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Enron Mail |
USA: INTERVIEW-El Paso had no reason to inflate price-chairman.
Reuters English News Service, 05/21/01 Former TVA director signs as Enron lobbyist Associated Press Newswires, 05/21/01 'Enron's allegations will hurt foreign investment' The Times of India, 05/22/01 Re-negotiation best: Deshmukh; lenders' SOS to Centre The Times of India, 05/22/01 Enr-off and Enr-out Business Standard, 05/22/01 Dabhol: more heat than light Business Standard, 05/22/01 USA: Enron eyes entry into coffee, sugar, cocoa - trade. Reuters English News Service, 05/21/01 Enron to End Involvement in $3.5 Billion Middle East Gas Project Dow Jones Business News, 05/21/01 Bush Energy Plan Stirs Pot, But Not Energy Prices Dow Jones Energy Service, 05/21/01 INDIA: India says optimistic about Enron settlement. Reuters English News Service, 05/21/01 UK: INTERVIEW-Axia starts trading German, Italian power. Reuters English News Service, 05/21/01 Brazil's Petrobras to Set Terms for Currency Risk on Gas Sales Bloomberg, 05/21/01 Enron Target of Protests Over Energy Policy and Higher Prices Bloomberg, 05/21/01 Enron Power Dispute May Cost India More Than $3.6 Bln (Update3) Bloomberg, 05/21/01 Enron Withdraws From $2 Bln Middle East-Gas Project (Update4) Bloomberg, 05/21/01 USA: INTERVIEW-El Paso had no reason to inflate price-chairman. By C. Bryson Hull 05/21/2001 Reuters English News Service (C) Reuters Limited 2001. DALLAS, May 21 (Reuters) - El Paso Corp. had no incentive to inflate natural gas prices on its pipelines to California because it had hedged most of its gas to third parties before prices took off last year, the gas company's top executive said on Monday. The Houston-based company is currently fighting price-gouging claims brought to federal regulators by the California Public Utility Commission and that state's two largest investor-owned utilities, PG&E Corp.'s . Pacific Gas & Electric and Edison International's Southern California Edison. El Paso Chairman, President and Chief Executive Officer William Wise told Reuters he expects his company to be cleared once it makes its case to the U.S. Federal Energy Regulatory Commission in hearings this week. "The last piece we think is very elemental and so easy to understand is that we hedged our capacity into California. If we thought the gas prices were going to go up, we wouldn't have hedged it. We were hedging it because we thought prices would be flat or down," Wise said in his first interview on the topic since El Paso began fighting the accusations several months ago. Even SoCal Edison's main witness admitted during testimony last week that it would be irrational for a market manipulator to hedge like El Paso did, Wise said. Ninety percent of El Paso's gas was hedged to others in the period during which the company was alleged to have raised prices. On Monday, lawyers for El Paso continued fighting those accusations in proceedings before FERC Administrative Law Judge Curtis Wagner. The California trio alleges El Paso, California's largest natural gas supplier, withheld capacity on its four pipelines into the state from March through November 2000 in order to inflate prices. The CPUC alleges that cost Californians an additional $3.7 billion. Even in the worst case, if Wagner substantiates the claims and orders El Paso to refund some of the money it made, Wise said the exposure will not be great. "I think in total last year, we didn't make more than $100 million in California," Wise said during an interview following El Paso's annual shareholder's meeting in Dallas. The FERC already rejected a related accusation from the CPUC, which charged El Paso rigged bidding in a capacity auction for its main pipeline into California to favor a sister company. Wise said he was confident that El Paso would prove that it did not withhold pipeline capacity, as the company's accusers have alleged. The genesis of the complaints to FERC is a desire by the utilities and the CPUC to shift blame, Wise said. "They're attempting to deflect away from decades of bad policy and bad business decisions, both by the public utility commission and by the utilities in which they did not build power plants and they did not build natural gas infrastructure within the state," Wise said. The most glaring infrastructure problem is the limited capacity to move gas inside of California, especially from south to north. The utilities traditionally countered that by storing natural gas, but Wise said they made a critical mistake last year by selling stored gas at an arbitraged profit. "They depleted storage, and by the time they figured this out, they needed every bit of capacity just to serve the market and they had no capacity to refill storage," Wise said. "Economics 101 would tell you you're going to get prices spikes, and that's exactly what happened." ACQUISITIONS STILL ON RADAR Outside of California, Wise said that EL Paso will remain an active acquirer, given its track record of executing mergers and acquisitions like its recent $24 billion purchase of Coastal Corp. "Do we buy an electric utility? Do we buy more (exploration and production)? The market should expect us to do merger and acquisition activity within the playing field that we have a demonstrated expertise in," Wise said. Asked whether he had any interest in hometown rival Enron Corp.'s Portland General utility, which is on the block again after Enron's $3 billion sale with Sierra Pacific Resources Corp. fell through last month, Wise answered: "The utility side of the business is not my favorite side of the business. The generation side of a utility could be interesting," Wise said. