Bloomberg - 02-06-2001

Energy Department Won't Extend California Power, Gas Orders
Bloomberg, 02/06/01

Enron Asks India to Pay State Power Company's Bills (Update1)
Bloomberg, 02/06/01

Brazil Gives BG Plc, Enron More Use of Petrobras Pipeline
Bloomberg, 02/06/2001

Energy Department Won't Extend California Power, Gas Orders

Washington, Feb. 6 (Bloomberg) -- U.S. Energy Secretary
Spencer Abraham won't extend two emergency orders requiring power
providers and natural gas suppliers to sell into California after
those federal mandates expire at midnight.

Two weeks ago Abraham extended the orders issued by his
predecessor to give California's lawmakers time to make policy
changes needed to resolve the state's energy supply problems.

Abraham said then that he would not further extend the orders,
telling the state to make its own arrangements with out-of-state
energy suppliers.

``The California energy orders won't be extended,''
department spokesman Joe Davis confirmed today.

The federal order to electricity generators to provide power
to California was first issued Dec. 14 after suppliers in the
Northwest halted sales to the state's two biggest utilities, which
are on the verge of bankruptcy.

The second order, requiring natural gas suppliers to sell
into the state, was issued Jan. 19 after companies threatened to
stop supplying the state's largest utility, owned by PG&E Corp.,
with natural gas.

PG&E and Edison International have run up more than $11.5
billion in debt from buying power while being barred by the state
from passing the full power costs on to customers.

California's legislature last week approved a bill to allow
the state to issue up to $10 billion in bonds to buy power for
PG&E and Edison's customers through long-term contracts with
generators. State lawmakers are now considering another measure to
address the utilities' past debt.

--Liz Skinner in Washington (202) 624-1831 or
lskinner@bloomberg.net /jc

Enron Asks India to Pay State Power Company's Bills (Update1)
2/6/1 8:47 (New York)

(Adds comment from economist in sixth paragraph.)

Mumbai, Feb. 6 (Bloomberg) -- Dabhol Power Co., Enron Corp.'s
India unit, asked the federal government to make good on a
guarantee to pay 2.31 billion rupees ($50 million) owed to it by
the Maharashtra State Electricity Board.

The government of Maharashtra, a western Indian state where
Dabhol Power's plant is located, failed to honor its guarantee,
the company said in a statement.

``We are disappointed that this decision had to be taken,''
Neil McGregor, president at Dabhol, said in the statement. ``We
have little choice but to invoke the guarantee,'' because the
power bills for November and December were overdue. Dabhol is 65
percent owned by Enron, the world's No. 1 energy trader.

Dabhol has invested $3 billion in the 740 megawatts-a-year
project making it the biggest foreign direct investor in the
country. Its prospects could influence further overseas investment
in the industry.

The government ``must recognize the serious domestic and
international implications of contractual agreements not being
honoured,'' McGregor said.

India has 12 percent less electricity than it needs,
according to the Ministry of Power, and needs about $100 billion
in investments to meet demand over the next 10 years. Power
outages in northern India affected about 300 million people last
month.

``The default, hopefully, will be the impetus to carry out
the much-needed reform in the power sector,'' said Kirit Parikh,
an economist with the Mumbai-based think-tank, the Indira Gandhi
Institute of Development Research.

India's state-run power generation companies, such as
National Thermal Power Corp., are owed as much as 270 billion
rupees in unpaid bills by state-run electricity boards.

``Even New Delhi, where there's no agricultural land, has a
so-called transmission and distribution loss of over 40 percent.
That's pilferage,'' Parikh said. ``India has no hope of solving
its power problem if people keep stealing electricity.''

Dabhol said the state electricity board, its only customer,
had so far paid 100 million rupees of the 890 million bill for
November. The December bill of 1.52 billion rupees is yet to be
paid, it said.

Expensive

The Maharashtra government in December said it would
renegotiate the power project on grounds that it charged MSEB too
high a price for its power.

Dabhol's power charges averaged about 7 rupees per kilowatt
hour over the last two years. MSEB generates 10,000 megawatts
itself, and buys another 1,200 from state-run National Thermal
Power Corp., at an average cost of about 2.8 rupees.

``Maharashtra Electricity Regulatory Authority requires us to
buy the cheapest power and that's the reason why often we can't
buy the maximum 90 percent from Dabhol,'' MSEB's Krishna Rao said
in an interview last month.

Under the agreement, MSEB has to pay a fixed cost of 950
million rupees a month to Dabhol whether it draws any power or
not. Its cost of power from Dabhol per kilowatt-hour rose briefly
to as high as 25 rupees in July when it drew a small quantity of
power, but had to pay the minimum 950 million rupees, pushing up
unit costs.

According to Dabhol, MSEB drew an average 60 percent of the
plant's 740-megawatt generating capacity at 4.94 rupees per
kilowatt hour between May 1999 and October last year. The cost
could have been as low as 4.02 rupees per megawatt hour if MSEB
had drawn 90 percent of the plant's capacity.

