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While a Utility May Be Failing, Its Owner Is Not
The New York Times , 04/30/01 Enron Utility Sale Falls Through The Oil Daily , 04/30/01 Scot Power in talks to buy Portland-sources Reuters, 04/30/01 London shares ease back from highs at midday ahead of Wall St opening AFX News, 04/30/01 Portland General Seen Fit With Scottish Power Strategy Dow Jones, 04/30/01 ENRON OF THE US NOT INTERESTED IN COMPLETION OF INDIAN PROJECT Asia Pulse, 04/30/01 CHAMBER CHIEF CALLS FOR PRIVATISATION OF INDIA'S POWER SECTOR REFORMS Asia Pulse, 04/30/01 Fleet Street The Daily Deal, 04/30/01 WB HAS NO MAGIC FORMULA FOR REGIONAL POWER CONTRACTS: PRES. Asia Pulse, 04/30/01 POWER TRADERS ARE ALL CHARGED UP Business Week, 04/30/01 Time to sail Business Standard, 04/30/01 Godbole to head DPC renegotiation panel Business Standard, 04/30/01 DENMARK INHERITS THE WIND The tiny country now leads the world in windmill technology Business Week, 04/30/01 GLOBAL WARMING: LOOK WHO DISAGREES WITH BUSH Business Week, 04/30/01 Oil Is Thicker Than Blood; Florida presents a tough lesson in Bush brotherly love Newsweek , 04/30/01 Top Business Schools (A Special Report) --- And the Winners Are... --- Six European Schools Rank Among World's Top 50 M.B.A. Programs The Wall Street Journal Europe, 04/30/01 Flying On The Web In A Turbulent Economy Times are tough, but the pressure to Webify hasn't let up. Four lessons on getting it right. Fortune Magazine, 04/30/01 BIG BLUE LAUNCHES TESTING CENTRE IN BANGALORE Computers Today, 04/30/01 Exxon Mobil CEO Lee Raymond Tries to Prove Bigger Is Better Bloomberg, 04/30/01 SURVEY - ENERGY & UTILITY REVIEW: US demand boosts marketplace: LIQUEFIED NATURAL GAS by David Buchan: With prices for natural gas set to stay high, LNG seems to be back in fashion Financial Times, 04/30/01 Business/Financial Desk; Section A While a Utility May Be Failing, Its Owner Is Not By By RICHARD A. OPPEL Jr. and LAURA M. HOLSON 04/30/2001 The New York Times Page 1, Column 5 c. 2001 New York Times Company Pacific Gas and Electric, the giant California utility, may have just made one of the largest bankruptcy filings in history, but it has been a banner year for the rest of its parent company, the PG& E Corporation. In Bethesda, Md., far from the energy crisis in California, another PG& E subsidiary, National Energy Group, earned $162 million last year and ranked as the nation's third-largest power trader. Compensation for the unit's executives soared. Many investors now believe that the subsidiary, just a decade in the making, is by itself worth more than its 96-year-old utility sibling. How did National Energy get so big so fast? By using cash, partly generated by its sister utility, to buy unregulated power plants in the Northeast, expand trading-floor operations and sell power across the country. The exact numbers are in dispute, but much of Nationals Energy's profits last year came from California. Most other large utilities have done the same thing over the past decade, building national or even global power companies from roots in local monopolies. But nowhere is the success of these unregulated businesses more of an issue than in California, where PG& E's investments may be challenged in bankruptcy court. Still, such transfers of assets were fundamental to deregulation plans in two dozen states, and they were encouraged by federal rules designed to build a new wholesale marketplace in electricity. And today, the offspring of the nation's utilities dominate that market, after industry leader Enron. Eight of the nation's 10 largest power marketers are affiliates or spinoffs of regulated utilities, controlling about 42 percent of power trading. It is largely these unregulated power producers and traders whose sales of power in California have prompted accusations by state leaders of price gouging, and demands for the price caps that federal regulators took their first, halting steps toward embracing last week. The profitability of the utilities' unregulated operations is becoming clear as companies report earnings for the first three months of the year. For example, Reliant Energy reported that operating income at its unregulated wholesale energy business soared to $216 million in the first quarter, or 16 percent more than at its regulated utility, which serves Houston. This week, Reliant expects to spin off its unregulated businesses through an initial public stock offering that would put a market value on the new company of as much as $8.8 billion -- more than the rest of Reliant. A number of other major utility companies have spinoffs or trading and generation units that now earn nearly as much as, or more than, their core utility operations. These include Duke Energy in Charlotte, N.C.; Sempra Energy of San Diego; the Southern Company in Atlanta; the Constellation Energy Group in Baltimore; and Utilicorp United in Kansas City, Mo. In some places, the growth of the unregulated businesses continues to raise questions of fairness -- particularly where utilities have been permitted to transfer plants to the new units at deep discounts to their market value. Critics say that ratepayers, whose bills paid for the plants' construction, should benefit more when the plants are sold. In Florida, a commission on energy deregulation formed by Gov. Jeb Bush has proposed permitting such transfers on the grounds that they are needed to create a new wholesale marketplace. Opponents, including the Florida Municipal Electric Association, which represents utilities owned by local governments, say the plan would produce a $9 billion windfall that should go to ratepayers. In California, some creditors of Pacific Gas and Electric have signaled that they will want the bankruptcy court in San Francisco to review parent PG& E's efforts to keep its unregulated businesses out of creditors' reach. And the California Public Utilities Commission is investigating whether PG& E and Edison International, whose Southern California Edison utility unit is also near insolvency, have improperly transferred cash to their parents and to unregulated sister companies. A recent audit ordered by the commission showed that Pacific Gas and Electric transferred $4.1 billion to PG& E from 1997 to 1999. Most of that went to dividends and stock repurchases, but $838 million was invested in other subsidiaries, primarily its National Energy Group unit. Southern California Edison transferred $4.8 billion to its parent company between 1996 and November 2000, a separate audit showed; Edison International invested $2.5 billion in its unregulated Mission Group subsidiaries during the same period. Executives of the companies say the transfers were proper. Audits have shown that ''we followed the rules and didn't do anything wrong,'' said PG& E's chief executive, Robert Glynn. ''We did not ask consumers in California to support any of the losses that occurred in those businesses when we started them up,'' he said. Now, forcing the unregulated units to support their ailing sister utility, he said, ''would be no different than calling up shareholders and saying, 'The California electric bills are pretty high; send some money in so we can give it back to them.' '' Loretta Lynch, the president of the utilities commission, took a different view. ''Should we look backward,'' she asked, ''and say, 'Hey, wait a minute -- that corporate structure profited by all of our power payments to them in the past, and they should participate in helping us through to get to a solution in the future?' '' The cornerstone deal of PG& E's unregulated energy business was struck four years ago, when it acquired the hydroelectric and fossil-fueled generation plants of New England Electric System for $1.6 billion. PG& E is now one of the largest generators in the Northeast, operating plants that can light up to five million average-sized homes. While California officials say Pacific Gas and Electric's woes have been caused, at least in part, by market manipulation