Leak of Venezuela contractor documents raises questions (Updated)

lander1_foto-cortesia-tom

Tomás Lander

What appears to be a leak of internal documents from Missouri electricity industry contractor ProEnergy Services and Venezuelan contractor Derwick Associates adds to questions about how ProEnergy got deals to sell products made by General Electric, Pratt & Whitney and Rolls Royce to Venezuelan state industries starting in late 2009.

The documents, posted to the website Scribd Nov. 17 by a person using the name “Tomás Lander,” include a proposal dated June 2009 from ProEnergy to Venezuela offering power plants. At the time, Venezuela was suffering periodic blackouts because demand for electricity was growing, a drought was draining hydroelectric reservoirs and the 2008 commodities bust had left the country with limited cash to deal with the crisis.

I haven’t been able to confirm that the documents are genuine. I sent e-mails to Derwick Associates’ press line, ProEnergy CEO Jeff Cannon and ProEnergy chief counsel Scott Dieball, asking them to validate or refute the authenticity of the documents and requesting comment. I haven’t received any response. At a glance, nothing about the documents indicates that they are forgeries. As such, for the rest of this article I will treat them as genuine documents. If ProEnergy, Derwick or anyone else offers any commentary on the documents, I will update this post to reflect their response.

The documents don’t show what happened to that ProEnergy proposal. However, another document shows that two months later, ProEnergy and Derwick agreed to cooperate in seeking work in Venezuela. Their agreement forbids either company from revealing “any and all details regarding transactions between Derwick and ProEnergy, details regarding transactions between a party and third parties, and the payment of fees and commissions.”*

The next documents are from four months later, November 17, 2009. There are two separate proposals bearing that date from ProEnergy to Derwick. The first is for a refurbished General Electric LM2500PE power plant for $9.3 million. The other is for “(3) Mobile GE TM2500PE gas turbines” for a combined $34.5 million.

Derwick proposals dated the very same day addressed to Venezuelan energy authorities have only a few differences. (Documents here and here.) The most important change is that the prices of the power plants have been boosted by more than 50 percent, to $15.5 million and $52.5 million.

Payment details also differ. ProEnergy unit Energy Parts Solutions requests that payments be wired to an account at US Bank. The Derwick proposal requests that payments pass through Citibank NA in New York, to International Union Bank SA in Panama, for final credit to a Derwick account at Davos International Bank.

The only other difference is that the Derwick proposals also give weaker specifications for the equipment than do the ProEnergy proposals. For example, the LM2500 turbine in the ProEnergy proposal is supposed to have a 22,000 kWe power output. Derwick’s proposal says the same unit has power output of 18,400 kWe. But the vast bulk of the documents are the same.

The next document is a letter from PDVSA’s international purchasing unit, Bariven. In December 2009, Bariven sent a Letter of Intention to Derwick agreeing to buy power plants from Derwick. The list of power plants is almost identical to the proposal that ProEnergy had sent in six months earlier, the only difference being that in the end they agreed to sell only two Pratt & Whitney FT-4C-1D Twin Pacs, rather than four of them. The rest is the same.

ProEnergy proposal to Bariven, June 2009:

4 P&W FT-4C-1D TWIN PAC
4 Rolls Royce Trent60
2 GE LM6000
1 GE LM2500
4 GE TM2500
2 GE Frame 7EA
3 GE Frame 7F

LOI between Bariven and Derwick, November 2009:

2 P&W FT-4C-1D TWIN PAC
4 Rolls Royce Trent60
2 GE LM6000
1 GE LM2500
4 GE TM2500
2 GE Frame 7EA
3 GE Frame 7F

This all raises questions. If the Venezuelan state was interested in this equipment, why didn’t it buy directly from ProEnergy? Why buy from an inexperienced local company instead?

Derwick has told reporters in the past that it got the deals because it was willing and able to take the nonpayment risk — recall that in 2009, international companies were sketched out about Venezuela’s growing payment delays. But I don’t see how that squares with ProEnergy reaching out to try and sell products to Venezuela on its own. And in fact, GE, Pratt & Whitney and Rolls Royce all sold products directly to Bariven in 2010 and 2011, according to internal Bariven documents. So I am not sure that this argument makes sense.