``There is a case for lowering the Enron's tariff a bit,''
said Parikh. ``Still, that's no justification for the government
to default.''

Enron was one of the first major companies to enter India
after the country's economy opened to foreign investment in 1991.
Construction of the power plant was delayed until December 1996
because of legal wrangles.

--Ravil Shirodkar in the Mumbai newsroom (91-22) 284-3377 or
rshirodkar@bloomberg.net/sub/mmd

Brazil Gives BG Plc, Enron More Use of Petrobras Pipeline

Rio de Janeiro, Feb. 6 (Bloomberg) -- Brazil gave BG Group
Plc and Enron Corp. expanded access to a Bolivia-Brazil gas
pipeline managed by Petroleo Brasileiro SA, pressuring the state
oil giant to sell more natural gas at lower prices.

Brazil's petroleum regulator ANP is allowing U.K.-based BG to
transport about 2 million cubic meters of gas daily through the
pipeline. It also gave Enron permission to sell the 1 million
cubic meters a day it already pumps through the pipeline in 11 Sao
Paulo state locations.

``We can probably provide gas to end-users for less than
Petrobras,'' said Francois Moreau, corporate director for British
Gas in Brazil. ``It's a good sign the ANP is opening access.''

Petrobras, until recently Brazil's monopoly oil and gas
supplier, faces mounting competition, especially in Brazil's most-
populated state of Sao Paulo. The government has lagged in
attracting companies to build gas-fired power plants -- the
intended buyers of the pipeline gas -- allowing other companies
use of a near-empty pipeline.

Petrobras unit Gaspetro controls access to the $2 billion
pipeline with capacity of 30 million cubic meters a day, and
partners like Enron and Royal Dutch/Shell Group collect transport
fees. ANP requires Petrobras to forfeit pipeline space it's not
occupying.

Houston-based Enron is proceeding with the construction of
two gas-fired power plants in Rio de Janeiro State, but it also
seeks to transport natural gas for vehicles, kitchens and other
destinations, planning to boost its distribution to at least 7
million cubic meters a day.

Petrobras hopes power plants will help quadruple demand for
natural gas, to 73 million cubic meters a day by 2005. Still, as
the company waits for the government to attract power plant
investors, ANP says it will face more competition for other types
of gas contracts.

Petrobras' gas, when it's transported to power plants, under
contract cannot be used for purposes other than fueling the
plants' turbines, the ANP said.

Power Plants

Petrobras has contracts to buy about 16 million cubic meters
of natural gas daily from Bolivia this year, while it transports
about half that now.

``The thermo-electric projects are far behind schedule,''
said an ANP spokeswoman. ``Still, it's ANP's director's stance
that transport of gas must be a competitive market.''

Demand for Petrobras' Bolivian gas hasn't met company
expectations as Brazil fails to attract investors to build about
five dozen gas-fired power plants it needs to avoid a shortage of
electricity in coming years.

Companies and banks aren't signing power plant contracts,
concerned that Brazil's quarterly adjusted, U.S. dollar gas prices
will leave them exposed to potential losses, since the country's
electricity rates are adjusted only once a year.

``They need to find a way of resolving issues for the
lenders,'' said Frank McGann, an analyst with Merrill Lynch & Co.
in New York.

The government is considering various options to ensure
private companies build the power plants in order to meet the
forecast 5 percent annual growth in Brazil's demand for electric
power.

Government officials have said they may set up a
``stabilization'' fund that could reimburse companies for any
losses incurred as they await adjustments in electricity rates.

Competition

Permission to sell gas in Sao Paulo, the country's largest
consuming state, pits Enron against Petrobras. BG also plans to
boost its sales to Sao Paulo's main gas distributor, Comgas.

While Comgas' largest supply contracts are with Petrobras, BG
owns a majority stake worth about $1 billion in Comgas and wants
the chance to boost sales to the distributor.

``We don't expect our pipeline space to be interrupted for at
least a few years as Petrobras tries to fill it up,'' said Moreau.

``In the meantime, we can compete to transport the gas.''

Petrobras earlier planned to sell the gas at a fixed rate
along the 3,150-kilometer (1,958 mile) pipeline, about the
distance from Boston to Albuquerque. The plan would have helped
Petrobras take advantage of its domination in markets distant from
the Bolivian jungles, the source of the gas.

ANP ruled that gas prices should vary according to
transportation distance, making it more expensive in Brazil's
southern regions, the furthest reaches of the pipeline.

``Anything to be done to spur demand for gas in Brazil is
ultimately positive for Petrobras,'' McGann said. ``It's a cost to
Petrobras until it builds up demand in Brazil, but to break the
logjam you need to pressure the market open a little.''

Petrobras is beginning a five-year, $33 billion spending
program centered around oil and gas production, in an effort to
make Brazil self-sufficient in its fuel consumption.

--Joshua Schneyer in Rio de Janeiro (5521) 516-1552 through the
Sao Paulo newsroom (5511) 3048-4530/lb