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Public Services International Research Unit (PSIRU) www.psiru.org
Enron: A corporate contribution to global inequalityby
Kate Bayliss and David Hall
PSIRU, University of [email protected]
June 2001
Post Script: December 2001
This report was prepared by PSIRU in June 2001 for the Trade Union Trustees on the Board of the California Public
Employees’ Retirement System (CalpPERS), one of the largest pension funds in the US. The trustees were concerned about Calpers’ investments in Enron. In view of Enron’s expected
bankruptcy, we believe it now deserves a wider audience.
Public Services International Research Unit (PSIRU) School of Computing and Mathematical Sciences, University of Greenwich 30 Park Row, London SE10 9LS,
U.K.Email: [email protected] Tel: +44-(0)208-331-9933 Fax: +44 (0)208-331-7781 www.psiru.org
Director: David Hall Researchers: Kate Bayliss, Steve Davies, Kirstine Drew, Jane Lethbridge, Emanuele Lobina, Vladimir Popov, Steve Thomas
The PSIRU was set up in 1998 to carry out empirical research into privatisation, public services, and globalisation. It is part of the School of Computing and Mathematics in the University of Greenwich, London. PSIRU’s research is centred around the maintenance of an extensive and regularly updated
database of information on the economic, political, financial, social and technical experience with privatisation and restructuring of public services worldwide. This core database is financed by Public Services International (PSI), the worldwide confederation of public service trade unions. www.world-
psi.org© This report is the copyright of the PSIRU and the organisations which commissioned and/or financed it
PSIRU profile of Enron www.psiru.org June 2001
1 Structure and history..............................................................................................................................21.1 Enron’s main activities .........................................................................................................................2
1.1.1 Gas and Oil production.......................................................................................................................................31.1.2 Gas and electricity transmission and distribution...............................................................................................31.1.3 Electricity generation..........................................................................................................................................31.1.4 Electricity and gas trading..................................................................................................................................31.1.5 Trading in other commodities and services........................................................................................................3
1.2 History...................................................................................................................................................42 Financial Review...................................................................................................................................42.1 Performance overview...........................................................................................................................52.2 Breakdown.............................................................................................................................................53 Policies and Performance.......................................................................................................................73.1 Trading...................................................................................................................................................7
3.1.1 California - energy..............................................................................................................................................73.1.2 Mid-west USA, 1998..........................................................................................................................................83.1.3 Water trading in California.................................................................................................................................8
3.2 Independent Power plants......................................................................................................................93.2.1 India: Dabhol Power company...........................................................................................................................93.2.2 Nigeria..............................................................................................................................................................113.2.3 Croatia...............................................................................................................................................................113.2.4 Poland...............................................................................................................................................................123.2.5 Dominican Republic.........................................................................................................................................123.2.6 Indonesia...........................................................................................................................................................13
3.3 Water - Azurix Corp............................................................................................................................133.3.1 Argentina - Buenos Aires province..................................................................................................................133.3.2 Failure to compete............................................................................................................................................14
3.4 Pipelines...............................................................................................................................................144 Strategy: prices and politics.................................................................................................................154.1 Short-term profits and long-term monopolies.....................................................................................154.2 Profits...................................................................................................................................................164.3 Secrecy.................................................................................................................................................165 Political influence................................................................................................................................165.1 Enron and Bush....................................................................................................................................175.2 Outside the US.....................................................................................................................................17
5.2.1 Employing ex-regulators: in USA, UK and Nordic countries..........................................................................185.3 World Bank..........................................................................................................................................18
5.3.1 Ghana................................................................................................................................................................195.4 Directors...............................................................................................................................................196 Enron as employer...............................................................................................................................206.1 ‘Rank and yank’...................................................................................................................................20
6.1.1 "Get rid of people"............................................................................................................................................206.1.2 Labour relations and strikes..............................................................................................................................206.1.3 Enron's safety record - the major accidents......................................................................................................20
7 Annexes...............................................................................................................................................227.1 Annex A - Directors.............................................................................................................................227.2 Annex B – Major subsidiaries.............................................................................................................22
PSIRU – University of Greenwich2
PSIRU profile of Enron www.psiru.org June 2001
1 Structure and history1.1 Enron’s main activities 1 Enron is a USA-based energy company. Originally focused on gas and oil production, the company has increasingly moved towards trading-based activities mainly in energy as well as a broadening range of commodities. This section sets out some of the main activities in which Enron is involved.
1.1.1 Gas and Oil production
Originally a gas company, Enron’s exploration activities used to come under its subsidiary company, Enron Oil and Gas. In 1999, the company – which is now known as EOG Resources - “struck a deal with Enron… to basically buy our stock back” 2 . Enron gave back all its shares, but in exchange was given all the gas and oil interests in India and China.3 EOG is now an independent company, owning all the former Enron activities in Trinidad and US and Canada.
Enron still has exploration businesses in China and India (although it has been trying to sell its stake in the India project) 4 and continues to be active in this sector. In May 2001 it was announced that Enron was one of eight companies selected to exploit Saudi Arabia’s vast gas reserves.5
1.1.2 Gas and electricity transmission and distributionEnron operates gas transmission and distribution in the USA and Latin America, and an electricity distribution utility in South America and in the USA (through Portland General Electric, which in June 2001 Enron is trying to sell).
1.1.3 Electricity generationEnron is also extensively involved in energy production with interests in a number of power generation plants throughout the world. Most are underwritten by Power Purchase Agreements whereby the government or public sector utility guarantees to buy power for a set price over a long period. Enron also has investments in wind power, including manufacturing of wind turbines.
1.1.4 Electricity and gas tradingEnron is actively trading in energy – electricity and gas - wherever it is possible to do so: in the USA, most European countries, Argentina and Brazil. In the US, Enron is the biggest ‘electricity marketer’ even though it produces almost no power in the country.6 This trading includes the wholesale market, and retail supply direct to customers.
1.1.5 Trading in other commodities and services
The company has also expanded its trading activities to deal in other commodities and services. These include gas, power, oil and refined products, plastics, petrochemicals, liquid petroleum gases, natural gas liquids, coal, emission allowances, bandwidth, pulp and paper, metals, weather derivatives, credit
1 Enron Corp. is a large multinational corporation. This report aims to highlight some of the more significant and contentious recent developments but does not cover all of the company’s operations. More information on can be found at the company website www.enron.com. Summary information on Enron can be found at the Hoovers website, www.hoovers.com.2 Interview with Steven B. Coleman, vice president and general manager for the EOG Resources The Sunday Oklahoman November 26, 2000, by Rick Robinson 3 Hoovers profile EOG Resources inc 28 June 20014 The Economic Times of India, February 20, 2001 No Buyer For Enron's 30% Stake In Gas Jv By Soma Banerjee & James Mathew5 The Houston Chronicle May 19, 2001, 2 Houston-based companies win Saudi gas prize ; Kingdom inviting 8 Western firms back in by Michael Davis6 U.S. News & World Report June 18, 2001 ‘A hand in everything’ by Marianne Lavelle
PSIRU profile of Enron www.psiru.org June 2001
derivatives, steel. The company also provides trading in options, weather derivatives and conducts emissions trading.