by out-of-state generators, the Justice Department has been investigating possible market abuses involving PG& E and two other companies in New England. Mr. Glynn said that PG& E had done nothing wrong and that the company has responded to Justice Department requests for information. Overall, PG& E's National Energy Group has 30 power plants in 10 states, and others under development or construction that include one in Athens, N.Y., that is expected to begin supplying electricity to New York City in 2003. It also operates an energy trading operation in Bethesda and controls a natural gas pipeline into Northern California. To Wall Street, the utility companies' investments in unregulated businesses were a necessary survival tactic, as investors demanded faster-growing profits. ''The stock market was going like gangbusters, and the utilities' returns of 11 percent weren't cutting it,'' said Richard Cortright, a utility analyst at Standard and Poor's, the bond rating agency. Moreover, as deregulation loomed, industry executives saw no choice but to make new investments. ''It looked like the utility opportunity was going to start shrinking,'' Mr. Glynn said. Consumer groups question whether utilities would have invested more in improving basic service if they had not had the option of putting money elsewhere. Mike Florio, a lawyer with The Utility Reform Network, a consumer group in San Francisco, cited findings last year by state regulators that from 1987 to 1995, Pacific Gas & Electric spent nearly $550 million less on maintaining electric and gas facilities than had been factored into its rates. Separately, in 1999, the utility agreed to pay about $29 million to settle charges that consumers were endangered because it failed to trim trees near high-voltage power lines. ''Several hundred million dollars didn't get spent for maintenance, and that ultimately falls to the bottom line as profit,'' Mr. Florio said. Mr. Glynn said the utility had always spent appropriate sums on maintenance, coming within one-half of one percent of the amount built into rates over a 20-year period. In the big picture, he said, it was hard to see how PG& E had been a winner in deregulation, even before its utility's humiliating bankruptcy. ''If you look at what happened, the net of it was a loss,'' Mr. Glynn said, ''because the value leaked out on the regulated utility side faster than we were able to build it on the nonregulated side.'' About This Report This article is part of a joint reporting effort with the PBS series ''Frontline,'' which will broadcast a documentary about California's energy crisis on June 5. Charts: ''The Biggest Power Marketers'' Most of the biggest unregulated power marketers and traders are owned by the the country's biggest electric utilities or have been spun off by them. Here are the top 10, based on 2000 sales. Companies owned or spun off from utilities: Enron Power and affliliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 590.2 MARKET SHARE: 13.03% CHANGE FROM 1999: + 97% Companies owned or spun off from utilities: American Electric Power Service MEGAWATTS SOLD IN 2000 (IN MILLIONS): 401.3 MARKET SHARE: 8.86 CHANGE FROM 1999: +84 Companies owned or spun off from utilities: PG&E Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 282.6 MARKET SHARE: 6.24 CHANGE FROM 1999: +62 Companies owned or spun off from utilities: Duke Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 276.2 MARKET SHARE: 6.10 CHANGE FROM 1999: +226 Companies owned or spun off from utilities: Reliant Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 204.3 MARKET SHARE: 4.51 CHANGE FROM 1999: +166 Companies owned or spun off from utilities: Mirant Americas Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 202.6 MARKET SHARE: 4.47 CHANGE FROM 1999: +23 Companies owned or spun off from utilities: Aquila Energy Marketing MEGAWATTS SOLD IN 2000 (IN MILLIONS): 186.7 MARKET SHARE: 4.12 CHANGE FROM 1999: +4 Companies owned or spun off from utilities: Cinergy operating companies MEGAWATTS SOLD IN 2000 (IN MILLIONS): 166.4 MARKET SHARE: 3.67 CHANGE FROM 1999: +246 Companies owned or spun off from utilities: Constellation Power Source MEGAWATTS SOLD IN 2000 (IN MILLIONS): 162.3 MARKET SHARE: 3.58 CHANGE FROM 1999: +222 Companies owned or spun off from utilities: Williams Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 138.4 MARKET SHARE: 3.05 CHANGE FROM 1999: +127 (Source: Platt Power Markets Week)(pg. A17) ''Outdoing Their Parents'' Taking advantage of deregulation, many of the country's biggest power utilities have set up unregulated subsidiaries to trade and produce power. These subsidiaries have become extremely profitable, often outperforming their regulated corporate siblings. UTILITY: Duke Energy OPERATING INCOME (MILLIONS) 1Q '00: +$465 1Q '01: +460 UNREGULATED BUSINESS: North American Wholesale Energy OPERATING INCOME (MILLIONS) 1Q '00: +82 1Q '01: +348 RELATIONSHIP OF UNREGULATED BUSINESS TO UTILITY North American Wholesale Energy is a subsidiary of Duke Energy. UTILITY: Reliant Energy OPERATING INCOME (MILLIONS) 1Q '00: +$202 1Q '01: +186 UNREGULATED BUSINESS: Wholesale Energy OPERATING INCOME (MILLIONS) 1Q '00: -22 1Q '01: +216 RELATIONSHIP OF UNREGULATED BUSINESS TO UTILITY Reliant Energy plans to sell 18 percent of Reliant Resources -- mostly Wholesale Energy -- this week. UTILITY: Southern OPERATING INCOME (MILLIONS) 1Q '00: +$439 1Q '01: +483 UNREGULATED BUSINESS: Mirant OPERATING INCOME (MILLIONS) 1Q '00: +169 1Q '01: +279 RELATIONSHIP OF UNREGULATED BUSINESS TO UTILITY Southern completed the spinoff of Mirant on April 2. (Source: S.E.C. filings)(pg. A17) Enron Utility Sale Falls Through 04/30/2001 The Oil Daily © 2001 Energy Intelligence Group. All rights reserved. Sierra Pacific Resources, parent of two Nevada utilities, said late Thursday that its deal to buy Enron's Portland General Electric utility subsidiary has been terminated by mutual agreement. The collapse of the $2 billion deal was widely anticipated. Enron Chief Executive Jeff Skilling said last month that there was only a "5% probability" that the sale would go through (OD March27,p8). Sierra Pacific has been unable to sell its interest in certain generating assets, which it needed to do to complete the purchase of the Portland, Oregon-based utility from the Houston-based energy giant. © Copyright 2001. The Oil Daily Co. For more infomation, call 800-999-2718 (in U.S.) or 202-662-0700 (outside U.S.). Scot Power in talks to buy Portland-sources Monday April 30, 8:38 am Eastern Time LONDON, April 30 (Reuters) -Scottish Power Plc has held talks with Enron Corp (NYSE:ENR - news) about buying its Portland, Oregon-based power utility Portland General, a good geographic fit for the British group's existing U.S. arm PacifiCorp, industry sources said on Monday. ``It's an obvious one and, yes, there have been discussions,'' said one source speaking after the official breakdown last week of energy trader Enron 's talks to sell Portland to Nevada-based utility Sierra Pacific Resources Corp (NYSE:SRP - news). PacifiCorp operates in six U.S. states including Oregon, and has its headquarters in Portland, the state capital. Utility holding company Sierra had been preparing to pay about $2 billion for Portland and assume $1 billion in debt. But the deal ran into trouble as the U.S. West Coast power crisis unfolded earlier this year, and talks were officially called off last Thursday. Reports that Britain's biggest utility may step in for Portland's 700,000 customer base and 2,000 megawatts of generating capacity surfaced at the weekend in Britain's Observer newspaper. PacifiCorp faces its own power crisis fallout, including $1 million a day buying-in costs resulting from the failure of one of its generators. The problems have helped depress Scottish Power's share price to a point where it now registers five percent UK sector underperformance over the past two years. And analysts said Portland has a significant exposure to current high U.S. power