Stay up to Date
Our weekly insiders' guide to political and policy news (Saturdays)
Former Baja California Gov. Eugenio Elorduy Walther made a big decision that opened the door to Sempra Energy's greatest victory in Mexico. He also had financial dealings with those close to Sempra.
This is part of a three-part series. To get started, click here.
In early 2004, the governor of Baja California, Eugenio Elorduy Walther, condemned the land of Sempra Energy’s biggest rival, Marathon Oil.
It was a key moment in Sempra’s ultimate victory in the race to build a liquefied natural gas plant in Mexico and set the company on a path toward dominance of the Mexican energy market.
Elorduy’s decision has been a source of intrigue ever since.
Early on in my reporting, I obtained a document that appears to connect Elorduy to Sempra[note]Sempra Energy was created in 1998 when San Diego-based Enova Corp. and Los Angeles-based Pacific Enterprises merged. The Mexican natural gas deal in question happened before the merger, but Enova and Pacific Enterprises were both partners in the project. I’m referring to the U.S. companies involved simply as “Sempra.”[/note] in a business deal a few years before he took down Sempra’s competitor.
Sempra’s first project in Mexico was a natural gas pipeline in the border city of Mexicali built in the mid-1990s, while Elorduy was mayor of that city. The document showed Elorduy was a shareholder in a company that Sempra initially partnered with on that deal.
If Elorduy was a business partner of Sempra, it would raise questions about whether one of San Diego’s largest companies broke U.S. anti-corruption laws while doing business in Mexico. I tried to unravel the ties between Elorduy and Sempra.
No one has been able to fully explain the mess of missing and conflicting documents and the confusing and contradictory statements from key players. To understand the connection, let’s start where I started, with a Mexican company named Próxima.
Twenty years ago, Mexico began opening up its natural gas market to private industry. The first project up for bid was a natural gas distribution system in Mexicali.
Sempra wanted in.
According to documents from Mexican energy regulators and the Securities and Exchange Commission, Sempra partnered with a Mexican company named Próxima to go after the contract. In August 1996, the Sempra-Próxima partnership won.
A copy of a Mexican bank loan from February 1997 reveals Próxima’s shareholders, a list of 13 people and other businesses. Elorduy is on the list. The key section of the bank loan looks like this:
At this point, it looked to me that Elorduy’s investment in Próxima tied him to Sempra through the companies’ Mexicali pipeline partnership. The loan indicated that Elorduy had a financial stake in the Mexicali pipeline while he was Mexicali’s mayor. (Though the pipeline was a federal project and Elorduy had no role in awarding the contract, it was still a major infrastructure development in the city he ran.) This is what the connection between Elorduy and Sempra appeared to be:
The bank loan doesn’t say anything else about Elorduy. It doesn’t say when his connection with Próxima began or ended or whether he was an investor when Próxima was Sempra’s partner. It also doesn’t say how much money Elorduy might have invested in the company or how much he might have made.
If he was an investor in Próxima, and if he made money from a relationship with Sempra, it would throw into question the decisions he made then and in the future about Sempra’s business in Mexico.
At a recent event in Tijuana, I showed Elorduy, now 74 and an elder statesman in Mexico’s PAN political party, the bank loan that listed him as an investor in Próxima. I asked if he was ever affiliated with the company. Elorduy said he wasn’t.
Then I mentioned Próxima’s dealings with Sempra. Elorduy changed his answer a bit.
“At that time, I was not with Próxima,” Elorduy told me.
The interview continued from there:
Dillon: So were you ever at any time with Próxima?
Elorduy: The only relation I had was through a friend, Mr. Luken. Gastón Luken.
Dillon: So why are you listed as an investor?
Elorduy: This is news to me. Thanks a lot for telling me.
Gastón Luken is not a name someone would drop lightly. Luken’s a well-known businessman from Baja California. Among other major roles he’s held, he was head of General Electric’s financial division in Mexico. Luken also served as chairman of Próxima’s board.
After I spoke to Elorduy, I had my first of many conversations with Luken. In that interview, Luken told me Elorduy was indeed an investor in Próxima. But, Luken said, that didn’t matter.
Luken said I was mixing up two companies with similar names: “Próxima, S.A. de C.V.” and “Próxima Gas, S.A. de C.V.” (In Mexico, a “S.A. de C.V.” is a type of private corporation.) Adding to the confusion, Luken served as chairman of Próxima Gas’ board as well.
Próxima, Luken said, had owned a paper mill in Mexicali. Próxima Gas was the company that worked with Sempra in the natural gas pipelines – something the partnership’s corporate documents confirm.
This distinction is crucial. Either Elorduy was an investor in an energy company whose dealings he had sway over as an elected official, or he was an investor in an unrelated paper company.
“There is not and there has never been a relationship between Próxima and Próxima Gas,” Luken told me.
Sempra officials gave me this line, too: Próxima wasn’t the same as Próxima Gas. Sempra spokesman J.C. Thomas said company records indicate that Elorduy was not an investor in Próxima Gas when Sempra partnered with the Mexican business or when Sempra bought out the company in 2003. Thomas said Próxima “appears to be a different entity” than Próxima Gas.
“We are not aware of how or whether those two companies are related,” Thomas said.
That story, however, doesn’t hold up.
Próxima and Próxima Gas were related. Mexican corporate documents show that Próxima owned Próxima Gas while the company bid for the Mexicali pipeline.