Its subsidiary Enron Online was launched in October 1999 to offer these services. According to Enron CEO Jeff Skilling, "Unlike other Internet commodity service providers, Enron Online doesn't match buyers with sellers…Customers will be able to instantaneously conduct transactions directly with an Enron company as a principal."7
Table 1: Summary of Enron operationsActivity Main RegionsEnergy exploration China, India, Saudi ArabiaGas Transmission pipelines USA, Bolivia-Brazil, Colombia, Argentina,
MozambiqueGas Distribution Puerto Rica, Brazil, Venezuela, South KoreaElectricity Distribution Brazil, Venezuela, USAElectricity Generation Italy, Poland, Spain, Turkey, UK, Panama, Dominican
Republic, Palestine, Brazil, China, Puerto Rico, Romania, India, Croatia, MexicoThe Philippines, Guam
Renewables: Wind Turbine manufacturing
Spain, US, Germany
Electricity and Commodity Trading, including retail supply
USA, Europe, Argentina, Brazil
Electricity Supply / Retail (Enron Direct)
UK, USA, Canada, Spain, The Netherlands
Water (Azurix.) UK, Argentina, Mexico
1.2 History8
1985 Enron created in 1985 from the merger of two natural gas companies InterNorth (which goes back to the 1930s) and Houston Natural Gas (HNG – which was formed in 1925). In 1985 InterNorth bought HNG for $2.4 billion, creating the US's largest natural gas pipeline system. Kenneth Lay became CEO of the new company, called it Enron (the first name choice, Enteron, was dropped after its meaning, "alimentary canal," was discovered). Gas dominated the company’s activities until the early 1990s as Enron acquired interests in other gas companies.
1989 Enron began operating in the UK establishing UK beachhead and a year later construction of a power plant at Teeside which became operational in 1993. Enron began trading natural gas commodities through its subsidiary GasBank
1992 Enron and three partners acquired control of Transportadora de Gas del Sur - a 4,100-mile pipeline in Argentina.
1993 Dabhol (India) power purchase agreement signed (December).
1994 Enron Europe established a trading centre in London and began trading U.K. power and gas.
1995 Phase I of the Dabhol Power Project began construction. Enron opened its Oslo office for electricity, trading and risk management activities.
PSIRU – University of Greenwich4
PSIRU profile of Enron www.psiru.org June 2001
1997 Construction began on the 790 MW power station at Sutton Bridge, U.K. Enron acquired US distributor Portland General Electric (PGE). Enron announced its first commodity transaction using weather derivative products.
1998 Enron acquired Wessex Water in the UK and formed Azurix Spain and Germany awarded Enron power marketing licenses. Acquired Brazilian electricity distributor, Elektro,
1999 Phase I of the Dabhol project began operation. Enron announced Azurix initial public offering. The 3,000-kilometer Bolivia-to-Brazil natural gas pipeline began commercial operation. Enron sold its interest in Enron Oil & Gas, but retained its China and India assets. Enron launched EnronOnline.
2000 Enron and strategic investors, IBM and America Online, launch The New Power Company, for US residential and small businesses energy consumers.
2001 Bush becomes president of USA. Enron bought back the publicly traded shares in Azurix after the share value plummeted. Dabhol project stopped production. Lay resigned as CEO, and president and CEO Jeff Skilling replaced him although Lay remains as chairman
2 Financial ReviewBusiness is currently booming for Enron. Revenue and share prices have increased dramatically - but it is not entirely clear why. The company accounts reveal little about the underlying activities and even Wall Street analysts are not clear about the true value of Enron stock. Enron keeps specifics hidden and the data it does provide are extremely complicated causing headaches for stockbrokers and regulators alike (see below).
2.1 Performance overview
Table 2: Performance indicators 2000 1999 1998
Revenue ($m) 100,789 40,112 31,260Profit ($m) 979 893 703Earnings per diluted share ($)
1.12 1.10 1.01
Employees 20,600 17,900 17,800Revenue per employee ($m) 4.89 2.24 1.75Profit per employee ($) 47,524 49,888 39,494
Source: Hoovers 2001
Table 1 above, shows that earnings for Enron in 2000 were more than 2.5 times those of the previous year. While a regional breakdown is not provided, it seems likely that much of this increase came from Enron’s activities in the deregulated Californian electricity market. While revenue increased by 151%, employees increased by 15%.
It is not clear to what extent the workforce gained from the enormous increase in revenues, but one clear beneficiary was Enron Chairman, Kenneth Lay. Lay was given a bonus of $7m for 2000 - a 79% increase on his $3.9m bonus for 1999.9 He also made $123m from sale of Enron shares in the year.10 (See Annex A for payments to directors.)
The upward trend has continued in 2001. In the first quarter 2001 wholesale trading volumes increased 65%. Revenues rose 281%, to $50.1 billion, with net income up 20% to $ 406 million.11
PSIRU profile of Enron www.psiru.org June 2001
2.2 BreakdownEnron operations are ‘mind-numbingly complex’.12 Disclosure is kept to a minimum and the business grouping in the company accounts sheds little light on how the company makes its money.
Table 3: Turnover by region (US$M)
2000 1999 1998USA 77,891 30,176 25,247Foreign 22,898 9,936 6,013Total 100,789 40,112 31,260
Source: Enron Company Reports
Looking at the regional breakdown in Table 3 above, using what limited disclosure is provided in the company’s accounts, Enron’s turnover in the US increased by nearly US$50bn in the course of 2000. Earnings from outside the US also more than doubled in the year.
Table 4: Revenue by business segment
DivisionTotal Revenue (US$m) Including…2000 1999
Enron Wholesale Services
94,906 35,501 Enron Americas: includes wholesale merchant businesses related to natural gas and power across North, Central and South America, including trading, marketing and asset development.Enron Europe: wholesale merchant business across all commodities in Europe, Australia and Japan. This business unit also includes Enron Metals and Enron Credit.Enron Global Markets: includes commodity businesses in crude and related products, coal, weather, foreign exchange, and agricultural products. Enron Global Markets has responsibility for the company's Middle East and LNG operations.Enron Industrial Markets: includes business activities in the pulp and paper, paper, lumber and steel markets, including trading, origination and energy outsourcing. Enron Net Works: wholesale commodity trading across a range of industries using the internet. Enron Global Assets: energy assets outside of North America and Europe including EcoElectrica in Central America, the Bolivia-to-Brazil Pipeline and Dabhol Power Project in India.
Enron Broadband Services
408 526 Includes bandwidth trading, content and application services, and the Enron Intelligent Network
Enron Energy services
4,615 1,807 Enron's retail business, which provides “integrated energy and facility management outsourcing services”.
PSIRU – University of Greenwich6
PSIRU profile of Enron www.psiru.org June 2001
Enron transportation Services
2,955 2,032 Pipeline and transportation services.
Source: Enron website
Table 5: Revenue by sector (US$m)
Breakdown by sector
2000 % of total
1999 % of total
1998 % of total
Natural gas and other products
50,500 50 19,536 49 13,276 42
Electricity 33,823 34 15,238 38 13,939 45
Metals 9,324 9 - -
Other 7,232 7 5,338 13 4,045 13
Total 100,789 100 40,112 100 31,260 100
Source: Enron 10-K, www.hoovers.com
Table 4 shows the way that business segments are grouped in the Enron accounts. “Wholesale services” covers a vast range of transactions and activities, which includes all its energy trading activities, and all of its energy activities outside the USA except for pipelines, plus commodity trading. This ill-defined sector accounted for 94% of revenue in 2000, up from 88% in 1999.
Table 5 shows that 50% of the company’s revenue is still derived from gas ‘and other’ activities, and 34% from electricity.
In April 2001, Standard & Poor's said it has affirmed Enron Corp's senior credit rating of BBB+, noting that the company's financial outlook remains stable. It added that Enron is not impacted by recent reports of its credit exposure to the bankruptcy of Pacific Gas & Electric Corp.13
3 Policies and Performance This section reviews some of the major projects that Enron has been involved in. The corporation has many subsidiaries world-wide and they are not all covered here. A list of subsidiaries is shown in Annex B. Contact details for some of the US subsidiaries can be found at www.hoovers.com.
3.1 Trading 3.1.1 California - energy
Enron recorded massive increases in revenue and profit for 2000 compared with 1999. Much of this increase seems to have been due to developments with deregulation in California where wholesale prices have rocketed. Enron have been buying and selling electricity in California although the company has little generating capacity in the US.