prices, with only about 2,000 megawatts of its own generating capacity but 3,700 megawatts of peak demand to satisfy. Nevertheless, Scottish Power has said it intends to expand further in the U.S. to exploit opportunities for merger cost savings in a highly fragmented market. Its current weak share price and lack of cash after the PacifiCorp buy has hindered development, but in March it made clear it may sell its UK water business, Southern Water. The proceeds are earmarked for acquisition purposes, and industry sources have put the price sought at 1.8 billion pounds ($2.4-2.6 billion). Enel of Italy has confirmed an interest. On Monday, Scottish Power was tightlipped. ``We do not comment on market speculation,'' said a spokesman. But analysts said Portland was an obvious choice, given that it serves mainly the city of Portland and its surrounding area, in the middle of one of PacifiCorp's key markets. ``It's hard to see them finding a better company to buy in terms of geographic fit and potential cost savings,'' said Peter Atherton of Schroder Salomon Smith Barney, who released a note last week pointing out the opportunity. London shares ease back from highs at midday ahead of Wall St opening 04/30/2001 AFX News © 2001 by AFP-Extel News Ltd LONDON (AFX) - Leading shares continued to ease back in midday trades, though gains in digital economy shares continued to underpin the market ahead of an anticipated strong opening on Wall Street this afternoon, dealers said. Sentiment continued to be boosted by hopes that the strong U.S. first quarter GDP may signal that the U.S. economy will avoid a recession, dealers added. Elsewhere, Scottish Power dropped 3-3/4 to 443 after The Observer newspaper reported that it is considering a bid of up to 3 bln stg for U.S. Enron's Portland General. el/mkp For more information and to contact AFX: www.afxnews.com and www.afxpress.com Portland General Seen Fit With Scottish Power Strategy By Andrea Chipman Of DOW JONES NEWSWIRES 04/30/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) LONDON -(Dow Jones)- U.K. integrated utility Scottish Power PLC's (SPI) reported bid for U.S. utility Portland General would be a good fit for the U.K. company and could be accomplished without increasing its debt burden, analysts said Monday. A Scottish Power spokesman declined to comment on a report in The Observer that it was considering bidding some $3 billion for Portland General after talks between Portland's owner, Enron, and Nevada-based Sierra Energy broke down last week. The spokesman called the report media speculation. But several analysts said the acquisition would be a logical one for Scottish Power, which bought Portland, Oregon-based utility Pacificorp last year. "It's contiguous, so there would be operational cost savings and synergies," said Gareth Lewis-Davies, a utilities analyst at Lehman Brothers in London. "They would be silly not to be looking at it," said another analyst at a large London investment bank. But he said regulatory concerns might be giving Scottish Power pause for thought. "(Portland) only generates a small amount of the power it sells, and if it's not allowed to recover costs, it might face large power purchase costs," the analyst added. Scottish Power found Pacificorp to be a costlier purchase than initially expected, after an explosion at the company's Utah-based Hunter generation plant in November forced it to buy power on overheated western-U.S. wholesale electricity markets. During the six-month outage, which is scheduled to end next month, Scottish Power has faced costs of some $1 million a day. Nevertheless, the company has said it hopes to take advantage of electricity shortages in the region once its problems with Hunter are resolved, and that it hopes to ultimately make further acquisitions. If it chooses to bid for Portland, Scottish Power could cover the acquisition costs with the GBP1.8 billion that has been widely reported as a likely sales price for Scottish Power's U.K. unit, Southern Water, Lewis-Davies and others said. Company Web site: www.scottishpower.com -By Andrea Chipman, Dow Jones Newswires; 44-207-842-9259; andrea.chipman@dowjones.com ENRON OF THE US NOT INTERESTED IN COMPLETION OF INDIAN PROJECT 04/30/2001 Asia Pulse © Copyright 2001 Asia Pulse PTE Ltd. MUMBAI, April 30 Asia Pulse - India's Enron-backed Dabhol Power Company (DPC) said it is "not interested" in completing the US$3 billion power project in India's western state of Maharashtra, following non-payment of dues by the state electricity board (MSEB) and the federal government's refusal to honour the Rs 1.02 billion counter-guarantee. In DPC's board meeting in London on April 25, Enron India managing director K Wade Cline and DPC president Neil McGregor made it clear that they were "not very keen to complete the project, because management felt that both the state government and the the federal government were undermining the gravity of the situation," a senior state government official who attended the meeting told PTI. Cline told the DPC directors that since the state government had "not shown" any serious interest in dissolving the difficult situation, DPC and its international lenders were "not in favour of continuing the project". When contacted, the DPC refused to comment. The fate of DPC's 2,184 MW project, which is 92 per cent complete, hangs in the balance, since the Indian financial institutions (FIs) led by the Industrial and Development Bank of India (IDBI) have stopped funding the debt portion of the project, with around 70 per cent of the US$1.8 billion worth of total disbursement already pumped in. "Naturally, we have stopped disbursement because we think that it is indeed a loss-making proposition. If the State Electricity Board begins paying, we will go ahead with our funding as well," an IDBI official said. CHAMBER CHIEF CALLS FOR PRIVATISATION OF INDIA'S POWER SECTOR REFORMS 04/30/2001 Asia Pulse © Copyright 2001 Asia Pulse PTE Ltd. NEW DELHI, April 30 Asia Pulse - Confederation of Indian Industry (CII) has demanded 'depoliticisation' of power sector reforms to 'enthuse and encourage' private investment even as it said that the Enron controversy would not impact future investments in the sector. "We need to depoliticise tariff fixation and set up a strong and independent regulator without interference from state governments," Sanjeev Goenka, President, CII told PTI. "There are lessons to be learnt from Enron...the premise on which the agreement was based was faulty. We should not have had a counter-guarantee clause in the agreement," he said. Expressing confidence that the issue would be resolved soon, Goenka said even if Enron decides to pull out it will have no impact on private investment in the sector. He said no fresh investments have come in because of Enron. "Investments will come only if investors are confident of getting viable returns." Blaming poor confidence and low returns for lack of private sector investment in power sector Goenka said, the present policy of cross subsidisation had placed an extra burden on the power companies and rendered them uncompetitive. Goenka said the state electricity boards (SEBs) should be privatised and restructured to improve distribution and cut transmission losses. In reference to privatisation of state-owned BALCO, the CII chief said the centre should play a more agressive role in pursuing disinvestment. "Autonomy to states is meant for local governance, it is the centre which is to govern the country," he quipped. M and A Fleet Street by Peter Moreira 04/30/2001 The Daily Deal Copyright © 2001 The Deal LLC Deal talk from the British pages. LONDON -- The London press on Sunday focused largely on the two biggest stories in town -- the engagement of Bank of Scotland to Halifax plc and the financial troubles at British Telecommunications plc. In other stories, The Observer said Scottish Power plc is considering a move to bolster its American west coast operations by buying Portland General Electric Co. of