguing that Lufussa should have been
disqualified as they did not include a required transmission
line. The challenges by the three companies also prompted
investigations by the prosecutor for anti-corruption and the
Honduran Inspector General's office who both announced
November 27 that they too would be investigating the tender
process. The ENEE board of directors, by law, should decide
on the three companies' appeals within five business days,
although most expect it will take longer.



3. (SBU) AES' challenge is based on the fact that Lufussa
was allowed to modify its bid to include transmission lines
which it omitted from the original bid packet; Lufussa added
the transmission lines and substations after the July 26 bid
opening when the company was able to review its competitors'
bids. AES believes this allowed Lufussa to design
transmission capacity that ensured it the lowest
transmission losses and therefore lowered its overall
evaluated price per kilowatt hour (transmission losses play
an important part in the calculation of evaluated price).
In addition, neither Lufussa nor Comercial Laeisz included
the type of fuel to be used, an automatic disqualification.
AES believes it has a very strong legal case and at this
point is willing to challenge the bid decision through the
Supreme Court level if necessary.



4. (SBU) With the help of considerable Embassy advocacy, AES
finally received (on the day before the deadline to
challenge the tender award) the data on assumptions and
calculations that ENEE used to arrive at the evaluated
price. AES ran the numbers through the model and believe
they found mathematical errors that would change the
results, with Comercial Laeisz falling to third place and
AES moving into a close second behind Lufussa. The ENEE
data also demonstrated that Lufussa did, in fact, have the
lowest transmission losses. AES strongly believes this was
only possible due to Lufussa's ability to delay providing
details on transmission until after seeing its competitors'
bids.



5. (SBU) ENEE and Honduran officials tried desperately to
discourage these bid challenges. Members of the "notables"
committee charged with overseeing the process repeatedly
stated no company should challenge the decision as it was
unanimous, fair and transparent. ENEE General Manager,
Angelo Botazzi, told reporters the ENEE would counter-sue
any company presenting a challenge to the bid (implicitly
aiming this threat at AES). Now that Honduran companies
Comercial Laeisz and the National Engineers group have also
challenged the result, there has been less talk of a counter
suit. GOH officials (ENEE board members, some Ministers and
various Congressmen) have also tried to condition public
opinion by claiming that the challenges will result in
future blackouts and a potential energy crisis (since the
appeals process could bog down in court cases). AES's
public comments have emphasized that it has only asked, at
this time, for an administrative review by the ENEE board of
directors, which shouldn't take more than 5-15 days.


PIERCE