California passed legislation in 1996 preventing electricity utilities from signing long term contracts for power, requiring them to buy megawatts day to day on the spot market. Enron’s role was as a broker, finding
PSIRU profile of Enron www.psiru.org June 2001
buyers for sellers. As an energy trader Enron would buy power from sources all over the region - independent generators, local utilities, public agencies or other traders - and assume the risk of finding someone willing to pay a little more. Alternatively the company might contract to sell electricity at a certain rate, betting on their ability to obtain that power more cheaply. Or they may buy from several sources to supply one customer. Or they might purchase a large volume and sell it off in slices, either on the spot market or in long-term contracts.14
Prices in California have increased astronomically since deregulation took force. In 1999, California paid $7 billion for electricity. In 2000 it paid $28 billion. Before the crisis, the average wholesale price for electricity was about $30 a megawatt-hour. Although prices have dropped in June 2001, California was paying on average $500 to $ 800 during the 2000/2001 winter. Enron reported to regulators that it sold electricity for as much as $2,500 a megawatt-hour in the first three months of 2001.15
Officials in California contend that Enron and others were able to overcharge on the spot market by reducing the amount of power they offer for sale on a given day or just raise prices simply as a result of their market power. The California governor, Gray Davis, believes that the culprits of the crisis are “the price-gouging energy companies, many of whom reside in Texas”. California Attorney General Bill Lockyer has offered whistle-blowers hundreds of millions of dollars for evidence of illegal price manipulations. His public enemy No. 1 is reported to be Enron chairman, Ken Lay.16 Enron is one of four Texas-based energy firms (the others are Reliant Energy Corp., Dynegy Corp. and El Paso Corp.) that California democrats are seeking to sue to recover amounts gained in overcharging. - as part of a campaign to recoup $6.2 billion they say California consumers were overcharged for electricity and natural gas.17
The Texas-based companies (including Enron) have denied the charges, though all have reported big profits for 2000 and the first quarter of 2001. The companies refuse to disclose California sales as a percent of their income. But they say California utilities owe them hundreds of millions of dollars and are charged a premium to offset the risk that they will not pay.18 Enron is represented on the creditors’ committee in connection with the bankruptcy of utility, Pacific Gas and Electric - a deregulation victim.
According to Enron, the reason that they did so well out of California is that the crisis demonstrated the importance of trading contracts and that is where their expertise lies.19 They bought low and sold high in accordance with standard business practice and within the rules of the deregulated market in California.
According to Enron spokesman Mark Palmer, they sold power at the market rate which was high because of a complex mix of problems from a severe regional drought to failure to build enough generating plants. In the words of Stanford University economist Frank Wolak "You can't blame [Enron] for taking advantage of incompetent regulation…They buy low and sell high." 20
The state governor of California is proposing to bring down the excessive prices by introducing price caps on the basis that, legally electricity rates should be “just and reasonable”. Enron is opposed to price caps and has been lobbying against an increase in regulation.
There is little doubt that Enron benefited hugely from the policies in California. Aside from the boost to the company’s revenues, individuals made millions from insider trading.21 According to a review of public records published in the San Francisco Chronicle, 19 officials at Enron were among the big winners of the crisis. Enron insiders netted $127.33 million, according to the analysis, which reviewed records of securities transactions between May 2000, when the state's energy crisis began, and the end of April 2001. Lay, the company chairman, got more than a fifth of his firm's total capital gain, $27.19 million.22
Meanwhile, consumers have been hit by escalating electricity bills. Social service agencies have been swamped with applications for financial assistance from those on low and moderate incomes. Prices are set to rise further following the approval of a 40% hike in March by the Public Utilities Commission. The rate increase of 3 cents per kilowatt hour will translate into an increase of $4 to $85 a month for residential customers, according to officials. Natural gas rates have increased throughout the state as well.
PSIRU – University of Greenwich8
PSIRU profile of Enron www.psiru.org June 2001
Rising energy costs hit people living at the margins particularly hard because utilities constitute a high proportion of their income. Some are saddled with bills of $1,000 or more; others are doing without medicine and scrimping on food to keep their power on. "We got numerous e-mails from seniors, the disabled and others on fixed income because their utility bills have increased two, three or four times," said Toni Curtis, chief deputy of the state department of Community Services and Development. "They can't pay them."23
3.1.2 Mid-west USA, 1998Enron also profited from the previous large electricity market disaster in the USA. In June 1998 there was a crisis in electricity trading in the mid-West: a heat wave gripped the Midwest at the same time that numerous large generating stations and transmission lines were out of service. Wholesale power prices for delivery into the Cinergy system in southwest Ohio raced from $75 per megawatt-hour early one Tuesday morning to $4,900/MWH by Thursday afternoon. Some electricity utilities went bankrupt, some eg Pacificorp made losses of up to $51m, but Enron made profits of about $50m. 24
3.1.3 Water trading in CaliforniaEnron’s trading activities, as mentioned earlier, now cover most commodities. This includes water. In 1999 Enron set up a trading venture, Water2Water, to make transactions relating to the transfer of water and the purchase and sale of water storage and water quality credits. Azurix said that it expected the first subscribers to be in the western United States.
In the same year Azurix bought into a huge bulk water ‘bank’ in California, Madera water bank, with a capacity of 400,000 acre feet and maximum extraction of 100,000 acre feet a year. Azurix said it planned to sell bulk volumes of water to various public and private sector customers in central and southern California under 20 to 30 year lease agreements at fixed price, covering .
Azurix stated: “We estimate that the remaining 20 percent of the storage capacity will be retained by Azurix for the purpose of trading and optimization. Trading will be maximized during dry and drought years when demand far exceeds supply”.25 In effect, the company plans to profit using a combination of the techniques that have delivered profits in electricity – long-term guaranteed contracts with public authorities, plus exploitation of markets through trading.
3.2 Independent Power plants3.2.1 India: Dabhol Power companyEnron is responsible for the biggest – and most controversial - foreign investment project in India. The project is on the brink of collapse. The Dabhol Power Company - 65% owned by Enron – constructed a power plant at the port of Dabhol about 200 km south of Bombay, the nation's financial capital.. The $3.5bn project was signed in 1993 and the Phase I (740MW) came into operation in 1999. Phase II (1,444 MW) was due to be commissioned in 2001. For excellent material on the Dabhol project see the work of Indian energy NGO, Prayas (www.prayas-pune.org/energy_publist.htm).
From the start the project was controversial. There were a number of concerns about the scheme: the high cost of power which was to be purchased by the state, allegations of corruption in the setting up of the project, the procedure regarding granting official clearance for the project, lack of consultation of affected people, the allocation and distribution of compensation for those displaced; environmental destruction.26 The contract was considered to be generous to Enron. The company promised to invest $3bn which would be repaid with a tariff on electricity charges that was set at such a high level the company would receive $26bn in return.27 In 1993, the World Bank concluded that the project was "not economically viable."28
The heavy measures used by police - which were sponsored by Enron - to put down protests against the project led to allegations of human rights abuses. Enron has the distinction of being the only company (rather than government) that has been the specific subject of a human rights report by Amnesty International29 (See also the study by Corporate Watch and the 1998 PSIRU Report, Enron: The Politics of Risk Management)30.