Portland, Ore., for $3 billion. Portland's owner, Enron Corp., last week broke off talks with U.S. utility Sierra Pacific over a deal said to be worth $3.1 billion. A Scottish Power official declined to comment. http://www.thedeal.com WB HAS NO MAGIC FORMULA FOR REGIONAL POWER CONTRACTS: PRES. 04/30/2001 Asia Pulse © Copyright 2001 Asia Pulse PTE Ltd. WASHINGTON, April 30 Asia Pulse - World Bank President James Wolfensohn has said his organisation did not have a "magic formula" for regional contracting in power projects and renegotiation of contracts like Enron-promoted Dabhol Power Company in Maharashtra may not be needed in future as public opinion "is more alert" to details of the contracts. Wolfensohn made the remarks when an Indian correspondent asked him at a news conference whether the World Bank could aid developing countries to negotiate the right kind of contracts to avoid the kind of problems now confronting the DPC. "I think we have been helpful with a lot of the Governments in terms of rationalizing the power issue. It is not just pricing. The issue is also line (transmission) losses which have been tremendous in many of the countries," he said. "I don't think we have a magic formula for regional contracting," said Wolfensohn, adding "but I would say it has come into prominence more in recent years on both negotiation of contracts and on the establishment of pricing." U.S. analysts have noted that Dabhol rates and the Pakistani rates are very much higher than even in the United States where labour is much more expensive. What he sees going on today, the World Bank chief said, is a "much more transparent and vigorous and active process in terms of public opinion. That never happened five or ten years ago. So, (thanks to public opinion) it is correcting itself." In Business This Week POWER TRADERS ARE ALL CHARGED UP Edited by Monica Roman 04/30/2001 Business Week 48 (Copyright 2001 McGraw-Hill, Inc.) It was an electrifying quarter for power traders Enron, Dynegy, and Duke Energy. All three had strong first-quarter earnings, mostly due to California's energy crisis. At Houston-based Enron, the largest U.S. energy trader, revenue nearly quadrupled, to $50.1 billion, as earnings rose 26%, to $425 million. Fellow Houstonian Dynegy more than doubled first-quarter sales and profits, to $14.7 billion and $139.5 million. Revenues at Charlotte (N.C.)-based Duke also more than doubled, to $16.5 billion, as earnings surged 17%, to $458 million. The Smart Investor Time to sail Indira Vergis 04/30/2001 Business Standard 6 Copyright © Business Standard India's largest shipping company, Shipping Corporation of India (SCI), has been attracting growing interest from analysts of late. The main reasons include higher freight rates and the strong possibility of the government offloading its stake in SCI this financial year. The government holds 80 per cent of SCI stock and is aiming to divest upto 40 per cent. Indeed, the plans for disinvesment are being viewed as a powerful trigger that can send its stock price soaring. Swinging fortunes The shipping industry holds all the promise and perils of a cyclical industry. When it comes to growth prospects for shipping companies, much hinges on the level of activity in world trade and shipping tonnage. Nearly 94 per cent of India's external trade moves by sea. Major products transported include crude oil, petroleum products, iron ore, steel and grains. Mighty force With its army of 99 ships in its fleet boasting 4.48 million tonnes in dead weight tonnage (dwt), state-run SCI represents a powerful force in the Indian shipping industry. It accounts for nearly 40 per cent of the country's total operating tonnage. Sailing behind are private competitors like GE Shipping, Essar and Varun Shipping. Ships can be broadly classified into tankers and bulk carriers. Tankers include crude carriers carrying crude oil, product carriers for transporting other liquid cargo like petroleum products and chemicals carriers. Bulk cargo carriers move dry cargo like ores and grains. As on April 2000, crude carriers made up nearly 44 per cent of SCI's gross registered tonnage(grt) while product. carriers accounted for around 11 per cent. Bulk carriers took up nearly 20 per cent. Better times ahead After weathering stormy waters in the past few years, the shipping industry seems ready to chart higher growth in calmer climate propelled by higher freight rates. Over the past year, freight rates have climbed, on an average, 50-60 per cent, in the tankers market to around $24,000. Similarly, in the dry bulk segment, the Baltic Freight Index, the most widely-watched global indicator of spot dry bulk rates, is still floating at 1,500 levels, after having peaked at 1,800 levels in September 2000. While it has slipped from the 1,600 levels a year ago, analysts expect the index to remain perched around these levels. For many, these are signs of better fortunes for shipping companies like SCI. "We expect freight rates to stay firm in 2001-02, probably just marginally lower from current levels," says P.K.Srivastava, chairman and managing director, SCI. Restructuring helps SCI has also made some restructuring efforts. It includes attempts to prune business segments seen to be a drag on company profits, like the liners division. Over the past year, the company has found buyers for 10 vessels, half of them liners. "This definitely helps them improve profits and cash flows," says Deepak Agrawal, analyst at kotakstreet.com. The selling of old ships, however, is a recurring theme in shipping operations. These sales not only improve cash flows but also lift some burden off operating costs. In SCI's case, it accounts for nearly 75 per cent of the sales. "This cash can also be employed in the tanker business ," Agarwal adds. In another step, SCI is also thrashing out the details of a voluntary retirement scheme for employees. It has more than 10,000 employees on its roster. In addition, heeding consulting house Pricewaterhouse Coopers'(PwC) recommendations, it is also turning to information technology to improve operational efficiency. However, PwC's suggestion that SCI be split into three separate companies has been rejected by the government. "The restructuring moves are having a positive impact on the company," says Agarwal. Winds of change Experts say that certain emerging global trends will also influence future operations of SCI. For one, international maritime laws can lead to a supply dip in large carriers like tankers. "The International Maritime Organisation (IMO) regulations could see the supply of tankers coming under slight pressure," agrees Agrawal. The IMO has asked the global shipping industry to gradually phase out single hull tankers and embrace newer double hull tankers seen as more environment-conscious. As scrapping of old design tankers gathers pace, the nature of shipbuilding will ensure that they won't be replaced immediately. Industry sources say that it takes roughly three years to build and operate large carriers like tankers. The impending imbalance in tanker demand and supply also seems reason enough for some to believe that freight rates for the segment will remain pegged at higher levels. Besides, production pattern changes in India's oil industry - a major client for the shipping sector - are also engineering changes in some segments. Improved oil refining capacity in the country is already signalling declining demand for product tankers carrying petroleum products. On the other hand, demand for crude tankers is slated to rise as demand for crude surges to feed increased refining capacity. India imports nearly 70 per cent of its total requirements of crude oil. In 1999-2000, SCI was the country's largest carrier of crude, bringing in 61 per cent of the total requirements of the state-run and joint venture oil companies. There is also growing evidence that more consumers are shifting smaller break-bulk cargoes into containers. Industry watchers say, that this rate of containerisation of