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 Post subject: Doors Opened for Gas Firm Tied to Neil Bush
PostPosted: Sat Oct 30, 2004 8:21 pm 
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Doors Opened for Gas Firm Tied to Neil Bush

The president's brother consults for a politically connected Texas company that found itself well-positioned in the import business.

By Walter F. Roche Jr.
LATimes Staff Writer

October 29, 2004

QUINTANA ISLAND, Texas — When President Bush came into office in 2001, it was a boom time for the energy industry. And one of the many boats lifted was that of a small Texas company in which the president's brother played an important role.

Among other initiatives, the new president had promised to make it easier for companies to build coastal facilities to store liquefied natural gas imported from around the world.

That sent developers in South Texas scrambling to lock up property for the facilities. One firm looking for a foothold was Crest Investment Co.

The firm had no experience running an LNG processing facility, but it did have a highly recognizable name: Crest's co-chairman was the president's brother, Neil.

One site that generated particular interest was Quintana Island, near Freeport in the Texas gulf. The long, narrow island is home to the town of Quintana, population 40; a bird sanctuary, miles of beach and a brand-new bridge connecting it to the mainland. Most importantly, it is near a deep-water channel that makes it cargo-ship accessible.

The right to grant a lease to develop an LNG facility on the island fell to the Brazos River Harbor Navigation District, which went through procedural gymnastics to accommodate Crest.

Although there is no evidence that Neil Bush traded on his connection to the White House or that the president intervened, the harbor commission was so receptive to the Crest proposal that it quickly and quietly offered the firm an exclusive lease without soliciting other proposals.

The deal was approved even though ExxonMobil Pipeline Co., under a 1998 agreement, owned the right of first refusal on part of the property — and even though commission officials knew that another firm was interested in a nearly identical project on the same property.

There were challenges to the deal from both of those parties, but the differences were resolved — in part by forming a new partnership with Crest — and the project is moving forward. It will be the first LNG terminal in Texas and one of only a handful in the nation.

Once the plant starts operations, the deal gives Crest guaranteed payments of at least $2 million a year from the partnership. Construction of the $400-million facility could begin before the end of the year.

The terminal on Quintana Island will have the capacity to send out about 1.5 billion cubic feet a day of LNG — a cooled and condensed form of natural gas that was previously not considered profitable.

Delivering new energy sources to the U.S. market was what the Bush administration had in mind when, as soon as it took office, it started clearing the way for importing LNG.

"Everyone got the sense that things were changing," recalled Phyllis Saathoff, managing director of the Brazos River Harbor Navigation District, and speculators were "grabbing up any possible site."

Asked why the commission chose to grant the key initial deal to Crest, Saathoff said, "We worked it out and could accommodate [the Crest proposal], so we did."

At the time, Neil Bush's role in the company was not widely known. But the company made sure that the harbor commission knew. Saathoff said that when Crest executives approached the commission about the project, one provided Neil Bush's name as a reference.

Neil is one of five children of former President George H.W. Bush and is the younger brother of George, the current president, and Jeb, the governor of Florida.

Asked if the use of Neil Bush as a reference had any influence on the handling of Crest's proposal, Saathoff said, "It had no bearing whatsoever. We don't do business that way."

Bush's role at Crest became public last year during his divorce proceedings. In a sworn deposition, he described himself as co-chairman of Crest, which he called a "financial investment entity." He said he was paid about $60,000 a year for providing "maybe three or four hours a week" in miscellaneous consulting services.

It is one of a number of partnerships and consultancies that Bush, 49, has been involved in over the years. He did not respond to telephone and e-mail requests for comment for this article.

In 1991, he was sanctioned by the federal Office of Thrift Supervision for his role as a director of Silverado Savings & Loan, a Colorado bank that failed, ultimately costing taxpayers $1.3 billion. The agency cited Bush for "multiple conflicts of interest" in his business dealings with developers who were seeking bank loans. He was forced to pay $50,000 as part of a court-approved settlement.

