MEMORANDUM OF DETERMINATIONS 

Inconvertibility Claim of First Trust of New York, National Association

Argentina – OPIC Contract of Insurance No. F181 

I. CLAIM

By letter dated February 11, 2002 (Annex 1), First Trust of New York, National Association, 

as holder of the TGN Note1

 and financial trustee of TGN CRIBs Financial Trust I (the 

“Financial Trustee” or the “Insured”), filed a Draft Application for Compensation under the 

OPIC Insurance Contract for the inconvertibility of scheduled payments of interest on the 

TGN Note and the premium due on the OPIC Insurance Contract in the aggregate amount of 

U.S. $9,800,000.2

 

In the Draft Application3

, the Financial Trustee claimed that passage of the Argentine Public 

Emergency Exchange Reform Act on January 6, 2002, and subsequent regulations resulted in 

an Inconvertibility Event (as defined in the Indenture between TGN and the TGN Trustee, et 

al, dated July 25, 2000 (the “Indenture)) and that the inconvertibility of payments on the 

TGN Note entitled the Insured to compensation under the OPIC Insurance Contract. Upon 

reviewing the Draft Application, subsequent correspondence, and the relevant regulations of 

the Argentine Central Bank, OPIC finds that a Triggering TGN Scheduled Payment did not 

occur on January 25, 2002, and that even if a Triggering TGN Scheduled Payment had 

occurred, no compensation would be payable under the OPIC Insurance Contract 

II. SUMMARY OF DETERMINATION

The OPIC Insurance Contract deems inconvertible Local Currency or U.S. dollars held by or 

for the account of the Foreign Enterprise in a Deposit Account to pay a TGN Scheduled 

Payment if the Foreign Enterprise is unable to convert such Local Currency into U.S. dollars 

in the manner and at the exchange rate provided in the OPIC Insurance Contract or is unable 

to transfer such U.S. dollars to the United States. The response of the Insured to OPIC’s 

Information Request states that no Local Currency was held in such a Deposit Account for 

such purpose, nor was Local Currency for such purpose deposited into a TGN Peso 

Inconvertibility Account (as defined in the Indenture) as required by the Indenture. 

Therefore, no compensation is payable under the OPIC Insurance Contract. 

Further, the OPIC Insurance Contract requires the Insured to make all reasonable efforts to 

convert or cause the Foreign Enterprise to convert Local Currency into U.S. dollars and to 

transfer to the United States the U.S. dollars held for the purpose of making the Triggering 

Scheduled Payment. Except for two brief periods during the Waiting Period, i.e., the period 

 1

 All terms capitalized herein for other than grammatical purposes and not defined herein have the meaning set forth

in the OPIC Insurance Contract. 2

 A Completed Application was timely filed. 3

 See Exhibit “A” of Annex I. 

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commencing on the Triggering TGN Payment Date and ending on the Subsequent TGN 

Payment Date, at all times during the Waiting Period, Local Currency that needed to be 

converted to U.S. dollars to make an interest payment on the TGN Note was convertible into 

U.S. dollars and the U.S. dollars were transferable to the United States, for a short period 

with the consent of the Central Bank of Argentina and, thereafter, at least to the date hereof, 

without the consent of the Central Bank.4

 Thus, if there had been Local Currency or U.S. 

dollars held by or for the benefit of the Foreign Enterprise in a Deposit Account on the 

Triggering TGN Payment Date, such Local Currency was convertible into U.S. dollars and 

U.S. dollars were transferable to the United States for the purpose of making the Triggering 

TGN Scheduled Payment during the Waiting Period, and reasonable efforts on the part of the 

Insured or the Foreign Enterprise would have resulted in payment of the Triggering TGN 

Payment5

. Therefore, no compensation is payable under the OPIC Insurance Contract. 

III. FACTUAL SUMMARY

A. The Project and the Insured 

Transportadora de Gas del Norte S.A. (“TGN”) is one of two principal natural gas 

transportation companies operating in Argentina. On July 14, 2000, TGN issued the TGN 

Note to finance an increase in the capacity of TGN’s Centro Oeste gas pipeline between 

Loma La Lata in Neuquen Province and Aldea Brasilera. Merrill Lynch (the “Grantor”) 

purchased the TGN Note and transferred ownership thereof to the Financial Trustee in

exchange for the proceeds of sale of the CRIBs. The CRIBs were issued to Noteholders 

pursuant to the CRIBs Indenture. Payments on the CRIBs are dependent on payments on the 

TGN note. 

The OPIC Insurance Contract covers the inconvertibility of scheduled payments of principal 

and interest on the TGN Note. 

TGN is required to make scheduled payments on the TGN Note every six months beginning 

January 25, 2001. On January 7, 2002, TGN informed OPIC that the Argentine Government 

had enacted Decree No. 1570/20016

 and adopted Communications “A”33827 and “A”33948. 