cargo is set to quicken. Container shipping forms slightly more than half the world's cargo shipping, yet currently, forms just under three per cent of SCI's grt. "It is a very important segment for us, next only to the LNG segment," says Srivastava. "However,"he adds, "we are looking more at alliances in this segment and not additional capital expenditure here." The brightest spot One opportunity that experts forecast will be a revenue-grosser for the Indian shipping industry in the coming years, is the budding demand for natural gas. With demand expected to far outstrip local supplies, the government is already considering legislation for the transportation and import of liquefied natural gas(LNG). SCI, with its Mitsui OSK Lines-led consortium, has already edged ahead of rivals in this arena by clinching a $400 million deal with Petronet LNG to build and operate two LNG carriers by 2003. It has also formed a joint venture with US energy giant Enron Corp and Mitsui for a vessel to transport LNG from the Middle East to Enron's subsidiary Dabhol Power Company by the end of 2001. But the current imbroglio over whether Enron wants to continue operations in India or pull out does put a question mark on the contract. Besides, in a bid to strengthen fleet size, SCI has also placed orders worth Rs 823 crore to build four Aframax tankers in South Korea and an LR2 tanker in Cochin. "In fiscal 2002, we are looking at acquiring 10-12 ships" says Srivastava. While the company has a stash of Rs 1,390 crore in reserves, it often turns to domestic and international financial markets to finance its fleet expansion. Recently, it raised $115 million (Rs 535 crore) in external commercial borrowings at 100 basis points above the London Interbank Offered Rate (LIBOR). In fiscal 2000, total debt for the shipping firm stood at Rs 1,473 crore. Financials The benefits of restructuring accompanied by buoyant freight rates were reflected in SCI's financial performance last year. For the nine months ending December 2000, operations generated Rs 2,203.48 crore in sales, jumping 16 per cent from the year-ago period. But net profit zoomed a mindboggling 203 per cent to Rs 232.15 crore from Rs 76.6 crore in the same period last year. Cost cutting measures contained total expenditure. It rose just 11 per cent to Rs 1,735.98 crore from Rs 1,566.9 crore. Operating margins added 387 basis points to 21.22 per cent from 17.35 per cent. Slicing costs further were declining interest payments at Rs 61.83 crore compared to Rs 68.36 in the same period last year. Depreciation costs rose marginally from Rs 196.33 crore to Rs 186.77 crore. But lower interest and depreciation figures did translate into a hefty tax bill of Rs 65 crore - double the figure it paid in the year-ago period. In fiscal 2000, return on net worth stood at 9.8 per cent. Valuations An overwhelming chunk of shares in the hands of the government has often deterred investors from trading in SCI stock. Yet, the stock remains noteworthy since it has turned in a better performance than the benchmark BSE Sensex. Over fiscal 2001, while the Sensex sunk 27 per cent, SCI's stock handed out a stunning 100 per cent return to shareholders. Starting out at Rs 15 in March 2000, it more than doubled to Rs 34 twelve months later. And that's still 29 per cent off the year high of Rs 48 witnessed in February 2001. Analysts continue to remain positive on the stock. Significantly, at Rs 34, the stock quotes at just around half its book value of Rs 66.79. Trading at just six times its 2000 earnings, the share still offers good value. Godbole to head DPC renegotiation panel Renni Abraham MUMBAI 04/30/2001 Business Standard 2 Copyright © Business Standard With the Madhav Godbole committee along with a central government representative to conduct the renegotiation in the Dabhol Power Company (DPC) project for effecting reductions in the latter's power tariffs and restructuring the Power Purchase Agreement (PPA) the ball is now in the power major's court. The Godbole committee's recommendations with regards to the renegotiation process were arrived at unanimously, an aspect that its chairman confirmed to Business Standard on Sunday. Godbole, however, stated that he was yet to receive any official intimation of his appointment on renegotiating team. Maharashtra's energy minister Padmasinh Patil, however, confirmed that the Godbole Committee would renegotiate the DPC project and said: "The chief minister would be announcing the names officially on Monday. We are now hopeful of a speedy negotiation process to resolve the DPC imbroglio." Godbole, when asked how long the renegotiation process would take, said: "I would have to see the stand taken by Enron on the issue of renegotiations before commenting on this issue." With the government deciding to sustain the resolution process with the same team (Godbole Committee), the recommendations made by it would for all purposes set the benchmark for the renegotiation process. Godbole told Business Standard: "As far as the restructuring of the PPA and other recommendations made by the committee with regards to the DPC project are concerned, there was unanimity among all the members." The committee's report notes, "The exact terms need to be agreed between the contracting parties, but, in the committee's opinion, unless the negotiations proceed on these broad guidelines and various parties make concessions of this magnitude, the ultimate result is likely to be as infructuous as the earlier renegotiations in 1995." The concessions, recommended by the committee include "the seperation of the LNG facility. It is critical that the cost of this facility be distributed over its entire capacity and not just over the amount sold to the power plant... the LNG facility be seperated into a distinct facility, whose capital costs are reflected in the fuel charge, not as take or pay, but only in proportion to the extent of fuel re-gasified for power generation, compared to the total re-gasification capacity." Also recommended are: renegotiation of the LNG supply and shipping agreements, converting the tariff into two-parts, removal of all dollar denomination in the fixed charge component and financial restructuring of DPC and cancellation of escrow agreement amongst other things. Meanwhile, president of Enron Indian, Wade Kline, when contacted offered no comments on the DPC issue. Industrial Management: ENERGY DENMARK INHERITS THE WIND The tiny country now leads the world in windmill technology By William Echikson in Ringkobing, Denmark, with Janet Ginsburg in Chicago 04/30/2001 Business Week 126B (Copyright 2001 McGraw-Hill, Inc.) Gabled red-brick farmhouses dot the gently rolling green fields of the Jutland peninsula on Denmark's west coast. It's a scene straight out of a Hans Christian Andersen fairy tale--except for one prominent feature: Rising 30 stories are space-age white towers, topped with giant, three-bladed propellers that span 120 feet. Windmills have been part of Denmark's landscape for centuries--but not like these, and never with so much economic impact. ``Many of our farmers make more money out of power generation than farming,'' says Johannes Poulsen, managing director of Vestas Wind System. Vestas leads a cluster of companies that have made tiny Denmark, population 5 million, the world's top producer and exporter of windmills. For Denmark, wind power is a fairy tale come true. Not only does the wind industry supply about 13% of Denmark's power but Danish companies currently control about 50% of the $4.5 billion global windmill market, and their share is increasing. What's more, the market itself has been growing by 30% to 40% a year since the late 1990s, creating a tidy windfall for the manufacturers. Vestas, for example, has seen its stock rise twentyfold in three years. Revenues grew by 37% last year, to $738 million, and profits hit $103 million. ``Wind is the great energy success story of the last decade,'' says Roderick Bridge, an analyst at HSBC Investment