PSIRU profile of Enron www.psiru.org June 2001
Opposition to the arrangement with the Enron company was so strong that the deal was nearly scrapped in 1995. The Shiv Sena-BJP nationalists who came to power in March 1995 had promised to abolish the deal when in opposition but when they came to power found that to do so would mean paying huge amounts of money to Enron. The contract then was renegotiated and a fresh deal was signed in December 1995.31
Indian writer, Arundhati Roy commented on the renegotiated contract:
“In August 1996, the government of Maharashtra signed a fresh contract with Enron on terms that would astound the most hardboiled cynic. The impugned contract had involved annual payments to Enron of US $430 million for phase I of the project, with phase II being optional. The ‘re-negotiated’ Power Purchase Agreement makes phase II of the project mandatory and legally binds the Maharashtra State Electricity Board (MSEB) to pay Enron a sum of US $30 billion! It constitutes the largest contract ever signed in the history of India. In effect, for an increase in installed capacity of 18 per cent, the MSEB has to set aside 70 per cent of its revenue to be able to pay Enron. There is, of course, no record of what mathematical formula was used to compute the ‘re-negotiated’ bribe. Nor any trace of how much trickled up or down or sideways and to whom.”32
The terms of the Power Purchase Agreement proved crippling for the MSEB. The financial state of the electricity board declined drastically. By 2001, Maharashtra’s tariff payments had more than doubled since 1993. Electricity from Dabhol cost more than three times as much as other power in the system, according to state officials. A number of factors have driven up the price. The first phase of the project was fuelled by naphtha, which had become much more expensive because of rising oil prices. The bills were calculated in rupees, but tied to the dollar, so as the rupee lost value, the price in domestic currency increased. In December 2000, Dabhol was selling power to MSEB for 8 rupees per unit and MSEB was selling it on at 2 rupees.33
Furthermore, the state's electricity regulatory commission requires the electricity board to buy the cheapest power first, leaving Dabhol at the end of the line. Demand is much lower than the state had forecast. In recent months, the state has been buying only 10 to 20 percent of the power that Dabhol is capable of generating, while paying the plant's full fixed costs. In Phase II, which is twice as big as Phase I and fuelled by natural gas imported in liquefied form, the state will also have to pay 75 percent of the fuel costs even if it buys no power.
The contract began to fall apart towards the end of 2000 when MSEB could not pay Enron. In January it was reported that MSEB had defaulted on payments worth 2.6 billion rupees (US$61m) for October and November 2001 and Enron called in their sovereign guarantee with the government of India. The government has promised to honour payments if the MSEB defaults but said that the money would come out of the budgetary allocation to Maharashtra.34
Relations between Enron and the MSEB have continued to deteriorate. Arrears continued to grow and at the end of May 2001, Enron served a preliminary termination notice on MSEB - effectively saying that the company will quit in six months - warning it would move to recoup damages. It was reported that these damages would be in the region of $3.5bn to $5bn.35 MSEB responded by rescinding the contract which they said was not a threat but a ‘"legal notice" provoked by Enron's diminishing performance of certain technical functions.’36 Enron says MSEB does not have the right to rescind the agreement. MSEB stopped taking power from the plant at the end of May which means that in effect the plant stops production.
Although the Dabhol plant will now effectively lie idle, the company says it will continue to bill MSEB a fixed monthly capacity charge of Rs950m ($21m) even if no fuel is used. MSEB says it will not "entertain such an invoice". Dabhol says it is owed $45m in unpaid bills. The Indian utility insists the power company owes it much more in rebates for failing to meet technical thresholds, such as the time it takes to reach full capacity from a cold start.37
PSIRU – University of Greenwich10
PSIRU profile of Enron www.psiru.org June 2001
In 2002 the amount the state's electricity board owes will more than quadruple to over $1 billion a year as the huge turbines for the second phase of the project come on line. Under the 20-year contract, the state and central governments have guaranteed they will pay the money if the electricity board defaults.38
The collapse of the project has implications for the national banking system as there is concern that foreign banks may call in Indian banks’ guarantees on their loans. Foreign banks have loaned Dabhol about 30 per cent of the $2bn in debt raised to finance the project. Indian banks' exposure is $1.4bn, including guarantees of foreign banks' loans. The Indian banks' loans are not protected by guarantees from their government and they stand to lose heavily if banks, such as Credit Suisse First Boston, ABN Amro and Citibank, call in guarantees.39
Indian and foreign banks have commissioned a report from a US consultancy to review the feasibility of mothballing the plant for a year to allow the dispute to be resolved.40 Foreign banks were also demanding a firmer expression of support for the project from the Indian government.
Relations have continued to deteriorate with complex legal wranglings emerging. At the beginning of June 2001, Enron issued a writ in the Bombay high court challenging the jurisdiction of Maharashtra's electricity industry regulator, after the regulator issued an interim order that stopped DPC from pursuing arbitration proceedings in London, as provided for under the power purchase agreement.41
Meanwhile, the second phase of the plant which was due to be commissioned in 2001 is in limbo. In June 2001, the main contractors on the second phase stopped working after failing to be paid by Enron for the previous two months. General Electric and Bechtel, which each hold a 10 per cent share in Dabhol Power Company, stopped work, in effect mothballing the $1.8bn second stage. Dabhol says 5,500 people working on the 1,440MW phase two were due to be sent home. The second stage of the 2,184MW project is 97 per cent complete and was due to be commissioned a few weeks later.
The action by General Electric and Bechtel reflects the increasing pressure being applied by the project's foreign lenders, which, alarmed by MSEB's deteriorating payments record and the legal tit-for-tat, have stopped disbursing funds for the second stage.
Enron have since said that they would be willing to sell the Dabhol plant. US energy company AES was reportedly considering taking over the project.
There are certain similarities between Enron’s experiences in California and India. Jeff Skilling, Enron CEO, himself draws parallels between the two, saying "India is identical to the California situation except that we have a government guarantee for payment," 42.
3.2.2 Nigeria Enron set up an power plant in Nigeria in circumstances which have alarming echoes of the Dabhol project. The controversial Enron IPP eventually began producing power in May 2001. The power purchase agreement had been originally signed in December 1999. The agreement was then stalled for eight months largely because the World Bank had a number of concerns about the project, saying that the terms were too favourable to Enron.
Among specific doubts was a clause stipulating that, in the event that the contracts were to be terminated by any party other than Enron, the federal government would be obliged to settle Enron's entire financial commitment. The Bank also said the contract had not been put out to competitive tendering, gave "generous" payment terms and included no penalty clause for poor performance from the company.43
The project stalled for some months. The extent to which the terms were renegotiated is unclear but the tariff level was a major stumbling block in negotiations until July 2000 when the Lagos state government agreed to step in with a subsidy. The subsidy amounted to N120m a month - a little over $1m.
PSIRU profile of Enron www.psiru.org June 2001
Subsequently, the project has still failed to run smoothly. The start date for Phase I was continually delayed and then, in March 2001, the Federal Government said that Enron lacked the financial and technical capability to handle the project and that the contract negotiations were not only shrouded in secrecy but also 'skewed against Nigeria's interests'.44 In February 2001, a majority shareholding in the project was sold to US firm AES.
In June 2001, the Nigerian President, Olusegun Obasanjo spoke up against the poor performance and bad faith of Enron in their power supply project. Originally scheduled for completion at the end of December 2000, the Nigerian Federal Ministry of Power and Steel blamed the delays on Enron's lack of financial and technical ability to meet the deadline, accusing the company of 'insincerity' in meeting contractual obligations.
As with so many Enron projects, the Nigerian government was anxious for this project to succeed so that it sends a positive signal to other investors.
3.2.3 CroatiaIn August 2000, an agreement was reached between Enron and HEP, the Croatian power board to sign a new package deal for the purchase of power from an Enron power plant. The previous government had signed an agreement with Enron but subsequently published transcripts of secretly taped conversations revealed that the old Croatian government had been eager to curry favour with the US. In the conversations, the late president Tudjman says that by granting the contract to Enron he hoped he would get a trip to the White House. He also thought that it would persuade the US to push for Croatia's membership of the World Trade Organisation and to ask The Hague war crimes tribunal to take pressure off Croatia. Enron executives carefully give non-committal answers to his questions in the transcript.45
Under the old agreement Enron was to build a power plant at Jertovec and sell electric power to HEP at a fixed price for 20 years. This has been replaced by a package of five new contracts. Once the new contracts are formalised, Enron will be allowed - should it so decide - to build, own and operate a power plant at Jertovec and sell electricity at the market.
In September 2000, it was reported that consumers could expect to pay a 25.6% higher price for electricity following the agreement with Enron. The new government considers the original terms to be highly disadvantageous for Croatia but is keen to not deter other potential investors. "Although it's two times more that the usual market price, which is 2 cents per kilowatt-hour, this is the best we could get from Enron," said HEP President Zeljko Covic at the time. 46 The details of the agreement have not been made public.