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Former TVA director signs as Enron lobbyist 05/21/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. KNOXVILLE, Tenn. (AP) - Johnny Hayes, a former Tennessee Valley Authority director, has been hired to lobby Congress for electric wholesaler Enron Corp., a potential TVA competitor. Hayes, who resigned from the three-member TVA board in January 1999 to become the top fund-raiser for Al Gore's presidential campaign, registered this month to lobby for Houston, Texas-based Enron, The Knoxville News-Sentinel's Washington bureau reported Sunday. Enron is one of the nation's largest energy companies, reporting $101 billion in revenues last year compared to government-owned TVA's $6.7 billion. Enron spokesman Eric Thode confirmed Hayes has been hired to work for the company, but refused to say his salary. Enron paid another lobbyist $415,000 last year, records show. Hayes' salary at TVA was $118,400 annually. Hayes, a former Tennessee economic and community development commissioner who lived in Gallatin, did not immediately return calls to The Associated Press for comment. Stephen Smith, executive director of the TVA watchdog and environmentalist group Southern Alliance for Clean Energy, said he is concerned about a TVA insider joining ranks with a potential TVA competitor. "As a board member for TVA, one knows where a lot of the skeletons are throughout the agency," Smith said. "What is always a concern is when you step out away from the organization, do you potentially now profit from that and turn it against consumers in the Valley?" Hayes was hired to lobby "on energy issues, TVA-related, kind of a host of issues that would affect that area and be related to energy," Thode said. The lobbying "may include TVA, but it would be a variety of things," he said. "We're looking at things, projects all over the nation at all times." TVA and Enron have done business before. TVA contracted with Enron to provide power during peak periods in the summers of 1998 and 1999. When Enron failed to deliver, TVA sued and recovered more than $200 million. That experience also resulted in TVA deciding to devote money that might have been used to trim its $26 billion debt to buying more peak-power gas turbines of its own. Hayes, who registered under the company name of Sideview Partners Inc., also signed up to lobby for Gas Generation, a subsidiary of Tractebel Power Inc. of Houston, and Voith Siemens Hydro Power Generation, a Pennsylvannia company with offices in Chattanooga. --- On the Net: Enron Corp: http://www.enron.com/ TVA: http://www.tva.gov/ Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 'Enron's allegations will hurt foreign investment' A Staff Reporter 05/22/2001 The Times of India Copyright (C) 2001 The Times of India; Source: World Reporter (TM) PUNE: Unhappy with Enron for its "extreme" step of serving a pre-termination notice (PTN) to the Maharashtra government over the issue of continuance in Dabhol Power Project (DPP), former chief minister of Maharashtra Sharad Pawar said the US power company's charges of political interference would create a negative impression about India in the minds of foreign investors. Although the resignations of three members from the Madhav Godbole committee was unfortunate and led to some confusion, it did not warrant such a drastic step by Enron, Mr Pawar said. The US power major should not discard the option of negotiations, he added. Advising an amicable solution to the present deadlock between Enron and the Maharashtra government, he said, the state is no position to buy the costly power to be supplied by Dabhol Power Company (DPC) from its second phase in near future. "Moreover, the state does not have a demand good enough to consume all the electricity offered by Phase II of Enron," he added. Mr Pawar said, the surplus power generated by phase II of Enron could be utilised by the Centre to bail out other states facing inadequate power supply. "There are many states in the country, which have an acute power shortage. Instead of going for new capital intensive power projects in these states, the Centre should purchase the surplus electricity to be made available by phase II of Enron," he clarified. Mr Pawar said, while the Centre's change of mind on the issue of taking over DPC phase II was crucial, it is imperative for the US power major to reduce its steep power price. Asked about the financial implications arising out of Enron's likely exit from the DPC, Mr Pawar said, such an eventuality should be avoided at all costs. "The Centre and the State will have to pay astronomical costs if the talks fail. The heavy penalty would be simply unbearable," he added. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Re-negotiation best: Deshmukh; lenders' SOS to Centre The Times of India News Service 05/22/2001 The Times of India Copyright (C) 2001 The Times of India; Source: World Reporter (TM) NEW DELHI: ``The (best) solution lies in an amicable settlement,'' remarked Maharashtra CM Vilasrao Deshmukh to journalists' queries here on Monday regarding the Enron standoff. The CM, who was here at the meeting called by the PM to discuss India's position at the WTO talks on agricultural trade, reiterated the basic point: His government was keen on negotiating and that was the only way out. The Maharashtra electricity board just cannot afford to buy Enron's generation at the current price, he said. Queried on the latest set of notices between the two parties, Deshmukh said what was being aired verbally is not so important. What is more to the point is a willingness to find a way out. PTI adds from Mumbai: Following Enron-promoted Dabhol Power Company's issuance of the preliminary termination notice (PTN) to MSEB, its Indian lenders have once again decided to seek the Centre's intervention to solve the imbroglio. "Like our earlier effort, even this time, we wish that the Union government intervene and help diffuse the entire crisis amicably", FI sources said. The Indian lenders, led by IDBI and a consortium of several banks including SBI and ICICI have lent around $ 1.4 billion out of DPC's total $ 3 billion 2,184-MW project in Dabhol. In fact, the sources said, IDBI along with the global lenders had written to Union finance secretary Ajit Kumar in the first week of this month, seeking the Centre's intervention to direct MSEB and the Maharashtra government to pay dues up to Rs 213 crore towards the November and December 2000 bills. "We had also asked the Centre to convince MSEB, and refrain it from issuing a termination notice to DPC," they said. However, Kumar in his reply, had put the ball in the lenders' court and asked Indian FIs to take "the course deemed fit to them in this case". Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enr-off and Enr-out Our Editorial 05/22/2001 Business Standard 15 Copyright © Business Standard The Dabhol power project seems to be heading for a denouement, along two parallel tracks. The company itself, there can be no doubt, is getting ready to dump the project and pull out, just weeks before trial runs are due to start on the 1,444mw second phase (the first phase of 740mw has already stopped producing power). Dabhol Power has presumably seen the obvious: that there is no way in which either the Maharashtra State Electricity Board or the Maharashtra government will be able to meet their contractual obligations and guarantees on power purchase. In its present form, therefore, the project is as good as dead and one might as well recognise the fact. Can the project be revived, and if so on what sustainable terms? A re-negotiation committee has been put together and will meet Dabhol's representatives on Wednesday. But three members of the committee have already walked off, citing one reason or other, so the re-negotiation process hasn't got off to a propitious start. Then, given the unpromising history of earlier re-negotiations and the incompetence with which MSEB has handled its original negotiations, it is far from clear whether anything substantial can be extracted from Dabhol especially if Dabhol is clear about the legal ground on which it stands. One must presume that Dabhol's promoter, Enron, and its American lawyers have sewn up a watertight deal, without the bungling that has typified the Indian handling of the matter. So it is likely that the cost of killing the project will be heavy indeed, and perhaps unbearable, for both MSEB and the Maharashtra government. Keep in mind the cost of the project ($2.9 billion, or about Rs 14,000 crore) plus the present value of future profits foregone and profits are said to be in the region of 30 per cent of equity, every year. The numbers are staggering. Is there a way to not pay such a bill? Yes, there are two possible options. One is for MSEB to reform its power tariff structure (90 per cent of its customers are subsidised), cut its transmission losses (which are as high as 30 per cent), and then to persuade the central government to allow Dabhol power to be sold to other users as well. The Godbole committee's first report, submitted some six weeks ago, suggests that if handled this way, Dabhol can still be made a workable proposition provided some re-negotiation of tariffs is done. Dabhol has said it is willing to re-negotiate, but with its typical in-your-face style has asked for the moon in return (among other things, tax breaks of all kinds). Since agreeing to such terms will only add to the existing scandal of past mis-negotiations, and since MSEB is not about to reform itself in a hurry, the prospects for successful re-negotiation of a reasonable and workable tariff are slim. The second way of avoiding footing an impossible bill is to go the extra-commercial route, and use diplomatic pressure so as to force the company to compromise substantially. But since Enron is among the firmest supporters and biggest financiers of the new US president, it is difficult to see diplomatic pressure achieving very much, unless President Bush recognises a one-sided deal when he sees one, takes into account the bad odour that might settle on other American companies and Indo-US relations in general, and leans gently on Enron to compromise. However, these are will-o'-the-wisp hopes and prayers, and no strategy can be predicated on their success. What does that leave with MSEB and the Maharashtra government? The answer is: the Godbole report. On which, read on. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Dabhol: more heat than light A V Rajwade 05/22/2001 Business Standard 14 Copyright © Business Standard The general impression propagated by the critics of the Enron-promoted power project, and often accepted by the man on the street, is that MSEB and, as a by-product, the citizens of Maharashtra, are victims of very high-cost power; that the agreements were signed at the behest of corrupt politicians; and that, therefore, the best course of action is to tear up the agreements and forget about it. But the first phase of the power plant has been in operation for a few years, and the second phase is also reportedly 92 per cent complete. These are genuine productive assets that the economy will eventually need, and cannot be wished away. Nor can the country afford to renege with impunity, solemnly undertaken financial obligations. In my regular weekly column (World Money, which appears on Mondays), I have been a supporter of foreign investment and had criticised the initial stance of the BJP-Shiv Sena government, which had terminated the contract, only to revive the project on a much bigger scale, on the basis of the efforts of a renegotiation committee appointed by it. The controversy has once again become front-page news, given the inability of MSEB to pay the dues of Dabhol Power Company (DPC). In turn, the MSEB has served notices for what it claims are dues from DPC because of defaults, and the whole matter has become a first-class mess. The recent report of the Godbole Committee is certainly a step in the right direction, and the government has appointed another group, once again led by Mr Godbole, to renegotiate the contracts with DPC/Enron. Theoretically of course there are three possible culprits _ politicians, a devious Enron that corrupted them, or a system whose competence (and professional commitment) was less than adequate to evaluate the project properly. To be sure, the committee has, while commenting on how the tariff was shown to be within government of India norms, felt "this combination of circumstances to be beyond the realm of coincidence". This is the closest it has come to questioning the motives of those involved. But before drawing conclusions, consider some basic issues. Demand estimation: The report concludes that gross errors were committed in estimating the total amount and nature of the demand for power in the state. The growth in the high tariff group has been very limited (surely this was foreseeable at a particular MSEB tariff, industry finds it cheaper to generate captive power), while low-tariff demand has grown steadily. Again, the report argues that, on the supply side, MSEB had enough generating capacity available for the so-called "base load", to meet which plants have to run 24 hours a day. MSEB really needed generating capacity, even according to its own demand projections, for the intermediate and peak loads. While the fuel envisaged to be used in DPC is ideal to take care of this, the plant load factor (PLF) used for cost and tariff calculations is completely unrealistic for such a power plant. Were these major errors in demand estimation and so on or political failure or system weaknesses? Return on equity: If there were gross errors in the demand-supply projection side, the assured 16 per cent return on equity, (at 68.5 per cent PLF) after tax, is also open to serious questioning. What is truly amazing is that the return was the same in percentage terms irrespective of whether the equity was contributed in rupees, dollars or perhaps even yen and that too in the respective currencies! The Maharashtra government is not responsible for this: it