Bank in London. FLAWED POLICY. The U.S. could have played a bigger role. American companies began to build the first generation of truly modern windmills in the early 1980s, armed with Carter-era tax credits aimed at promoting green energy. The credits got the industry off the ground, but the policy was flawed. Both the Federal government and California offered tax credits only for the installation of windmills, not for operating and maintaining them. So when the windmills broke down, they were often simply left to rust. After energy prices fell and funding for wind programs under Ronald Reagan contracted, the U.S. gave up its lead in wind technology. ``It was Uncle Sam that birthed the industry, then lost it to the rest of the world,'' laments James Dehlsen, founder of U.S. turbine maker Zond Corp., which was sold later to Houston-based Enron Corp. Denmark's public policy has been more consistent and was better conceived from the start. The government chose to pay windmill owners above-market prices for their power, subsidizing upkeep and investment in new technology. ``The original California system encouraged doctors and dentists to buy wind turbines,'' says Vestas' Poulsen, ``but our [wind producers] have much more of an incentive to care whether they work.'' Another difference: From the beginning, Danish windmill makers knew they needed to export. ``Our small home market gives us no choice,'' says Per Hornung Pedersen, chief financial officer at the second-largest Danish producer, NEG Micon. This early export focus gave the Danes a leg up on big competitors in Germany and Spain. Wise technology choices helped the Danes build on the generous government support. While U.S. manufacturers working with aerospace technology concentrated on lightweight materials that were efficient but fragile, Danish companies started off as heavy-duty farm machinery makers. ``The original Danish turbines were more than twice the weight of comparable American turbines and proved much more durable,'' recalls Birger T. Madsen, managing director of Denmark-based BTM Consult, a leading wind power consultancy. Gradually, the Danes improved the efficiency of their devices. Where early models were outfitted with 225 kilowatt generators, today's models can churn out as much as of 2 megawatts, enough to power 2,000 homes. Larger 2.5- and 3-megawatt machines are under development--some of them destined for offshore environments where the wind is reliable but storms, waves, and salty conditions demand unprecedented ruggedness. And improvements in computerized control systems are helping turbines squeeze out more watts from the wind more efficiently. The best windmills now can produce a kilowatt-hour of electricity for about 4 cents--half the cost of five years ago and approaching the price of power generated by gas-fired plants. Still, the wind business must overcome some giant hurdles, starting with political risks. In the U.S., a tax credit for wind power comes up for congressional renewal this December, at a time when President George W. Bush is pushing for a 30% cut in federal funding for renewable power and conservation programs. And even though wind power is increasingly cost competitive, many would-be windmill operators in both the U.S. and Europe still need subsidies to win long-term financing. So if the tax credit isn't renewed, the Danes' largest market could blow away. LITTLE SECRET. Critics contend that the subsidies themselves are a problem. They argue that wind power will never prove its merit until the artificial tax credits and price supports on both sides of the Atlantic are removed. The Danish government pays more than $300 million to wind generators every year. ``Partly as a result of those high subsidies, the Danes pay the highest rates for electricity in the world,'' argues Brian O'Connell, author of a book critical of renewable energy policies. Skeptics have other objections, as well. Birds sometimes get chopped in the turbines. And people who live near wind farms often say they are an eyesore. But the biggest problems are intrinsic: Windmills only produce when the wind is up, and for now, there is no way to store the surplus electricity. Until that issue is resolved, BTM Consult figures wind systems could supply a maximum of about a third of global electricity demand. That's much more than now, but with solar and other renewables lagging far behind, the difference would still have to be made up by fossil fuels. At least some of wind's liabilities may eventually be solved. Power-storage technologies are in development in laboratories around the world. And while the U.S. has officially repudiated the 1997 Kyoto Protocol, which called for dramatic cuts in carbon emissions, other governments are likely to encourage more wind power as part of the effort to reduce greenhouse gases. The European Union, for one, has set targets for a fivefold growth of renewable energy by 2010. Worldwide, the Danes face growing competition from ABB. The giant Swedish-Swiss power company recently announced a novel type of gearless windmill that converts turbine rotation to energy by means of a magnet-run, transformerless high-voltage generator. Since the gearbox is often a source of trouble, ABB's gearless device could make a big splash in the market. Nevertheless, many analysts believe the Danes have a comfortable edge. NEG Micon recently raised $100 million in fresh financing and is expected to report a profit for 2000. Its stock has more than tripled over the past year, yielding a market cap up to $1.5 billion. Vestas' market cap is $5.5 billion, and privately held companies report soaring sales. Already, the windmill business has revived rural Jutland's economy, which previously struggled along on shipbuilding, fishing, and farming. When the shipyard in the town of Ringkobing went broke in 1999, Vestas converted the facilities to make windmills. Now, it's expanding the site and has doubled its workforce, to 3,000, in the past five years. ``All the shipyard workers got jobs here,'' says Vestas welder Thomas Knudsen. Wind power may look like an anachronism. But it's gaining ground more quickly than other renewable sources. It may well turn out to be the green power of choice for the 21st century. Photograph: WIND SUPPLIES 13% OF DENMARK'S POWER PHOTOGRAPH BY CLAUS BONNERUP/POLFOTO Photograph: OUTBOUND: A windmill component leaves the plant. The Danes hold about 50% of the global market COURTESY NEG MICON Illustration: Chart: Business Week International Editions: Environment: Commentary GLOBAL WARMING: LOOK WHO DISAGREES WITH BUSH By Paul Raeburn 04/30/2001 Business Week 72EU11 (Copyright 2001 McGraw-Hill, Inc.) When President Bush discarded the Kyoto Protocol--an international agreement to cut emissions of carbon dioxide and other global-warming gases--he blamed the decision on a slowing U.S. economy and an energy crisis. ``The idea of placing caps on CO2 does not make economic sense for America,'' Bush said on Mar. 29. Some of the world's largest companies disagree. DuPont, for example, has already made substantial cuts in its greenhouse-gas emissions and says it will continue to do so despite the Administration's reluctance. ``The announcements around Kyoto don't change our resolve,'' says Paul Tebo, corporate vice-president for safety, health, and environment at DuPont. Why? Because the company's environmental program pays off in enhanced shareholder value, says Tebo. ``You can't measure this to the penny, but it is very real. Corporate reputation is a very valuable part of our company.'' GOOD SENSE. DuPont is not alone. On Apr. 4, the Business Roundtable proposed various solutions to the global-warming problem in a report titled, ``Unleashing Innovation: The Right Approach to Global Climate Change.'' Earnest W. Deavenport, chairman and chief executive of Eastman Chemical Co., who chaired the Business Roundtable's environment task force, said the report ``represents the business community's interest in being part of the solution