Bush has periodically been the subject of reports detailing his involvement in business deals with the politically connected. Records that became public in his divorce showed that he had an agreement with a Chinese semiconductor firm that would net him $2 million.

James Smith, director of Public Citizen-Texas, a watchdog group specializing in energy issues, said the LNG deal appeared to be "another classic example of Bush family cronyism paying off." Texas law, he said, requires that such contracts be put out to public bid and mandates open competition to ensure that insiders don't get special treatment.

Crest Investment is headed by Jamal Daniel, a wealthy, longtime friend. Daniel did not respond to requests for comment.

When Bush remarried last year, Daniel hosted the wedding reception at his Houston home. Daniel and others at Crest arranged a rent-free cottage for Bush for about five years in Kennebunkport, Maine, to spend time near members of his extended family.

Crest executives have supported George W. Bush in his political campaigns and have Washington contacts. Daniel is a friend of Energy Secretary Spencer Abraham, according to harbor commission memos. Dee Osborne, a Crest executive, was a guest on a 2002 U.S. trade mission to Chile and Peru led by Commerce Secretary Don Evans.

The Quintana project ended up being among the first to benefit from regulatory changes at the Federal Energy Regulatory Commission that streamlined federal permitting, relaxed financial reviews and, critics contend, made it easier to meet safety standards.

The chronology of events that led to Crest's arrangement with the harbor commission is laid out in its records and in court papers from a lawsuit filed by a competitor and eventual partner.

Crest and Cheniere Energy, a Texas firm with experience in LNG, started discussions in early 2000 about a joint venture to build an LNG facility. After George W. Bush's election, negotiations picked up. Cheniere provided Crest with a detailed, "confidential" briefing on its plans, according to court records.

Cheniere approached the harbor commission with its proposal in early 2001. Without telling Cheniere, Crest approached the commission separately with a similar proposal, according to court records. Commission officials signed a confidentiality agreement with each company.

The commission scheduled a meeting with Cheniere representatives for March 22, 2001, but abruptly canceled it. The next day, the commission convened an emergency session to meet with Crest representatives, who were given an exclusive, three-year lease option on the land.

Cheniere filed suit, but the two companies settled by joining forces on the project. Eventually other partners were added, and the Freeport LNG consortium was formed.

In an internal memo, it was spelled out that Cheniere would be responsible for operational aspects of the project, and Crest — Neil Bush's company — would "handle the political permitting side."

Crest began working to get political support for Federal Energy Regulatory Commission approval of the project. House Majority Leader Tom DeLay of Texas, a Republican, was one of four members of Congress to sign a letter urging approval. Abraham's office at the Department of Energy lent its backing too.

On Dec. 12, 2002, the harbor commission agreed to the terms of a 30-year ground lease and development agreement with the partnership. However, two sticking points remained.

First, ExxonMobil lodged a protest, claiming it had the right of first refusal on some of the property. Harbor officials disputed ExxonMobil's claim and the pipeline company eventually chose not to exercise its option. The company declined to comment for this article.

Second, the deal did not comply with a state law that required the commission to solicit bids for any lease beyond 10 years. A commission attorney notified Cheniere that bids would have to be sought before a deal was finalized. Cheniere demanded and received $1 million in compensation for the change from the agency.

The harbor commission advertised for bids in late December and said that no other bids were received. When the final version of the lease was adopted, it was dated March 28, 2003.

The Quintana project is the first to benefit from an agreement by FERC and two other federal agencies, the Coast Guard and the Department of Transportation, to coordinate reviews of LNG permit applications. That was in addition to the benefits coming from streamlining the energy approval process.

Although the regulatory changes were adopted after the Freeport LNG consortium submitted its application, the relaxed rules were applied retroactively to the project.

In June, FERC approved the project and gave a five-year completion deadline to the developers, who are in the process of filing final plans with agencies.

When completed, the pipelines, holding facilities and other structures will cover about one quarter of Quintana Island — and annual payments of $2 million to Neil Bush's friends and other stakeholders in Crest Investment will begin.

www.latimes.com

Catherine


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