is government of India policy, cleared at the highest ministerial levels. Before adopting the norm, did we use concepts like Capital Asset Pricing Model (CAPM) which show that equity market returns in all countries are not identical; that they crucially depend on the risk-free rate of interest which is different for each currency. Again, there are robust benchmarks available for quantifying the political risk that a foreign direct investor faces (for example, the premium charged for different countries by the Multilateral Investment Guarantee Association of the World Bank). Was such analysis done before the 16 per cent tax-free norm, and exchange-rate protected returns, were assured? If not, who is responsible? The discount rate: I started thinking about the discount rate used in the Power Purchase Agreement (PPA), for the calculation of the fixed charge, on a simple issue. If for the first phase, the fixed charge is Rs 95 crore per month or, say, Rs 1,000 crore per annum, and is payable for the next 20 years, what should be the rate of discount at which the present value of these payments would be roughly Rs 3,000 crore, which is the cost of the first phase? Moreover, the bulk of the fixed charge is indexed to the dollar-rupee exchange rate in other words, for all practical purposes, the fixed charge is a dollar-denominated outflow as far as MSEB is concerned. It seems that nowhere is the discount rate used for calculating the present value of the fixed charge outflows specified or documented! Empirical analysis seems to indicate that the rate is about 17 per cent per annum! It is worth noting that even in the dark days of monetary tightness in 1996, a 17 per cent discount rate would be too high for simple rupee obligations guaranteed by the government of India it is absurd for discounting a stream of what are effectively dollar payments. Elementary financial economics requires that for calculating the present value of a dollar stream, the discounting rate should be based on the US treasury bond yields of corresponding duration. This has never been more than 7 per cent after 1994. For the desired present value, therefore, the correct fixed charge needs to be perhaps 40 per cent of what it is now! There is a similar logical flaw in the dollar-denominated O&M charges being subject to Indian inflation. While the latter point has been commented on in the report, the former has not been adequately weighed. To be sure, this is something of a technical issue and one cannot expect the average minister to understand it. The actual discount rate used has inflated the fixed charges enormously: one suspects that Enron knew this, hence the obvious efforts to hide the number. But surely the MSEB and other officials and advisers dealing with the negotiations, should have appreciated the crucial importance of the number, and insisted on ascertaining the discount rate? It could of course be argued that the political pressure was such that the civil servants were silenced from voicing any objections they may have had on the various issues. Is there any evidence in the notings on various papers to support that the issues of financial economics pertaining to the case had been pinpointed? How is it that the impracticability, nay impossibility, of more than half of MSEB's revenue being escrowed for a single plant was not noticed by anybody? Were not at least some of the issues important and significant enough for the financial health of MSEB, and indeed the Maharashtra government, for at least one bureaucrat to stand up? A way out: The Godbole committee has recommended a package of proposals to resolve the tangle. One would like to add a suggestion worth exploring. This is based on what happened in the now celebrated dispute between Procter & Gamble (P&G), the US multinational, and Bankers Trust Company (BTC) in the United States. P&G had entered into various, complex derivative contracts with BTC. When it incurred huge losses, it sued BTC on the grounds that it was persuaded to sign contracts the implications of which it had not understood properly, and that therefore the amounts already paid by it should be refunded and the contracts voided. Admittedly, this was a novel plea to be taken by a litigant of P&G's standing. Unfortunately, the case was settled out of court with BTC paying $ 100 million-plus to P&G. But if P&G can claim that it did not understand the implications of a financial contract, so surely can MSEB, particularly in relation to discounting rate or the return on equity, and demand the contracts be voided or renegotiated? But it is the Godbole Committee that should have the last word on the issue: "The Committee would like to state strongly that none of the solutions espoused for IPPs ... and DPC in particular is tenable without the reform of MSEB, especially its distribution business." That, perhaps, is the crux of the controversy. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron eyes entry into coffee, sugar, cocoa - trade. 05/21/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, May 18 (Reuters) - Houston-based Enron Corp. , the largest natural gas and electricity trading house in the United States, is looking to continue its expansion into industries beyond energy with a move into the cocoa, coffee and sugar businesses, industry sources said. Enron has had conversations and interviews with members of the commodity trade in recent weeks, using a London-based recruitment firm to help them, the sources said. "They are definitely interested in getting into the business. Enron has been looking for physical traders. They have some internal people and are looking for lieutenants with experience." said a cocoa trader. "They are serious about softs. They have been sniffing around the marketplace for several weeks now. If they come in they will be extremely visible," according to a coffee trader who interviewed for a position. A representative of Enron's public relations department would only say that the firm is constantly investigating different markets and opportunities. "There is always a lot of speculation about what we (Enron) are doing," Habiba Bayi of Enron said on Monday. Enron has been no stranger to industries outside the energy complex in recent years and has aggressively embraced the communications industry by turning broadband capacity into a commodity. The broadband unit encompasses two distinct segments: the bandwidth intermediation business, which turns Internet bandwidth into a tradeable commodity; and the content services division, which engages in sales and transmission of Internet