to concerns about global climate change.'' Increasingly, corporations are deciding to join efforts to curb global warming because the strategy makes good business sense. Others include BP Amoco, Royal Dutch/Shell, Ford, and General Motors--all companies that would be expected to fight limits on greenhouse-gas emissions. Until recently, these four companies were members of the Global Climate Coalition, a group formed to oppose mandatory limits on greenhouse emissions. All have pulled out. BP and Shell aren't stopping with that gesture. They have joined two dozen other companies--including Alcoa, Enron, Georgia-Pacific, and Toyota--in a new group called the Pew Center on Global Climate Change. The center brings companies together to search for solutions to the global-warming problem. ``I think they are convinced that at one time or another there will be regulation of greenhouse gases because this is a real problem,'' says Pew Center President Eileen Claussen. It's difficult to know whether the companies will keep their resolve when the time comes to act on their pledges to cut emissions. Some of them, however, have already begun to act. BP and Shell, for example, have each established internal emissions-trading schemes. The idea is to reduce emissions more than necessary where it is economical to do so, creating emissions ``permits'' to be sold to other units within the company. If emissions trading among companies becomes a reality, BP and Shell, unlike their competitors, will already know how to use it to their advantage. The Big Three auto makers have likewise jumped ahead of regulators with a game of one-upsmanship to boost vehicle mileage. Ford Motor Co. took the lead in 2000 when it publicly promised to improve the fuel economy of all its SUVs by 25% over five years. General Motors Corp. promised to beat Ford's improvements. And DaimlerChrysler has just joined the game, saying it will meet or beat any Ford SUV fuel-economy gains. These moves represent a significant change in corporate behavior. So far, it has been mostly promises. But if those promises aren't kept, environmental groups, which are watching very closely, will do their best to stage a public flogging. The Bush Administration, with its narrow view of the world's energy problems, sees boosts in oil exploration and production as nonnegotiable goals. Cheap energy is good for the economy, and boosting supply is one way to help bring down prices. But the Administration has given no hint that it perceives global warming as a serious problem. And such a stance carries a risk: While some uncertainty remains about the consequences of global warming, the overwhelming evidence suggests that the phenomenon is real. The probusiness Bush Administration should listen a little more closely to what some businesses are actually saying. News of the Week; ENERGY Oil Is Thicker Than Blood; Florida presents a tough lesson in Bush brotherly love By Howard Fineman and Martha Brant With Joseph Contreras in Miami and T. Trent Gegax in Washington 04/30/2001 Newsweek 31 Copyright (C) 2001 Newsweek Inc. All Rights Reserved. Jeb Bush didn't waste time. The day after returning to Tallahassee from his brother's Inauguration, he fired off a letter imploring the (George W.) Bush administration not to allow new drilling for oil and gas in the Gulf of Mexico near Florida. In Washington the next month, Gov. Jeb Bush made the same appeal to the new Interior secretary, Gale Norton. He's spoken about the issue with Vice President Dick Cheney, chief of staff Andy Card and, most important, his brother, whom he keeps bumping into--fishing with Dad in the gulf after the election, sitting down to Thanksgiving dinner and at the Inaugural-parade reviewing stand. But last week Norton told Jeb the bad news: she was taking the next step toward allowing the sale of Lease 181--6 million acres of gas-rich ocean floor in the gulf. President Bush spent most of last week urgently trying to improve his standing on environmental issues before Earth Day, and before Cheney's secret Energy Task Force next month unveils proposals that are sure to make greens see red. But all politics is local--and, in the Bush world, familial. Bushes have a history in the gulf. Dad made his grubstake there 40 years ago as a pioneer in offshore drilling. As president, he stopped the development of some already-leased tracts in the gulf. Now his eldest son faces a dilemma in the same waters. It turns out that there is more petroleum--especially natural gas--in the depths of the gulf than anyone realized. And the country desperately needs natural gas, since our de facto energy policy long has favored the construction of new, clean-burning, gas-fired electric-power plants. Dubya knows all this. He also knows that gulf-state senators--including Republican leader Trent Lott and cagey Democratic dealmaker John Breaux--are pushing hard for lease sales. So, of course, is the energy industry, home to some of Bush's most generous contributors. One of the biggest big shots in the gas-power-plant business is Ken Lay, the head of Enron--a dear friend and big-time fund-raiser. But Florida is the Big Green Plantain: Bush's California, his must-win megastate. Jeb is likely to seek a second term as governor in 2002. The White House is trying to help, appointing an anti-Castro Cuban-American at State and a Jeb ally at Health and Human Services. Florida is a nature-loving state full of environmentalists, even if they don't all own up to the label. Jeb has labored hard to be green: enacting a 10-year, $3 billion land-acquisition plan to help the Everglades, allocating $300 million for water-quality projects. This week he announces creation of the Tortugas Reserve in the gulf, the nation's largest no-fishing zone. Still, Jeb has no margin for error. Democrats, seething at Al Gore's court-supported Florida defeat, have declared a jihad. "They will flood Florida with money and troops," frets a GOP strategist. Even the weather is an enemy. A drought forced Jeb to seek--and get--federal permission to pump half-treated water into Florida aquifers. A decision by his brother to open the gulf to drilling could be a political disaster. Jeb may have another chance to turn the tide when the president visits Florida this week. Meanwhile, Bushies in Washington and Tallahassee were looking to deal. The likely play, sources told NEWSWEEK, would allow the sale of Lease 181 to go ahead with slightly redrawn boundaries. In exchange, Commerce Secretary Don Evans (an oilman himself) could turn down Chevron's request to begin drilling the closer-to-the-coast Destin Dome lease, which the company bought in 1988. Ironically, it was Bush senior who suspended drilling rights there. Chevron later named an oil tanker after Dubya's foreign-policy tutor, Condoleezza Rice. Nice try, guys, but family comes first. With Joseph Contreras in Miami and T. Trent Gegax in Washington Photo: Family time: Jeb appealed to his brother and Norton (inset) to stay drilling in the Gulf of Mexico Top Business Schools (A Special Report) --- And the Winners Are... --- Six European Schools Rank Among World's Top 50 M.B.A. Programs By Ronald Alsop and Edward Taylor Staff Reporters 04/30/2001 The Wall Street Journal Europe 32 (Copyright © 2001, Dow Jones & Company, Inc.) Six European institutions rank among the world's 50 best business schools in a new Wall Street Journal survey of corporate recruiters. In a result that's sure to surprise many business schools and students alike, ESADE of Spain, INSEAD of France and IMD of Switzerland beat such elite American institutions as Columbia University, the University of California at Los Angeles and the Massachusetts Institute of Technology. The other European schools in the top 50 are London Business School of the U.K. and Instituto de Empresa and IESE of Spain. The Tuck School at Dartmouth College, the world's first graduate school of business, ranks No. 1 in the Journal's first survey of M.B.A. recruiters. Darmouth beat out such institutions