3.2.4 Poland Enron's wholly owned subsidiary, Elektrocieplownia Nowa Sarznya (ENS), owns and operates a 116MWe, 70MWth natural gas-fired plant in Nowa Sarznya in southeastern Poland. The $132m plant, which entered into full commercial operation in June 2000, is the first gas-fired independent power project in Poland funded on a project finance basis. ENS signed a 20-year power purchase agreement with grid operator PSE in April 1997.47
In November 1999, the terms of the contract were re-examined by the Supreme Court at the request of five senators. The senators noted that in a situation where Polish power plants have problems selling their products due to a 30 percent oversupply in the market, the utility PSE agreed to buy Enron power over the next 20 years at higher than market prices. The region's other power plants are much disturbed by the contract that has already led to PSE refusal to buy their power even though the Enron power plant is just being commissioned. 48
3.2.5 Dominican RepublicWhen the government privatised its electricity, Enron (along with several other firms) bought a stake in the generating capacity of Dominican Republic. However, the government now has to reassess the policy as it has proved disastrous for the country. Outages which were already high have increased since electricity
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privatisation in 1998. Frequent losses of power, lasting as long as 20 hours, in the first half of 2001 have provoked widespread frustration and triggered protests, some which turned violent after police clashed with demonstrators. At least nine people died in the protests.
The president announced in June 2001 that the contracts awarded during the privatisation of the sector would be investigated. The main cause of the problem has been the large price increases resulting from privatisation which the state owned utility has not been able to afford (as in India). On privatisation, generators increased prices by 51%.
Prices for consumers more than doubled while the state attempted to absorb an unsustainable proportion of the price increase. The subsidy was costing the government around $5m each month. As a result, the utility began to default on payments to generators (including Enron).
With mounting arrears, private power producers pulled the plug on power supplies, exacerbating blackouts which lasted up to 24 hours affecting businesses, schools and hospitals. In a situation with similarities to California, shortages were originally blamed on private power generators, which at the time of the crisis were only supplying 392,000 of the 815,000 kilowatts they are capable of producing. The electricity issue also sparked a confrontation between the Dominican government and the U.S. Embassy, after the former accused the Smith-Enron joint venture of outright fraud for failing to deliver its promise to generate at least 175 megawatts a day.49
3.2.6 IndonesiaEnron was one of several companies which signed up to construct independent power plants in Indonesia during the early 1990s. In 1997, their East Java Power project was one of several to be suspended following the collapse of the Indonesian currency, the Rupiah. The contracts would have led to massive overcapacity in the sector and power purchase rates were set at a level based on an exchange rate that was nearly 4 times the value of the currency in 2001.This and other similar IPPs have worsened the economic position of Indonesians, through draining the resources of the power sector and demanding higher prices: "The sweet deals were made amid the climate of corruption and nepotism, says Iskander Mandji, a former MP and critic of Suharto's power generation policy. The state-owned utility, the PLN, was driven to near bankruptcy, in part by deals with independent power producers largely owned by Suharto's family and friends in co-operation with foreign electricity giants, he told Reuters. He said that under the deals the IPPs were guaranteed that the PLN would buy enough of their electricity for them to operate at up to 80% capacity for up to 30 years. The PLN had to switch off some of its own capacity to meet the guarantee...". Enron has however continued to insist that the Indonesian people will have to honour the guarantees that Enron negotiated with the overthrown dictator. 50
In March 2001, Enron managed to secure compensation for the cancellation of the project from the World Bank Multilateral Investment Guarantee Agency (MIGA) of $15m. MIGA officials made it clear that the government was correct to cancel the contracts given the subsequent economic downturn but because of international law, Enron had to be compensated and MIGA has to claim reimbursement of the compensation from the government of Indonesia.51
3.3 Water - Azurix CorpAzurix was set up to pursue Enron’s efforts in international water privatisation after the company bought Wessex Water in the UK in 1998. Azurix was launched in 1999 with a view to becoming a key player in the international water market. Rebecca Mark, who had been responsible for Enron’s Dabhol initiative, was made CEO.
Wessex Water was sold to Enron in 1998 and the deal was heavily criticised for what became known as “fat cattery”. Huge payments were made to directors. Nick Hood was chairman of Wessex Water took £1.2m when it was sold to Enron and was expected to make more following the flotation of Azurix. Colin Skellett
PSIRU profile of Enron www.psiru.org June 2001
was chief executive of Wessex Water when it was acquired by Enron in 1999 for £1.5bn. He gained £1m on the privatization and was given 600,000 share options when it was floated as Azurix.
Such payments were financed in part by price increases: for the year up to March 31, 1999, the company’s profits increased by six per cent to £147.5 million. The average household water bill in the Wessex area in 1998 was £271 - a rise of 100 or 58 per cent since privatisation.52 In 1999, the company also announced a 32 percent hike in prices over the following five years.
The Azurix subsidiary (which was dominated by Wessex) was intended to establish Enron as an international player in water supply. However, its international activities were not hugely successful:
3.3.1 Argentina - Buenos Aires provinceThe company’s one major international project - a 30 year concession for the water and wastewater systems in two regions of the Province of Buenos Aires - has been plagued by problems.
There have been a large number of complaints of poor water quality. In May 2000, locals were provided with bottled water after water was contaminated in one part of the province. At the start of 2000, Azurix Buenos Aires agreed with the provincial regulatory agency not to bill residential customers for water services for a 50-day period during which the taste and odour of supplied water were allegedly unsatisfactory, losing Azurix $5.4m in revenues. While Azurix claimed that this was not the company's fault, on 16 January 2001, the province said that it would review the water distribution contract following complaints that its services were not adequate.53
In November 2000, the company was fined $250,000 for breach of contract by Buenos Aires province water regulatory agency ORAB. ORAB said that the company left users in one district of the province without water service for five days, due to negligence on the part of Azurix when it was conducting works in the zone.54 In January 2001, it was reported that Buenos Aires provincial governor Carlos Ruckauf was to ask province's legislators to consider cancelling the contract Azurix BA.
3.3.2 Failure to competeDespite its efforts, Azurix failed to win much of the global water privatisation market. The company blamed the difficulty of competing with the French multinationals. Lower demands for profitability were also a factor: "Going head to head with the French makes it tough to profitably win any kind of competitive auction or bid, " Winter [a water analyst] said. "The French aren't as driven by profits as the U.S. investors are, so they're more tolerant of longer time frames."55 Azurix also found the BA province contract in Argentina difficult to profit from, because of strong union organisation.
Instead of fighting with the French companies, Azurix planned to focus on "smaller acquisitions, projects that the giant [French] water companies have less interest in swallowing".56 They took on projects in Mexico and targeted Ghana (unsuccessfully – see below).
Azurix projects in Mexico were not a great success. In 2000, Hugo Toledo from Mexico's Commission Nacional Del Agua, pointed to “less than stellar performance” from Azurix in their Mexico subsidiary Cancun, which he said had received minimal investment so far. He reported lacklustre progress for the same company in Mexico City.57
The final straw for Azurix came with the intervention of the UK regulator, forcing Wessex to cut prices by 12 %. Azurix never really recovered. A profit warning sent the share price plummeting at one stage falling 40 percent in one day. Investors who had bought shares for $19 at the initial public offering saw the stock fall as low as $3.50 in late October 1999. The highest Azurix shares have ever reached was $23.88 about a month after the IPO.
In 2001, Enron bought back the shares in Azurix that had been publicly traded (amounting to a third of the share capital). This was only 18 months after the initial public offering.
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3.4 PipelinesEnron is involved in a number of gas and oil pipelines, some of which have been criticised on environmental and human rights grounds.