content. Enron has consistently said it does not expect its broadband arm to record a profit until 2002 and instead has offered other measures of growth by which to benchmark the unit's progress. In May 2000 Enron Corp. announced their purchase of London-based MG Plc. MG is a leading independent international metals dealing firm providing financial and marketing services to the metals industry. In July of the same year, MG Plc bought Rudolf Wolff Group, which had a soft commodity brokerage operation to trade cocoa, coffee and sugar on the London International Financial Futures and Options Exchange (LIFFE). Traders speculated about what kind of business Enron might pursue. "Will they do huge physical business? Not likely, I expect OTC (over the counter) options which would hurt the exchange (New York Board of Trade)," said one cocoa broker. Another trader who looked at what Enron has done when they get into a new business said, "They try to secure supply whether coal, electricity or steel. It wouldn't be too hard to stop the certified (coffee) stocks on (the) exchange." "Stopping certified coffee is a relatively low risk trade," he added. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron to End Involvement in $3.5 Billion Middle East Gas Project 05/21/2001 Dow Jones Business News (Copyright © 2001, Dow Jones & Company, Inc.) DUBAI, United Arab Emirates -- U.S. energy giant Enron Corp. has decided to pull out of a $3.5 billion natural-gas project, selling its 24.5% stake in the Dolphin project to the United Arab Emirates Offsets Group, or UOG, Ahmed Al Sayigh, managing director of Dolphin Energy Ltd., said Monday. The Dolphin project, an initiative of the government-sponsored UOG, plans to use natural gas from Qatar's North Field, the world's largest, to power economic growth in the region. UOG and Qatar's General Petroleum Corp. signed an agreement in principle two years ago for the project, which would pipe natural gas from the offshore North Field to Abu Dhabi for delivery to Dubai and Oman. UOG last year sold 49% of the project to France's TotalFinaElf SA (TOT) and Enron (ENE). Mr. Al Sayigh said the UOG will now talk to other companies about buying all or part of Enron's stake, including TotalFinaElf. He said the French company is interested in increasing its stake and will have first right of refusal. A TotalFinaElf official confirmed that the company is interested in a greater stake in the project. TotalFinaElf is set to operate the upstream phase of the project, which includes developing gas reserves in two blocks of the North Field. The first wells are scheduled to be drilled in the second half of 2001 and come onstream in 2004. Enron's role would have been to focus on the midstream part of the project, or gas transportation, which requires building a pipeline from a processing plant in Ras Laffan, Qatar, to the Taweelah terminal in Abu Dhabi and the Jebel Ali terminal in Dubai. Richard Bergester, manager for Enron Middle East, said that having contributed to the initial stages of the project, Enron now feels it can't "add" any more. He didnt elaborate and said the decision was unrelated to the company's activities in India or pending involvement in Saudi Arabia. Over the weekend, Enron's Dabhol Power Co. issued a preliminary notice to terminate power sales from the plant. Dabhol says it is owed millions in unpaid bills. Last Friday, Enron was awarded a stake in Saudi Arabia's Red Sea Gas project, along with Occidental Petroleum Corp. (OXY) and Exxon Mobil Corp. (XOM). Mr. Al-Sayigh said UOG will hold onto at least 51% of Dolphin Energy, in accordance with its agreement with Qatar. Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Bush Energy Plan Stirs Pot, But Not Energy Prices By Arden Dale Of DOW JONES NEWSWIRES 05/21/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- President George W. Bush's energy plan is getting a big reaction, just not in U.S. energy markets. Electricity, natural gas and crude oil prices haven't budged in response to the 105-part master plan unveiled last week, because its fate is uncertain and it lacks specific action items. Don't expect prices to move any time soon as a result of the proposal. If it survives political gridlock to become policy, it will lead to lower energy prices, said Raymond Niles, an energy analyst at Salomon Smith Barney. Until then, it won't move most, if any, energy markets. "It's not going to move the near-term markets because the two things that will lower, say, electricity prices, are greater availability of natural gas and more transmission lines," Niles said. "Those are long-term improvements." Wholesale gasoline prices did surge after the plan was announced last week, as traders reacted to the news that a gasoline production waiver they'd been expecting wasn't included. But the rally was short-lived, and prices at the pump weren't affected. U.S. drivers can probably look forward to lower gasoline prices once driving season starts after Memorial Day, according to the American Automobile Association. The group says prices are likely to peak before then. Crude oil prices hit $30 a barrel on Monday, but the driver there has been uncertainty over whether Iraq will cut off oil exports to protest a British proposal to lift some economic sanctions against the nation. Bush's plan to drill for oil in the Arctic National Wildlife Refuge is a non-factor in markets currently. Turbocharged Gas Rumor A few days before the Bush plan was announced, gasoline trader pushed down prices with a selloff prompted by rumors that the plan would immediately relax rules on reformulated gasoline, or RFG, a cleaner-burning fuel. An RFG waiver would have brought more supply to the market. RFG restrictions last year contributed to price spikes at the pump in the Midwest, by tightening overall supplies. They govern the way reformulated gasoline, or RFG, is made. On Thursday, when the plan came out with no waiver in sight, prices rose, aided by news of a snag at a crude oil unit of Tosco Corp.'s (TOS) Bayway refinery in New Jersey. On the New York Mercantile Exchange, the June gasoline futures contract jumped 3.44 cents to as high as $1.022 a gallon. "The plan came out and there was nothing of the sort in there," said John Kilduff, senior vice president at Fimat USA. "All the barrels we thought would come onto the market, for now, aren't." For electricity prices, two key issues are price caps and short supply. Much of the market had already been operating under the assumption that Bush wouldn't support electricity price caps, which was borne out by the plan. In California, the