as Harvard University, Stanford University and the Wharton School at the University of Pennsylvania. Recruiters who rated the schools in an online survey praised Dartmouth's small, collegial M.B.A. program for producing general managers who make loyal team players. (For more on Dartmouth, see the story on page 33.) Close behind Dartmouth in second and third place were two other small M.B.A. programs with fewer than 500 full-time students -- Carnegie Mellon University's Graduate School of Industrial Administration and Yale University's School of Management. Both received high marks for their students' teamwork strengths and analytical and problem-solving skills. The rankings are based on a survey conducted last fall by Harris Interactive Inc., in which 1,600 recruiters rated schools they knew from firsthand experience. The survey reached people in the field doing the actual recruiting -- the heads of business units, line managers and others -- not just the human-resources executives stationed at corporate headquarters. Each school was ranked on 27 factors that influence a recruiter's decision to visit a particular campus and hire a particular graduate, such as the career-services office, the core curriculum and students' leadership potential and teamwork skills. In addition, a school's final ranking took into account its "mass appeal," based on the number of recruiters who rated it. There's no question that all of the schools in the study offer quality M.B.A. programs. But The Wall Street Journal/Harris Interactive study of M.B.A. programs is the only major survey that focuses exclusively on the opinions of recruiters -- the buyers of M.B.A. talent. Consider it a consumers' ranking of M.B.A. programs -- with results that differ considerably from those in other business-school guides. The M.B.A. programs outside the U.S. made a strong showing in the survey, representing nearly 20% of the ranked business schools. That's especially impressive because 83% of the recruiters rated only U.S. schools, 10% selected non-U.S. schools only, and 7% selected both American and non-U.S. schools. The M.B.A. degree, an American creation, is being offered by more universities, and their graduates appeal to multinational companies seeking managers with a strong international perspective. Canada claims the highest-ranked non-U.S. school -- the University of Western Ontario in 22nd place -- while the six European schools are joined by one in Mexico and a second one in Canada. "There's a very good showing of non-U.S. schools in the survey," says Joy Sever, a senior vice president at Harris Interactive. "For some of the schools, it may have been the first time they had been approached to participate in a ranking." Moreover, she says, "people's assumptions about what's `best' needs to be thought about in a different way," given that several European schools outranked some American heavyweights. Indeed, the one of the biggest surprises of the survey is the mixed reviews garnered by the big, prestigious business schools. Some of the titans, including Northwestern, the University of Chicago and Harvard, ranked in the top 10. But Wharton placed only 18th, and Columbia University, M.I.T. and Stanford finished much further down in the rankings. Recruiters complained that graduates of some of the most prominent schools expect too much too soon in terms of salary and position and are difficult to retain for very long. Not a single school in the Western U.S. made it into the top 20. The top-rated school in the West -- the Haas School of Business at the University of California, Berkeley -- placed 21st. In fact, recruiters say they have stopped visiting some of the California schools, especially Stanford, because their graduates are simply unwilling to leave the sunshine and Silicon Valley behind. Business schools in California also lagged behind the other schools on students' leadership potential, their general management point of view and recruiter satisfaction with the career-services office. "What school is best depends on the recruiters' needs," says recruiter Laura Barker Morse, at venture-capital firm Atlas Venture. The Boston-based recruiting principal has recruited for early-stage technology companies in the U.S. and Europe for more than 20 years, choosing students from Harvard, Stanford, M.I.T., Berkeley, Wharton, Columbia and INSEAD because they met certain needs. "We want to be helpful to our fast- growing companies. So for a strong technology and business orientation in Europe, we tend to go to INSEAD, which uses the case-study method patterned after Harvard." Ms. Barker Morse says. "But for European companies we also go out of our way to get to know the Europeans who attend U.S. schools." What set the top 10 schools apart from the rest? For one thing, they significantly outscored the others on five specific attributes: teaching analytical and problem-solving skills; recruiters' past success with the quality of graduates hired from that school; the school's preparation of students for the New Economy; graduates' strategic thinking; and "chemistry," or general good feelings about the school. Many of the top-ranked schools also received high scores for their graduates' communication and interpersonal skills, which nine out of 10 recruiters said they consider very important. Jeff Puzas, a manager at the consulting firm PRTM in Washington, D.C., has recruited at both Harvard and Carnegie Mellon and believes Carnegie Mellon has the edge in analytical and technical skills while graduates of Harvard excel in interpersonal communication. "Interpersonal skills are like a sixth sense and have been highly underrated as a differentiating factor for students," says Mr. Puzas, a Carnegie Mellon graduate. "Most of what I do every day as a management consultant has to do with interpersonal skills, not my I.Q." The need for companies to effectively communicate with clients means Elena Florez, Spanish recruiting coordinator for American Management Systems Inc. in Madrid, recruits mainly from IESE, the International Graduate School of Management in Barcelona and Instituto de Empresa in Madrid. "In Spain not many people speak English so we need people who can understand the language and culture," she says. Being small clearly was a virtue for many of the business schools in the survey. Half of the top 10 schools and 14 of the top 25 report full-time M.B.A. enrollments of fewer than 500 students. In general, recruiters say, they find graduates of small M.B.A. programs more collaborative and personable than their counterparts at large schools. Paolo Raffaelli, key account manager at Guidant Corp., a U.S. developer of cardiovascular products, says smaller schools like Switzerland's IMD, with a class size of around 80 students, offer a more intimate studying environment. This allows faculty to observe each student more closely, he says. As one survey respondent remarks about Switzerland's IMD, there's "a real focus on getting students a great job that is a really good fit." Another respondent, Julie Hamrick, president of Ignite Sales, a four-year-old Internet marketing firm in Dallas, has visited business schools of all sizes. "But we find time and time again better-prepared students at the small schools; they're less theoretical, more hands-on," she says. "They also seem more team-oriented, and it's critically important that you can rely on every member of the team in a start-up like mine." Adds a recruiter who has hired students from IMD, "Small is clearly stronger." Ms. Hamrick scouts for M.B.A. talent at her alma mater, Southern Methodist University, which ranked ninth in the survey and has a full-time M.B.A. enrollment of 236. She also has recruited at Dartmouth, with 375 full-time students, and found that in many ways it epitomizes the small-school environment. The student-faculty ratio is 7 to 1, team projects figure heavily in the curriculum, and many students live in campus dorms and be
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