Enron - with partners Shell and Bolivian pipeline company Transredes - is constructing a pipeline from Bolivia to Brazil. In December 1999, environmental groups Friends of the Earth, Worldwide Fund for Nature and Amazon Watch asked the Overseas Private Investment Corporation (Opic) to terminate its US$ 200mn financing deal on the grounds that they had failed to comply with Opic environmental safeguards. The pipeline would cut through the largest intact part of the Chiquitano tropical forest, as well as the Pantanal wetlands. The organizations said in a statement that alternative routes exist that would not cause as much harm to the forest. The groups criticized a $ 20 million conservation fund set up by Shell and Enron, saying that a lack of local and indigenous community control over decision-making had doomed the effort.58
In China, Enron is involved in a controversial part-built gas pipeline (along with BP Amoco and Agip). In October 2000, the Dalai Lama urged the companies to withdraw their support for Chinese firms involved in the huge project in October 2000. The Tibetan government in exile has called for an immediate halt to the construction of several oil and gas schemes that are being backed by multinationals arguing that the pipeline is of no benefit to the Tibetan people and will merely accelerate the influx of Chinese migrants into Tibet.59
In Mozambique, Enron’s pipeline deal was secured after the US government threatened to withdraw US aid money if Enron was not awarded the contract – see section below on political influence.
4 Strategy: prices and politicsHow has Enron achieved an increase in revenue of 222% in the past two years? A look at the Enron website suggests that the company has been expert in spotting market opportunities and is ahead of the game when it comes to making the most of the changing industry structure.
However, some other common themes can be found in Enron’s international operations:
4.1 Short-term profits and long-term monopolies Enron prides itself on its agility and ability to shape, rather than respond to, the structure of the energy market. To this end, the company – at least in the US and Europe – is moving towards trading rather than production based activities. In developing countries the company is still involved in physical asset-based investment usually heavily insured by the likes of MIGA and OPIC.
Where electricity markets are becoming deregulated – as experience in California has demonstrated - Enron can reap substantial gains. The company is pursuing aggressive expansion into deregulated European markets through trading rather than acquisition.
"I'm not a big bull on the value of generation investments…I do not want to be in the position of having huge amounts of steel and concrete in the ground" Enron President and CEO Jeff Skilling60
The flip side of an agile and flexible company is one that operates with a short-term perspective and one that quits and moves on when profits take a downturn. Such an approach seems to have prevailed in Enron’s attitude to its UK water investment, Wessex Water. The company immediately set about implementing huge pay increases for directors and raising prices. When the UK regulator enforced a price reduction, the company was no longer able to provide such high profits and there are rumours that Enron is seeking to sell Wessex Water.
In electricity, Enron’s emphasis on trading will allow for greater mobility to swoop in and make short term profits while being able to quickly withdraw when opportunities become less profitable. Enron has sold one
PSIRU profile of Enron www.psiru.org June 2001
of its generators in the UK and is trying to dispose of similar assets in the US. The company is lobbying for greater deregulation. While Enron has been tied into longer term contracts in developing countries, the focus on trading in the US and Europe suggests that the company is seeking to avoid long-term investment commitments. This is demonstrated by some recent developments in the US.
Enron directors have made a killing on California. Aside from their bonuses, they have sold some of their personal shares in the company for large amounts. Kenneth L. Lay, netted $123 million in option transactions in 2000, according to a filing with the Securities and Exchange Commission. The amount was triple his 1999 level and nearly 10 times what he made in 1998. Lay also has made stock sales since November that have been worth nearly $23 million. Jeffrey K. Skilling, CEO of Enron, filed regulatory documents in May announcing his intention to sell 140,000 shares of Enron stock for $7.98 million. Skilling in 2000 netted more than $62 million in similar transactions. No one is claiming the stock trades were illegal, but critics have linked the transactions to the profits gained in California.61
According to state Sen. Debra Bowen, D-Marina del Rey, who chairs the Senate Energy, Utilities and Communications Committee "It is part of a pattern of smart trading by these guys...The mentality is to get everything that you can and then ride out the bust…I think they are figuring that by this time next year the party will be over and they will be left sitting in a room with plastic cups half-filled with stale beer." 62
In developing countries, Enron is still pursuing traditional energy sector investments. Rather than looking for flexibility, the types of projects being pursued are ones where the company ties the host country government into long term monopoly fixed term expensive contracts. (The weakness of IPP contracts are the subject of a PSIRU report: Independent Power Producers: A Review of the Issues). The investments are usually insured by international bodies such as MIGA and OPIC which require repayment from the developing country government should the guarantee be called in. In India, the company has tied the Maharashtra state electricity board into paying for expensive power for 20 years. PPA’s have been set up in a number of countries including Nigeria, Palestine, Croatia, Poland.
4.2 ProfitsEnron has an approach to energy services whereby the company selectively reaps benefits from the most profitable activities on a short term basis. "Enron is one of the few companies that has said to be vertically-integrated isn't the best strategy, the answer is to pick off the parts you can earn money from and go with that - a lot of European utilities think that's mad", commented one European electricity analyst.63
While it is standard business practice to charge as much as possible, Enron have been managing this to such a degree that is has managed to almost bankrupt its customers (for example in California and India). Excessive prices also featured in their foray into the water industry, with anticipated increases of 32% for Wessex Water customers. When the regulator ordered that prices be cut, the value of the share price plummeted and there are rumours that Enron is planning to sell the company. This further demonstrates a short term approach whereby the company makes as much as possible and then when competition or the regulator catches up with the profits, the company moves on.
High prices are a frequent criticism of Enron power plants in developing countries, for example, India, Nigeria, Croatia and Poland.
4.3 SecrecyEnron is far from the most transparent of organisations. The company has managed to establish a corporate structure that is impenetrable to external observers. Most Wall Street analysts are foxed by its activities.
"They're not very forthcoming about how they make their money. I don't know an analyst worth his salt who can seriously analyze Enron." John Olson, director of research at Sanders, Morris & Harris, a research firm in Houston.64
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Many of Enron’s transactions resemble the complicated risk-shifting techniques used by Wall Street for financial instruments. In the US, this has stretched the regulator, Federal Energy Regulatory Commission. According to the commissioner, Mr. Hébert,
"One of our problems is that we do not have the expertise to truly unravel the complex arbitrage activities of a company like Enron,"65
A number of international projects have been criticised for lack of transparency. In Ghana the World Bank withdrew funding for a water project on the grounds that it had been awarded in a non-transparent manner to Enron subsidiary Azurix. In India, one of the major criticisms of Dabhol is that the contract negotiations were shrouded in secrecy. In Croatia, the terms of the final agreement between Enron and the electricity utility have been kept secret. In Nigeria, it was reported that contract negotiations were shrouded in secrecy.
A common theme of their operations in developing countries is that the governments are keen to make the projects work because their break down would send a bad signal to investors (for example in Nigeria, Croatia, Poland).
5 Political influence5.1 Enron and BushMaking use of political connections is a key component of corporate strategy for Enron and one which has come under growing scrutiny with George Bush becoming US president. The connections between Bush and Enron Chairman, Kenneth Lay, go back many years to when Bush was governor of Texas. For a detailed report on the relationship between Enron and Bush see the Corporate Watch Report: http://www.igc.org/trac/feature/election/bushlayed.html.
More recently, Lay donated $310,500 to the Republican party over 1999 / 2000 and raised about another $1m from his company and its employees. According to the Centre for Public Integrity, an American watchdog group, Enron gave more money to Bush’s campaign than any other corporation.66 And Bush used the Enron corporate jet to fly round the country on the election campaign. It would seem that the donations do not entirely reflect political persuasion as Enron also gave $520,000 to the Gore campaign.
The significance of Enron’s support for the Bush campaign is dismissed by Jeff Skilling as a trivial amount in the overall cost of the campaign. Whether it was due to the donations or not, Enron seem to be enjoying considerable influence in Washington. Kenneth Lay has been appointed to the Bush transition team as "an adviser to the energy department". He was also one of the lucky 32 "business leaders" invited to the Texas governor's mansion in January 2001 to "give their ideas" to the new president.67 Enron has strong links with other members of the Bush administration.