power industry had already been planning to develop new baseload units, big power plants that run continuously. But smaller, gas-fired plants known as peakers - which can be switched off and on quickly - will be in shorter supply. "Investments in peakers are probably going to wait awhile for the policy rhetoric to quiet down, for the price cap rhetoric to quiet down," said Mark Palmer, a spokesman for Enron Corp. (ENE), a big electricity and natural supplier. As for natural gas, developments were underway before the Bush plan to boost supply and bring down prices, which have been high. U.S. companies want to import liquified natural gas procured in the vase reserves of Trinidad and Tobago, for example. But there's just too far to go before the Bush plan becomes a reality to even project how the natural gas industry might proceed from here, according the Palmer. "Some people may have anticipated short-term actions by the administration, and to its credit, that proved to be unfounded," said Larry Goldstein, president of PIRINC, Inc., an energy research group. - By Arden Dale, Dow Jones Newswires; 201-938-2052; arden.dale@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: India says optimistic about Enron settlement. 05/21/2001 Reuters English News Service (C) Reuters Limited 2001. NEW DELHI, May 21 (Reuters) - The Indian federal government is optimistic that Enron Corp's and the Maharashtra state will resolve their wrangle which has jeopardised the U.S. energy giant's $2.9 billion power project, a top official told Reuters. Federal Power Secretary A.K. Basu said the government had appointed a nominee in the talks between the western state and Dabhol Power Co, 65-per-cent owned by Enron, that are aimed at settling the long-running row. "We are optimistic. We have our nominee, Mr A.V. Gokak. He is a very senior person and he represents the whole of the government of India," Basu said. Gokak, a retired senior bureaucrat, represents the federal government in the panel appointed by the Maharashtra government to renegotiate the Power Purchase Agreement with the Dabhol Power Co. The panel is expected to resume talks on Wednesday. On Saturday, Dabhol issued a preliminary notice to terminate its contract to sell power to the Maharashtra State Electricity Board (MSEB). Houston-based Enron and the MSEB have been locked in a long-standing dispute over the state utility's unpaid bills. In March, Enron invoked a counter-guarantee of the Indian government after the MSEB failed to clear its bill of 1.02 billion rupees ($21.91 million) for December. In April, the multinational's Indian unit sent a political force majeure notice to MSEB. Such a notice is a contractual clause dissatisfied parties give as a first step towards possibly dissolving a contract. It also notified the federal government that it was applying to an arbitration court in London to consider its claim for 1.02 billion rupees. DPC has come under fire because of the relatively high cost of its power. Critics object to it charging 7.1 rupees per kilowatt hour compared with the 1.5 rupees charged by other suppliers. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. UK: INTERVIEW-Axia starts trading German, Italian power. By Margaret Orgill 05/21/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, May 21 (Reuters) - U.S.-owned Axia Energy Europe has started trading electricity in Germany and Italy and is looking at entering the Spanish power market, said CEO and Chairman Clarke Harris on Monday. Axia, a newly created trading joint venture between U.S. companies Koch and Entergy , entered the German over-the-counter power (OTC) market in February and is concentrating on the forward curve, he said. "Everything is OTC and everything is forward," Harris told Reuters in an interview, adding the company started trading small volumes but has recently done deals of 100 megawatts. He declined to give details of trading volumes. Harris said the company was not active in the prompt market because of a lack of transparent information about the operation of power stations which makes it difficult for newcomers to compete with local utilities like E.ON and RWE . "It's not a level playing field on the prompt. Incumbents have the assets and the information," he said. He added Axia is also interested in the Austrian and Swiss power markets as they are linked to Germany and supply it with electricity generated by Alpine reservoirs. Axia, which started operating on February 1, is the latest in a wave of U.S. utilities to start energy trading in mainland Europe which is gradually opening its gas and electricity sectors to competition. Levels of liberalisation vary widely with some countries like Germany and the UK deregulating completely while others, for example France, have insisted on sticking to the minimum level of deregulation ordered by the European Union electricity directive. Harris said Axia had done a couple of transactions in Italy, bringing electricity from Germany and was considering entering the Spanish market. "The jury is still out on Spain. We are looking at it as our development brethren Entergy have a couple of projects there," he said. Although Spain set up a wholesale trading pool in 1998, the OTC derivatives market has been slow to expand although there have been some signs recently that activity is picking up. Like its compatriots including AEP and Enron , Axia is basing all its European trading operations in London, he said, noting parent companies Entergy and Koch want to keep centralised control. In Europe, the joint venture included Entergy's trading operations in London while Koch contributed two weather experts from the United States to help launch a weather derivatives operation. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Brazil's Petrobras to Set Terms for Currency Risk on Gas Sales 2001-05-21 16:18 (New York) Brazil's Petrobras to Set Terms for Currency Risk on Gas Sales Rio de Janeiro, May 21 (Bloomberg) -- Brazil's state- controlled oil company Petroleo Brasileiro SA said it may absorb about $80 million in currency-related losses over a year and get reimbursed later by companies that build gas-fired power plants. Petrobras plans to sell Bolivian gas it buys in dollars to Brazilian power-plant operators in reais at fixed-rates for a year, exposing itself to a currency risk if the real weakens, company president Philippe Reichstul said. The measure is to ensure Petrobras's partners in 10 power plants can profit from electricity sales regardless of currency fluctuations, thus ensuring investment that will stave off power shortages. Brazil faces power rationing beginning next month and needs $14 billion in investment by 2008 to stave off power shortages, according to government estimates. ``If new thermo-electric plants are working at full capacity we imagine that we'll be offering a credit line of about $80 million,'' Reichstul said in an interview with Bloomberg News, in Buenos Aires. ``This is not a subsidy, but a type of financing that will earn interest.'' Reichstul didn't elaborate on details of the measures. The terms for Petrobras gas sales to at least 10 thermal power plants may be set this week, Reichstul said. Companies like Duke Energy Corp. and Enron Corp. that are building plants slated to produce 2,700 megawatts of power, will later pay Petrobras for any losses it accrues, Reichstul said. Power Prices Petrobras will only receive the payouts from plant operators after they win approval for an annual increase in power prices, which must take into account currency depreciation in the year before, Reichstul said. Companies such as AES Corp., Duke Energy Corp. and El Paso Energy Corp. have delayed or limited expected investment in natural gas-fired generation plants on concern that government rules limit their ability to pass increases in dollar-denominated fuel costs to electricity consumers who are billed in reais. The delays are partly responsible for government plans to begin rationing energy in June. Electricity supply is expected to fall short of fulfilling demand by as much as 20 percent in the coming months. The new plants are supposed to come on line in the first quarter of next year. Under Brazilian law, electricity prices to consumers can only be adjusted once a year. Enron Target of Protests Over Energy Policy and Higher Prices 2001-05-21 16:15 (New York) Enron Target of Protests Over Energy Policy and Higher Prices Houston, May 21 (Bloomberg) -- Enron Corp. offices in eight U.S. cities were picketed by activists angry about the energy trader's ties to the Bush administration and the effect of high fuel and power prices on the poor and working class. ``As a major wholesaler and a major profiteer, we're demanding they return some of the profits to help low- and moderate-income families pay their bills,'' said Lisa Clawson, an organizer with the Association of Community Organizations for Reform Now (Acorn). Acorn protested in Washington, New York, Chicago, Denver and Houston and well as Sacramento, California; Santa Fe, New Mexico, and Portland, Oregon. The activists accused power traders such as Enron of price gouging and said inaction by the Bush administration was bringing energy bills that ``could condemn thousands of people to a painful death'' if high electricity prices force them to shut off air conditioning this summer. ``It's brass-knuckle politics,'' said Mark Palmer, a spokesman for Houston-based Enron. ``We have this new energy plan we've been associated with rather strongly. I think (protests are) to be expected in this kind of a debate.'' Enron's chairman, Kenneth Lay, was one of only a few people who got direct access to Vice President Dick Cheney as he led a task force that came up with recommendations for a national energy plan released on Thursday. The task force's 163-page report calls for construction of new power plants and refineries and the opening of more areas to drilling as well as tax incentives for energy-efficient cars, solar power and conservation. It does nothing to end power shortages and rate increases for consumers in California this summer, Acorn said. The activist organization called for price caps on electricity sales, and a moratorium on utility service shutoffs for the elderly and families with children paid for with taxes on energy sellers. Lay has advised President George Bush on energy matters, and was a contributor to the Bush campaign. Bush was governor of Texas. Enron is based in Houston and was one of several Texas- based companies to back Bush. Enron's first-quarter profit quadrupled to $50.1 billion from $13.1 billion a year earlier. Enron Chief Executive Jeffrey Skilling has said revenue may exceed $200 billion in 2001, possibly making Enron the largest publicly traded energy company in the world. Shares of Enron rose 2 cents to $54.92 in late trading. Enron Power Dispute May Cost India More Than $3.6 Bln (Update3) 2001-05-21 16:21 (New York) Enron Power Dispute May Cost India More Than $3.6 Bln (Update3) (Closes shares.) Mumbai, May 21 (Bloomberg) -- India's federal and state governments may have to pay Dabhol Power Co. more than 170 billion rupees ($3.6 billion) if the Enron Corp. unit cancels a 2,184 megawatt power venture. ``The total liability may be above 170 billion rupees,'' Vinay Bansal, chairman of the Maharashtra State Electricity Board said in an interview. ``The final tally is a matter of negotiations but the figure is of that order.'' On Saturday, Dabhol started a procedure to end its power supply contract by serving a ``preliminary termination notice'' on the board. It's owed 3 billion rupees by the board for power supplied in December and January. Dabhol is 65 percent owned by Houston-based Enron, the world biggest energy trader. ``We believe that the preliminary termination notice sends a clear signal to the Maharashtra State Electricity Board of the seriousness in which Dabhol Power and its lenders and shareholders view this issue,'' Enron spokesman John Ambler said in an interview from Dubai. The procedure may lead to cancellation of the $3 billion project, India's biggest foreign investment, and trigger payment guarantees by India's federal and state governments for electricity bought by the board, plus ``termination charges.'' The governments also guaranteed the bulk of $2 billion of loans that Enron and its partners used to finance Dabhol. Shares of Enron rose 9 cents to $54.99. Termination Process The full process to end the contract is expected to take about six months, Ambler said. ``If the problems aren't resolved during that period, then the power production agreement would terminate,'' he said. Included in possible liabilities of the federal and state governments are one year's electricity bills and $300 million in termination charges, A.K. Basu, secretary at the country's ministry of power, said in an interview. This may amount to about 28 billion rupees, he said. State Bank of India, ABN Amro Holdings NV and other banks that loaned Dabhol the money are hoping a settlement will still be reached to prevent the project from being scrapped. ``The notice does not mean that the project is off,'' said Janki Ballabh, chairman of State Bank of