TGN stated that these regulations contained provisions requiring the Argentine Central 

Bank’s (the BCRA’s) approval prior to transferring U.S. dollars from Argentina or 

converting Local Currency into U.S. dollars for purposes of servicing financial debt. As a 

result, TGN cautioned that these laws could render OPIC liable under the OPIC Insurance 

Contract. On January 25, 2002, TGN notified the TGN Trustee that it would not be able to 

make the January 25th scheduled payment, referring to the enactment of Emergency Law 25-

5619 and Decree 71/200210 as reasons for its incapacity to render the payment11. TGN 

 4

 There is no indication or information to suggest that, where Central Bank approval is required to convert Local 

Currency into U.S. dollars for the purpose of paying foreign debt, the Central Bank does not routinely provide such

approval for bona fide transactions. 5

 In the instant case, the payment would have replenished the TGN Reserve LC. 6 Decree No. 1570/2001, Dec. 1, 2001, B.O. No. 29.787. 7 Communication A-3382, Dec. 7, 2001, Circular CAMEX 1 – 320, B.O. No. 29.798. 8

 Communication A-3394, Dec. 13, 2001, Circular CAMEX 1 - 321, B.O. No. 29.799. 9

 Emergency Law No. 25-561, Jan. 6, 2002, B.O. No. 29.810. 

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subsequently failed to make the January 25, 2002 scheduled payment of interest due on 

account of the TGN Note and of the required OPIC Insurance Contract premium.

Upon TGN’s failure to make the January 25, 2002, payment on the TGN Note, the TGN 

Trustee called on the TGN Reserve LC in an amount equivalent to the TGN Scheduled 

Payment and the OPIC Insurance Contract Premium and made the payment on the OPIC 

Premium and the TGN Note. After such payment was made, on February 1, 2002, the TGN 

Trustee notified TGN that a drawing under the TGN Reserve LC had been made and 

informed TGN that it was obligated to replenish the amount of the TGN Reserve LC unless 

an Inconvertibility Event had occurred, in which case TGN would be obligated to deposit the 

Local Currency equivalent of U.S. dollars in an Inconvertibility Account.12 However, TGN 

neither replenished the TGN Reserve LC nor deposited the Local Currency equivalent of 

U.S. dollars or U.S. dollars in an appropriate Inconvertibility Account. Subsequently, the 

Insured filed a claim for compensation under the OPIC Insurance Contract. 

B. Argentine Decrees and Regulations Relating to Convertibility and Transferability 

Since 1991, the Argentine economy has functioned under a convertibility system that 

permitted both the peso and dollar to be circulated in Argentina and traded at a peso-dollar 

rate of 1-to-1. However, on January 6, 2002, the Argentine Congress passed the Economic 

Emergency Law No. 25-561, which replaced the original convertibility system with a dual 

exchange rate system and resulted in a 29% devaluation of the Argentine peso. Under the 

new system, transactions involving trade were to be channeled through the Official Exchange 

Market at a rate of 1.40 Argentine peso to 1.00 US dollar. All other transactions were subject 

to the Free Exchange Market, as described in the BCRA regulations. 

In addition to passing the Emergency Law, the Argentine Government also ratified a number 

of decrees and regulations relating to the convertibility and transferability of the Local 

Currency. These decrees and regulation included: Decree No. 1570/200113, which provided 

that transfers abroad concerning financial obligations would be subject to BCRA’s 

authorization; Communication A-344414, which provided, in relevant part, that only 

transactions channeled through the Official Exchange Market would require the approval of 

the BCRA; Decree No. 260/200215, which abolished the dual exchange rate system and set 

up a single free floating foreign exchange market; Communication A-3471as amended16, 

which required the private sector to obtain the BCRA’s approval prior to making payments of 

principal and interest on financial loans, except, among others, debt with official credit 

agencies and debt guaranteed by them17; and Communication A-362718, which exempted the 

private sector from obtaining BCRA prior approval in cases involving debt with or 

 10 Decree No. 71/2002, Jan. 9, 2002, B.O. No. 29.813. 11 See Attachment “B” of Annex II, letter dated January 25, 2002. 12 See Annex III, letter dated March 11, 2002. 13 See footnote No. 6 above. 14 Communication A-3444, Jan. 23, 2002, Circular CAMEX 1 – 323, B.O. No. 29.828. 15 Decree No. 260/2002, Feb. 8, 2002, B.O. No. 29.834. 16 Communication A-3471, Feb. 8, 2002, Circular CAMEX 1 – 326, B.O. No. 29.842. 17 Section 5 of Communication A-3471. 18 Communication A-3627, June 5, 2002, Circular CAMEX 1 – 378, B.O. No. 29.923. 

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guaranteed by members of the International Credit Union and Investment Insurers (Union de 

Berna) that are official credit agencies or export credit insurers. 