Marianne Lavelle writes (June 2001): “Lay was the only corporate executive whom Vice President Cheney said he met with one on one to discuss formulation of the administration's national energy policy. And throughout the administration's work on the energy blueprint, Bush's senior adviser Karl Rove continued to hold $100,000 to $250,000 in Enron stock--securities he moved to sell last week. White House financial disclosure statements also showed that Cheney's chief of staff, I. Lewis Libby, owned a $ 50,000 stake in Enron that he sold and that Bush's top economic adviser, Lawrence Lindsey, earned $ 50,000 in consulting fees from Enron last year.” 68
Bush and Enron are singing from the same song sheet on a number of issues when it comes to energy. Both are opposed to price caps in California “That just camouflages the problem. It doesn't solve the problem” - Kenneth Lay. Both support less regulation rather than more “consumers will do better in a deregulated market” - Jeff Skilling. It has even been suggested that Bush’s rejection of the Kyoto treaty is “a quiet favor to Kenneth Lay”.69 “I don't think we ought to embrace the Kyoto agreement. I think there are a lot of things that have been proposed that don't make economic sense.” - Kenneth Lay.70
PSIRU profile of Enron www.psiru.org June 2001
In May 2001 it was reported in the New York Times that Lay vetted the list of candidates for the electricity regulator. What is more, soon after being appointed chairman of the Federal Energy Regulatory Commission, Curtis Hébert told the New York Times, he received a telephone call from Kenneth Lay offering the company's backing to help him keep his job if he adapted his views on deregulation. 71
Enron continues to seek to keep policy on track. In California, it was reported that Enron Chief held a secret meeting in a Beverley Hills hotel with possibly influential players in the reform strategy. Enron was pushing for less regulation which is directly opposed to the policy line currently being taken by the California state governor.72
5.2 Outside the USIn the UK, Enron has been a regular donor to the Labour Party, for example, sponsoring a gala dinner at the 1998 party conference (shortly after which the Government decided not to refer the company's takeover of Wessex Water to the Monopolies Commission).
Whilst in opposition, the Labour party had been opposed to the swing towards gas as a power station fuel promoted by the Conservative party. In 1998, Enron successfully lobbied the Labour UK government to weaken their policy of support for the British coal industry. Enron hired Karl Milner, a former aide to the Chancellor Gordon Brown. Milner is reported to have boasted to an undercover reporter how he would get Enron exempted from the government's moratorium on the building of private gas plants saying "The way you go about it is that you play on the existing prejudices within the cabinet for coal, you play on the existing prejudices within the cabinet for competition, and you play the forces off against each other. It's intimate knowledge of what's going on that produces results in the end."73
The lobbying was successful. In the summer of 1999 the government relaxed its ban to allow Enron Europe Ltd to build a gas-fired power station at Teesside. On November 16 2000 Stephen Byers sounded the death knell of the coal industry by lifting the moratorium altogether and giving his consent to another Enron gas plant, on the Isle of Grain in Kent. 74
Furthermore, Ralph Hodge, the chairman of Enron Europe, was given a CBE in the January 2001 New Year's Honours list "for services to the power generation and gas industries."75
Elsewhere, Enron have used their influence to aggressively push and protect their projects in developing countries. For example, Enron have lobbied Washington to increase military aid to Colombia where the company owns a 375-mile natural gas distribution system.76
In Mozambique, Enron’s plans to develop the Pande natural gas field were reportedly saved from cancellation by a blunt threat from the US national Security Council to cut off future aid to the country. Responding to a letter from Mozambican Energy Minister abrogating a memorandum of understanding on the gas project, National Security Adviser Anthony Lake ordered the suspension of the final $ 13.5 million portion of 1995 aid to Mozambique until the Maputo government confirmed it intended to abide by the agreement.
Lake followed up with a letter to Mozambican President Joaquim Chissano in which he implied that future aid also would depend on completion of the Enron deal. Confronted with the aid severance, Chissano wrote back within days to reaffirm Mozambique's intention of completing the deal with Enron.77
In India, the Enron project at Dabhol was assisted by the intervention of US Ambassador Frank Wisner, who subsequently joined the board of Enron.78
5.2.1 Employing ex-regulators: in USA, UK and Nordic countriesEnron's business, especially energy trading, depends heavily on the regulatory conditions. A favourable regulatory regime obviously helps Enron; knowing how best to exploit the loopholes in a regime also helps; and technical expertise on how to improve regulations - from Enron's point of view - is also helpful.
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The top experts are the regulators themselves, and Enron has employed regulators in the USA, the UK and the Nordic countries.
Wendy Gramm was appointed to the board of Enron in 1993, five weeks after resigning as chairwoman of the Commodity Futures Trading Commission, where she had supported Enron proposals to relax regulations on trading of energy futures. Enron and Gramm both said in published reports that there was no connection between her appointment and her actions as a regulator. In late 1992 Gramm began proceedings to remove energy futures, a highly specialised financial instrument, from government regulation, based on a petition from Enron and other energy companies. She resigned her job just before the commission agreed to the petition.
Clare Spottiswoode, former gas regulator in UK, joined Enron in 1998.79 She has since resigned. The trading manager of the Nord Pool, Preben Richter, left his job in September 1998 and started work
with Enron in November 1998. 80
5.3 World BankIt was reported that Lay has personally threw himself into a lobbying venture with the World Bank in the early 1990s. At the time, Enron was anxious to win financial guarantees from the Bank for several of its projects in India, Indonesia and Africa. As a way of making contact with senior officials from the institution and advancing its own agenda, Enron financed a survey of the future of the World Bank by the Center of Strategic and International Studies. Lay was co-chairman of the panel and drafted the survey.81
5.3.1 GhanaSubsequently, Lay was reported to be disappointed when Enron fell foul of the World Bank after its activities in Ghana.
Azurix was picked by Ghana's Ministry of Work and Housing in early April 2000 to carry through a build own operate and transfer (BOOT) project north of Accra. The World Bank put up a $100 million loan for the project. However, the project was subsequently cancelled.
In a letter to Ghana’s vice president John Atta-Mills, and published in the Ghana Tribune, the Bank's director in Accra, Peter Harrold, said the choice of Azurix had not been made in transparent manner. Despite the protest of president Jerry Rawlings' government, he announced the Bank had cancelled its loan. Ghana has also been called upon to pay $800,000 for the costs of preparing the defunct project. In turn, Britain's Department for International Development cancelled a $30m rural water project.
Azurix, denies press allegations that the company paid a $5m bribe to senior officials to secure the contract.82
5.4 Directors Directors with strong political connections include Wendy Gramm, who was a senior staffer in the White House for former President Ronald Reagan, 83 and is married to the republican Senator Phil Gramm.
UK Board member John84 Wakeham, Former UK Secretary of State for energy and Leader of the Houses of Lords and Commons. It was Lord Wakeham who granted consent for Enron to build its power stations in Yorkshire and Grain.85 He was appointed to the Enron board in 1994, two years after approving the construction of the Enron power plant at Sutton Bridge in his role as Secretary of State for Energy. Lord Wakeham received $72,000 in 1998 from Enron for consultancy services, on top of a $50,000 director's fee.86
The US Ambassador who sorted out their troubles in India with the Dabhol protestors, Frank G Wisner was given a seat on the Enron board when he retired.