And from the US side, what exactly did ProEnergy get out of this relationship? What ever happened to their initial proposal? Why partner with Derwick, and not one of the many more established Venezuelan engineering and construction companies? Did ProEnergy do standard due-diligence checks to ensure that Derwick had the compliance policies, experience, and financial strength to avoid putting ProEnergy at risk of breaking US anticorruption laws? Did ProEnergy hold Derwick’s feet to the fire to ensure the local partner didn’t pay any bribes? Or conversely, did Derwick pay bribes, as claimed in this lawsuit, and was ProEnergy a knowing or unknowing beneficiary of this relationship?

None of these documents have been tested in court. Neither Derwick nor ProEnergy have presented their side. I don’t know where these documents came from; I was certainly surprised to see them pop up in my Google alert.

One thing that seems more than coincidental is the timing of these leaks. Thorn-in-Derwick’s-side Alek Boyd suffered a disturbing break-in Nov. 17. These documents were posted to the internet the same day. I suspect “Lander” was sending a message that s/he won’t be silenced. Personally, I haven’t been writing about Venezuela lately. I’ve been busy looking for work that pays the bills. But if you want to get me back into a story, there’s no better way to do it than to try and silence a colleague who is working on it. I am glad Boyd has sworn to keep working and not be intimidated by this rather menacing crime.

UPDATE Nov. 24: I set this to go out overnight. This morning a reader asked, what about the Pratt & Whitney e-mails? I wondered, wtf, I didn’t see any Pratt & Whitney e-mails. I go to Tomás Lander’s Scribd page and there are 6 new documents. At this point there can be no doubt, somewhere in the chain of ProEnergy-Derwick there is a Titanic-hitting-the-iceberg sized leak. I mean, this just isn’t stuff you normally see coming out of any company. And call me crazy but I just don’t see how all these can be fake. Some of the new docs show more of the same as the above. ProEnergy gives Derwick a turbine proposal, Derwick boosts the price and sends it on. In this case it is for three new Rolls Royce turbines to PDVSA.

But the other is more interesting. Pratt & Whitney offers three Swiftpac turbines to ProEnergy for $22.5 million each ($67.5 million), ProEnergy marks that up to $78 million, and Derwick marks it up again to $97.5 million. This one deserves more attention, as this is the first time I have seen the chain go back to a publicly traded company. If I had all the time in the world I’d call P&W and write something more substantial, but I have paid work to do. Have a nice day. (UPDATE 2: I wrote to P&W after all. I’ll write a new post if they respond.)

The documents:

Letter from ProEnergy unit Energy Parts Solutions to Bariven, dated June 2009. In it, ProEnergy offers Bariven several power plants. They appear to be the same items that Bariven eventually bought from Derwick.

Derwick-ProEnergy confidentiality and non-circumvention agreement, August 2009. (And here, a version signed by ProEnergy, in which it specifies that Derwick’s US “affiliate” was IntiPower, a Florida corporation.)

Proposal from ProEnergy to Derwick, dated November 17, 2009, offering a refurbished General Electric LM2500PE power plant for $9.3 million. Proposal from Derwick to Electricidad de Caracas, dated November 17, 2009, offering that same LM2500PE power plant for $15.5 million, a markup of $6.2 million, or 67%.

That same day, a proposal from Energy Parts Solutions (ProEnergy) to Derwick to sell “(3) Mobile GE TM2500PE gas turbines” for $34.5 million. And then an almost identical proposal from Derwick to Electricidad de Caracas for $52.5 million, a 52 percent markup.

ProEnergy letter to PDVSA dated November 30, 2009, confirming that Derwick is its sole representative in Venezuela.

Letter of Intention between Bariven and Derwick, dated December 2009.

Letter from Derwick to Bariven, the international unit of Venezuelan state oil company PDVSA, regarding a change in a transformer order.

Letter from Patricia Kamphaus at Bariven to Scott Dieball, top lawyer at ProEnergy, confirming commercial terms for the sales, and a response from Dieball.

Here’s a photo taken at, or near, Derwick’s Caracas offices, which comes with a little rant about how good it feels to share secrets.

* Yeah, I know what “commissions” often means in Venezuela. But let’s not get ahead of ourselves here.

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