IV. DETERMINATIONS UNDER THE CONTRACT

A. No Compensation is payable under the OPIC Insurance Contract even if an 

Inconvertibility Event did exist throughout the entire Waiting Period because TGN did 

not deposit the peso equivalent of U.S. dollars into an Inconvertibility Account or Deposit 

Account, as required by the Indenture and the OPIC Insurance Contract. 

As noted above, Local Currency is deemed inconvertible if the Foreign Enterprise is unable 

to convert Local Currency into US dollars or to transfer U.S. dollars to the United States and 

no compensation is payable if the Insured has not made all reasonable efforts to convert 

Local Currency into U.S. dollars and to transfer out of Argentina to the United States U.S. 

dollars or to cause the Foreign Enterprise to do so. 

In addition, the OPIC Insurance Contract provides that as a condition precedent to OPIC’s 

obligation to pay compensation under the Contract, the Insured must or cause the Foreign 

Enterprise to either deliver or cause to be delivered to OPIC (A) inconvertible Local 

Currency, in an amount equal to the Insured Portion of the Subsequent TGN Scheduled 

Payment or (B) non-transferable U.S. dollars, equal to the Subsequent TGN Scheduled 

Payment, in either case in the form of funds immediately available to OPIC in the Host 

Country or, at OPIC’s option, in cash. 

Thus, under the OPIC Insurance Contract, for an Inconvertibility Event to occur, TGN is 

required to hold inconvertible Local Currency or non-transferable U.S. dollars in a Deposit 

Account19. Both TGN and the Insured allege that an Inconvertibility Event occurred. 

However, in its response letter to OPIC, dated March 13, 2002, the Financial Trustee stated 

that no funds were deposited into a Deposit Account. Additionally, the TGN Trustee 

disclosed in its letter20 dated March 11, 2002, that TGN had failed to deposit any funds into a 

TGN Inconvertibility Account. Finally, TGN acknowledged, in a letter21 addressed to the 

TGN Trustee dated March 12, 2002, that it was unable to make the deposit required under 

Section 6.1(x) of the Indenture because the "substantial devaluation" of the Argentine Peso 

had caused "a material adverse impact on its capacity to serve its foreign currency 

denominated debt." Thus, based on statements made by TGN and the Insured in 

correspondence with OPIC, it is evident that TGN failed to hold Local Currency or U.S. 

dollars in an appropriate Inconvertibility or Deposit Account as required by the TGN 

Indenture and OPIC Insurance Contract. Accordingly, no compensation is payable under the 

OPIC Insurance Contract on July 25, 2002, the Subsequent TGN Payment Date. 

 19 Section 6.1(x) of the TGN Indenture also provides (in part) that the following event is an Event of Default under

the TGN Indenture: failure by the Issuer to make any deposit required to be made by it (i) to the TGN Reserve

Account or (ii) during the continuance of an Inconvertibility Event, to the applicable Inconvertibility Account... 20 See Attachment “B” of Annex II. 21 Id. 

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B. The decrees enacted by the Argentine Government and the regulations adopted by the 

BCRA notwithstanding, reasonable efforts on the part of TGN to convert Local Currency 

and transfer U.S. dollars to the United States during the Waiting Period would have been 

successful in that such decrees and regulations neither prevented the transfer of U.S. 

dollars from Argentina nor rendered the Argentine Peso inconvertible except for two 

brief periods during the Waiting Period. 

The OPIC Insurance Contract provides that Local Currency is deemed inconvertible if the 

Foreign Enterprise (“TGN”) is unable legally to convert Local Currency into US dollars or to 

transfer U.S. dollars to the United States. Further, the OPIC Insurance Contract provides that 

no compensation is payable if the Insured has not made all reasonable efforts to convert 

Local Currency and transfer to the United States U.S. dollars or to cause the Foreign 

Enterprise to do so. Accordingly, in order for the Argentine Peso to be deemed 

inconvertible, the Insured or TGN, using reasonable efforts, must not have been able to 

convert Local Currency into U.S. dollars or to transfer U.S. dollars out of Argentina to the 

United States between January 25, 2002 and July 25, 2002. OPIC would only be obligated to 

pay compensation under the OPIC Insurance Contract if such reasonable efforts would have 

failed. 

In a letter

22 addressed to OPIC, TGN asserted that an Inconvertibility Event occurred when 

the Argentine Government passed Decree No. 1570/2001 and the BCRA adopted 

Communications A-3382 and A-3394. Decree No. 1570/2001, enacted on December 1, 

2001, required that transfers abroad concerning financial obligations be subject to BCRA 

authorization. Presumably, this included the kind of payments evidenced by the TGN Note. 