At this point, I believed I had again found a documented tie between Elorduy and Sempra. This is how things looked to me:
Other official documents also cast doubt that Próxima and Próxima Gas were entirely separate entities.
Mexican energy regulators and SEC filings referred to Sempra’s Mexican partner as Próxima. In August 1996, Mexican regulators called Sempra’s partner Próxima when they won the Mexicali bid. The regulators did it again two months later when they gave the companies a permit.
In SEC filings and even press releases, Sempra itself referred to its Mexican partner as both Próxima and Próxima Gas, often using the names interchangeably.
Here’s a Sempra press release from August 1996 announcing its partnership won the Mexicali natural gas deal. (Enova and Pacific Enterprises were the names of Sempra’s predecessors.)
A year later, in a Sempra SEC filing on its foreign holdings, the company refers to its partner as Próxima Gas:
By February 1998, in an annual report to the SEC, Sempra is back to referring to its Mexican partner as Próxima:
Over time, Luken, the chairman of Próxima and Próxima Gas’ boards, would give me lots of conflicting information. First, he said Elorduy was an investor in Próxima, then he said he wasn’t, then he said he had never been business partners with Elorduy at all. Luken ultimately reaffirmed that Elorduy had been an investor in Próxima alongside him. Luken also backtracked on saying Próxima had no connection to Próxima Gas after I told him about the Mexican corporate filings. Eventually, Luken agreed to meet with me and provide documents he said would clear it all up.
We met for coffee at a La Jolla hotel near Luken’s home. Luken, now 81 years old, apologized for all the confusion. He said he hadn’t remembered details about the companies because everything happened such a long time ago. He now said he could explain everything.
After the Mexican government announced bidding for the natural gas pipeline in Mexicali, Luken said, he and Sempra needed to move quickly. Luken incorporated Próxima Gas using the corporate entity he already controlled, Próxima, as an initial owner. Próxima invested minimal capital in the project to get the business up and running. Once the partnership won the contract, Próxima transferred its stake to Luken and two other Próxima investors, who together increased the company’s capital to over $1 million. Luken gave me a document from his attorney dated November 1996 that memorialized all this.
As far as Elorduy’s role, Luken said the politician’s stake in Próxima was so small that he had forgotten about it.
“He was such an insignificant shareholder of Próxima that I didn’t remember he was a shareholder,” Luken said.
The February 1997 bank loan is the only piece of paper I have that connects Elorduy to Próxima. Luken’s document shows that Próxima sold its shares in Próxima Gas three months before that date. So I don’t have a chain of documents that ties Elorduy to the pipeline or to Sempra.
But that isn’t the end of the story. We don’t know how much Elorduy put into Próxima or how long he was an investor – including whether he was involved with Próxima while it was connected to Sempra. Luken wouldn’t provide corporate records detailing this information.
If Elorduy was an investor in Próxima while the company was linked to Sempra, there’s a question of how much he benefitted when Próxima sold its Próxima Gas shares to Luken and the others. Elorduy wouldn’t have received much, Luken said, because the politician’s stake was so small.
“Eugenio might have gotten $40 off that,” Luken said.
This shows what we know about the connection between Sempra and Elorduy and what’s still missing:
Luken also attempted to resolve some other mysteries. Why would Elorduy insist he wasn’t an investor in Próxima when the bank loan and the chairman of the company’s board said otherwise?
“He’s either confused or he’s lying,” Luken said.
What about Sempra calling its Mexican partner both Próxima and Próxima Gas in press releases and regulatory filings?
More confusion, Luken said: “Americans speaking another language are normally very clumsy. It’s plain messy. It has no meaning.”
This is the bottom of the rabbit hole. Sempra officials insist they never bribed Elorduy, something that would be illegal under Mexican and U.S. law.
“Sempra Energy and its affiliates have never offered or paid bribes to anyone and takes any allegation of bribery very seriously,” said Thomas, the company spokesman.
But undisclosed business partnerships between companies and foreign politicians could violate U.S. anti-corruption laws, too. Sempra officials won’t talk about the discrepancies in their SEC filings or show me their internal records, which they say show Elorduy wasn’t their business partner. Elorduy has stopped talking, too.
So we’re left with this as the company’s story: Sempra says it was unaware of any connection between Próxima and Próxima Gas and had no knowledge of any involvement by Elorduy.
To believe this version of events, you must believe Sempra officials didn’t know Próxima owned Próxima Gas while they were bidding on a contract in partnership with the company. You also must believe Mexican energy regulators and Sempra executives and its securities attorneys made mistakes about the identity of the company’s Mexican partner. And you must believe, in the best-case scenario for Sempra, company officials had no idea that the sitting mayor of Mexicali had financial ties to Sempra’s partners in a natural gas pipeline in the same city.
In 2011, U.S. authorities examined whether company officials violated the foreign corruption law in building the Baja California plant. But there’s no evidence in the summary of the investigation that the feds ever looked at Sempra’s ties to Elorduy.
Continue on to the final installment in our series: The Fall of José Susumo Azano Matsura.
Disclosure: A member of Voice of San Diego’s board of directors serves as vice president for SDG&E and SoCalGas, two Sempra subsidiaries. Tijuanapress.com’s Vicente Calderón contributed to this story. Ari Bloomekatz, Matthew Hose, Michelle Monroy and Gwyneth Shoecraft also contributed.