India, the country's biggest commercial bank and one of the largest lenders to the project. ``All parties are making attempts to find an acceptable solution.'' Indian banks, which made rupee loans worth about $1 billion to Dabhol, are the most exposed to a possible termination of the project. The federal government didn't guarantee all their loans, which were seen as safe because the project was backed by Enron. Foreign currency loans by banks such as ABN Amro, Bank of America Corp. and State Bank of India are guaranteed. Dabhol, which runs a 740-megawatt power plant, has invoked payment guarantees and ``political force majeure,'' which allows it to stop selling power to the electricity board without being penalized. Harm Investment Even so, overseas energy companies believe the Enron dispute will harm foreign investment in India. Dabhol Power ``will have an impact on how people look at India, and that's very unfortunate because we do see India as potentially a very good market,'' Peter de Wit, director of Shell International Gas, said Friday at a conference in Seoul. Shell plans to spend 19.5 billion rupees to build a 5 million ton-a-year liquefied natural gas terminal at Hazira, a port in Gujarat. The company may double the gas facility to 10 million tons later. Enron's ``the first LNG project into India, and the sort of circumstance they're faced with now doesn't give a lot of confidence to people who want to consider long-term contracts into India,'' he said. Enron is building a 5 million ton-a-year LNG facility at Dabhol. Delays, Slow Reforms Four foreign power companies, including Electricite de France, Europe's largest, have so far pulled out of Indian power projects worth $3 billion, citing long delays and the slow pace of reforms. India wants to double its electricity generation capacity to 200,000 megawatts over the next ten years. It needs $100 billion to do that, and is relying mainly on foreign companies. ``The pace of investments in the power sector is already slow. It'll get slower,'' said Abhay Rangnekar, head of project finance and corporate advisory services at ANZ Investment Bank, which helped raise overseas loans for Dabhol. ``Lender sentiment has definitely been affected. Making sure that the contracts are watertight is not enough anymore'' for lenders to private power projects, he said. The preliminary termination notice gives Dabhol and the electricity board six months to seek a resolution to the dispute. On Wednesday, Dabhol and the board are due for the second time to meet a committee set up by the state government to negotiate a solution. A.V. Gokak, former secretary at the department of fertilizers, will represent the federal government. Enron Withdraws From $2 Bln Middle East-Gas Project (Update4) 2001-05-21 16:26 (New York) Enron Withdraws From $2 Bln Middle East-Gas Project (Update4) (Closes shares.) Houston, May 21 (Bloomberg) -- Enron Corp. pulled out of a pipeline project in the Middle East as it became increasingly likely that an Indian power-sales agreement will collapse. The Houston-based company ended its role in a $2 billion project to export gas from Qatar. The Dabhol Power Co., owned 65 percent by Enron, filed Saturday to India's Maharashtra state's electricity board to stop supplying power because it's owed 3 billion rupees ($63.9 million) by the board. Enron's exit from the Middle East project had nothing to do with its decision to stop supplying power in Dabhol, company spokesman John Ambler said. Analysts said some of the gas from the Qatar plant likely would have gone to the Indian project. ``The (ending of operations in Qatar and India) go hand in hand,'' First Albany Corp. analyst Bob Christensen said. ``The liquefied natural gas would presumably be used to fuel the second phase of the Dabhol project.'' The timing of the two announcements was a ``coincidence,'' Ambler said in an interview from Dubai. ``We initiated discussions several weeks ago (with partners in the Middle East project).'' Pulling out of Qatar is part of Chief Executive Officer Jeffrey Skilling's shift away from big construction and infrastructure projects such as pipelines and power plants, and into trading, the business of brokering large sales of energy and other commodities, Ambler said. Trading Skilling was named chief executive in December after helping build what was once a sleepy gas-pipeline company into the biggest competitor in the energy trading business. The company predicts it may top $200 billion in revenue this year, largely because of energy trading. Through its EnronOnline Internet market, Enron buys and sells gas, power and oil and oil products. It also trades weather derivatives, pulp and paper, steel and metals. Rebecca Mark and Joseph Sutton, Enron executives who had been involved in buying or building large projects such as the Dabhol plant, left last year. ``(Enron has) basically been a divestor of North American hard assets,'' Christensen said. ``Now that's spinning into the international sphere.'' Shares of Enron rose 9 cents to $54.99. The stock has fallen 34 percent this year because of setbacks in the company's fiber- optic trading business, the conflict over the India plant and falling gas prices in recent weeks. Enron also failed to sell its Oregon utility, Portland General Co., as planned. Blockbuster In March, Blockbuster Inc. and Enron broke off a venture to deliver movies directly to customers' homes. Enron owns a fiber- optic telecommunications network, and it trades broadband bandwidth, or space, on the networks. The broadband business lost $35 million last quarter on revenue of $83 million. It lost $60 million last year on revenue of $408 million. Enron's $3.1 billion sale of Portland General to Sierra Pacific Resources collapsed because state regulators weren't likely to approve power plant sales needed to win antitrust approval. U.S. Representative Peter DeFazio, a Democrat from Springfield, Oregon, said last week that Enron should sell Portland General to Oregon so state consumers can be protected from soaring power prices. Enron will sell its 25 percent stake in Dolphin Energy Ltd., the owner of the Middle East project, to the Abu Dhabi government, said Ahmed al-Sayegh, the chairman of state-controlled Dolphin. Dolphin had agreed two months ago with Qatar to develop its North Field, the world's largest gas deposit, and build a pipeline in the Persian Gulf to the United Arab Emirates and Oman. Enron was among eight energy companies picked Friday by Saudi Arabia to spend $25 billion to develop gas projects.
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