Similar to Decree 1570/2001, Communications A-3382 and A-3394, enacted on December 7, 

2001 and December 13, 2001, respectively, also presumably obligated TGN to obtain BCRA 

prior approval for the purpose paying financial debt. Specifically, the Annex to 

Communications A-3382 listed those categories of debt that were subject to BCRA approval. 

While the type of debt attributable to the TGN Note was not expressly mentioned, Section 

2.2.26 of the Annex stated that obligations not expressly contemplated in the Annex were 

subject to BCRA approval. Likewise, Regulation A-3394, which modified A-3382, 

contained the same provision as Section 2.2.26 of the Annex to A-3382. Therefore, 

Communications A-3382 and A-3394 presumably did require that TGN obtain BCRA prior 

approval for the purpose paying financial debt. However, whereas Decree 1570/2001 and 

Communications A-3382 and A-3394 were enacted prior to the commencement of the

Waiting Period and establishment of the dual exchange rate system (on December 1, 2001, 

December 7, 2001, and December 13, 2001, respectively), Communication A-3444 was 

adopted on January 23, 2002, after the establishment of a dual exchange rate system

consisting of an Official Exchange Market and a Free Exchange Market. Communication A3444 limited BCRA approval to transactions that were to be channeled through the Official 

Exchange Market. Communication A-3444 did not, however, require that interest payments 

on account of financial loans, such as the indebtedness evidenced by the TGN Note, be 

channeled through the Official Exchange Market. Thus, had TGN attempted to make an 

 22 See Attachment “B” of Annex II. 

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interest payment on account of the TGN Note after January 23, 2002, such payment could 

have been channeled through the Free Exchange Market and would not have been subject to 

any prior approvals. Therefore, while there may have been a period of inconvertibility 

between December 1, 2001 and January 23, 2002, prior to the commencement of the Waiting 

Period, such inconvertibility ended with the adoption of Communication A-3444 on January 

23, 2002. 

Communications A-346023 and A-346624 established a foreign exchange holiday from

February 4, 2002 through February 8, 2002, resulting in an Inconvertibility Event during the 

Waiting Period. Another foreign exchange holiday occurred from April 192526, 2002 through 

April 2627, 2002. However, these foreign exchange holidays were, once again, temporary 

measures. On days prior and subsequent to the foreign exchange holidays, TGN had the 

ability to convert Local Currency into U.S. dollars and to transfer U.S. dollars out of 

Argentina to the United States. 

TGN’s ability to convert Local Currency or transfer U.S. dollars to the United States was 

further reinforced by the BCRA’s adoption of Communication A-3471 and A-3627 on 

February 8, 2002 and June 5, 2002, respectively. Communication A-3471 exempted the 

private sector from obtaining BCRA prior approval in cases involving debt with official 

credit agencies or debt guaranteed by them. Communication A-3627 modified Section 5(c) 

of Communication A-3471 to exempt the private sector from obtaining BCRA prior approval 

in cases involving debt with or guaranteed by members of the International Credit Union and 

Investment Insurers (Union de Berna) that are official credit agencies or export credit 

insurers. The scheduled payments on the TGN Note were insured by OPIC, which is an 

official credit agency and a member of the Bern Union. Hence, the TGN Note evidences a 

debt guaranteed by an official credit agency that is a member of the Bern Union. Therefore, 

the convertibility of TGN payments was exempt from the BCRA’s prior approval. 

Consequently, except for the periods February 4, 2002 through February 8, 2002 and April 

19, 2002 through April 26, 2002, Argentine pesos held by TGN for the purpose of making a 

scheduled payment of interest on account of the TGN Note and paying the premium on the 

OPIC Insurance Contract were fully convertible into U.S. dollars, and the U.S. dollars were 

transferable to the United States during the Waiting Period, and reasonable efforts by the 

Insured or TGN to so convert and transfer would have resulted in replenishment of the TGN 

Reserve LC. Accordingly, no such reasonable efforts having been made, no compensation is 

payable under the OPIC Insurance Contract on July 25, 2002, the Subsequent TGN Payment 

Date. 

 23 Communication A-3460, Feb. 5, 2002, Circular RUNOR 1 – 515, B.O. No. 29.837. 24 Communication A-3466, Feb. 7, 2002, Circular RUNOR 1 – 517, B.O. No. 29.839. 25 Communication A-3571, Apr. 19,2002, Circular RUNOR 1-541, B.O. No. 29.890. 

26 Communication A-3576, Apr. 22,2002, Circular RUNOR 1-542, B.O. No. 29.894. 27 Communication A-3580, Apr. 25,2002, Circular RUNOR 1-546, B.O. No. 29.896. 

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V. Conclusion

For the foregoing reasons, no compensation is payable under the OPIC Insurance Contract by 

reason of the events set forth in the claim of the Insured filed with OPIC on February 11, 

2002. 

____________________________

Peter S. Watson 

 President & CEO

____________________________

(Date)

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