PSIRU profile of Enron www.psiru.org June 2001
6 Enron as employer6.1 ‘Rank and yank’Enron has recently introduced new performance appraisal mechanisms that are known as ‘rank and yank’ whereby employees are pitted against each other and ranked according to comparison with colleagues rather than on personal development. “Managers trade rankings like baseball cards, explained the insider, offering to downgrade one employee if they can get a better rating for another employee.”87
According to another commentator, “managers assemble twice a year to evaluate and cull employees as if they were head of cattle.” The performance of employees over the previous six months are ranked on a five point scale. The system has been criticized because the most significant factor in your ranking is the negotiating powers of your manager.88 Such a system (which is used by other US firms) has been criticized for discouraging team work and the scope for which such a system may be used to allocate on a discriminatory basis. 89
6.1.1 "Get rid of people"Enron's president Jeffrey Skilling has made speeches which have created anxiety amongst employees of companies targeted by Enron. In 1997, when Enron was bidding to buy Portland General Electric: "Enron president Jeffrey Skilling sent shivers through employees at PGE when he was quoted at an industry conference as saying electric companies must "cut costs ruthlessly by 50 or 60 percent." "Get rid of people," Skilling was quoted as advising. "They gum up the works."" 90
87 Time June 18, 2001 Rank And Fire John Greenwald, Reported by Michelle McCalope/Houston, Valerie Marchant/New York and Daniel Terdiman/San Francisco 7 http://www.enrononline.com/docs/marketing/PressRoom/M7115/8 Main sources: www.enron.com, www.hoovers.com9 Enron rewards Lay with $7 mln bonus Reuters Company News - Tuesday, March 27, 200110 Associated Press June 13, 2001, Energy executives selling stock for millions 12 Fortune Is Enron Overpriced? 5th March 200113 AFX European Focus April 16, 2001 Enron BBB+ senior credit rating affirmed; no impact from PG&E - S&P14 San Jose Mercury News February 21, 2001, Texas energy company thriving in California's deregulated atmosphere By Brandon Bailey15 U.S. News & World Report June 18, 2001 : A hand in everything Enron gets rich in California. But has it gouged consumers?By Marianne Lavelle 16 California Governor Blames Texas Firms for Energy Crisis May 29, 2001 The Dallas Morning News17 Ibid18 Ibid 19Interview with Enron CEO, Jeff Skilling, 28/3/01 www.pbs.org/wgbh/pages/frontline/shows/blackout/interviews/skilling.html20 U.S. News & World Report June 18, 2001 ‘A hand in everything’ by Marianne Lavelle 21 As defined by federal law, an insider is an officer or director of a publicly held company or a person or entity that owns at least 10 percent of a particular class of its shares. Insider trades are not illegal.22 The San Francisco Chronicle Power kingpins rake in millions in stock deals; Capital gains enriched 76 insiders, records show by Scott Winokur, Christian Berthelsen23 Los Angeles Times June 8, 2001 THE ENERGY CRISIS; Paying for Power a Struggle for Some; Utilities: Consumers on tight budgets face crises. Requests for aid flood agencies, but many of those eligible for discount programs are not signing up. By Tim Reiterman, 24 Dow Jones 06/07/98; Energy daily 23/07/98, 29/07/98 . 25 Azurix website 11/02/2000 http://www.azurix.com/html/about_us/subsidiaries_affiliates/AZMaderaWater.html26 INDIA The "Enron project" in Maharashtra -- protests suppressed in the name of development Report by Amnesty International 17/7/97 www.amnesty.org27 The Observer June 6, 1999 Comment: Without prejudice: U-turns in the U-bend by Nick Cohen28 India Business Intelligence April 5, 1995 The Enron power project runs into controversy 31 Agence France Presse December 20, 2000, Indian state to renegotiate Enron power project32 Power Politics: The Reincarnation of Rumpelstiltskin Arundhati Roy
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Other Enron executives wear the same image. Rebecca Mark - who was in charge of Enron's international energy expansion in the mid-1990s, and in 1998 was made CEO of Enron's new water division, Azurix - describes Margaret Thatcher as her role model.
6.1.2 Labour relations and strikesEnron has recognised trade unions in the USA, but does not encourage it more than necessary. One trade unionist reported that Enron's policy seems to be: " if the company it takes over is unionised, then Enron will leave things as they are; if not, Enron will do whatever it takes to keep the employees from becoming organised”. The president of the Ontario Power Workers' Union publicly stated that he " believes Enron is anti-union. 'If you have lousy labor relations standards then in the longer term that business is probably not a good business investment,' he said. " 91
There were at least two strikes at Enron operations in 1998.
In August 1998 there was a strike over pay and conditions and labour law by Bolivian workers constructing a gas pipeline from Bolivia to Brazil, for Petrogasbol, a consortium headed by Enron and Shell. The trade union stated that the strike was provoked by the company's refusal to observe payments due under labour
33 Agence France Presse December 20, 2000, Indian state to renegotiate Enron power project34 The New York Times March 20, 2001, High-Stakes Showdown; Enron's Fight Over Power Plant Reverberates Beyond India By Celia W. Dugger 35 Financial Times Enron may seek damages over India project Financial Times, by Julie Earle May 22 2001 36 Financial Times Enron’s India contract annulled By Khozem Merchant May 24 2001 37 Financial Times Enron plant may be mothballed By Khozem Merchant June 7 200138 The New York Times March 20, 2001, High-Stakes Showdown; Enron's Fight Over Power Plant Reverberates Beyond India By CELIA W. DUGGER 39 Financial Times Work stops on Indian power plant by Khozem Merchant June 1740 Financial Times Enron plant may be mothballed by Khozem Merchant June 7 200141 Financial Times Enron plant may be mothballed By Khozem Merchant June 7 200142 Enron earnings jump by 20% By Julie Earle and Jenny Wiggins April 17 2001Financial Times43 Agence France Presse February 7, 2000, Monday World Bank objects to Lagos State power plant agreement44 Africa News Service April 2, 2001 Enron Power Project And Illegality? Africa News Service April 2, 2001 ENRON46 Deutsche Presse-Agentur September 21, 2000, Zagreb okays price increase for electricity under U.S. deal47 FT Energy Newsletters - Power in East Europe January 11, 2001 Power in East Europe 49 09 Jun 2000 Dominican Republic-Energy Dominican Businesses To Stop Paying Electric Bills: Efe News Service World Reporter50 01 Jun 1998 Indonesia, Where Blame Is The Game: Power In Asia FT Bus Rep 51 FT Energy Newsletters - Power in Asia March 6, 2001 Indonesia/Finance: MIGA restores risk guarantees53 FT Energy Newsletters - Global Water Report January 26, 2001 Argentina/Companies - Azurix writes down its activities in Argentina54 November 2, 2000 Enron unit Azurix fined 250,000 usd for breach of contract in Argentina55 PSIRU database www.psiru.org56 IBID57 FT Energy Newsletters - Global Water Report December 21, 2000 Azurix: The final curtain . 59 Scripps Howard News Service October 02, 2000, Dalai Lama urges oil giants to drop Tibet pipeline The Guardian by Luke Harding60 Gas Daily April 18, 2001 Wholesale trading leads Enron results higher61 The Associated Press State & Local Wire June 13, 2001, Wednesday, State and Regional Energy executives selling stock for millions 62 The Associated Press State & Local Wire June 13, 2001, Report: Energy executives selling stock for millions63 FT Energy Newsletters - Energy Economist March 1, 1998 Prising Open The Markets 65 New York Times, 25.5.200166 www.publicintegrity.org67 The Guardian, January 10, 2001, Wheen's world: How Enron wins friends and influence: cash for no questions by Francis Wheen68 U.S. News & World Report June 18, 2001 ‘A hand in everything’ by Marianne Lavelle 69 Slate Magazine March 15, 2001 Who Turned Dubya (Briefly) Green? By Timothy Noah
PSIRU profile of Enron www.psiru.org June 2001
laws, including redundancy payments to workers. The company wanted to treat the workers as casual labour having no such rights, on the grounds that their contracts were 'temporary' 92.
In October 1998 there was strike action by on the construction site of Sutton Bridge power station, in the UK, which is being built by a consortium headed by Enron itself: "Up to 200 scaffolders at the new plant at Sutton Bridge downed tools on Friday because of fears that insulation materials, which are being installed with their bare hands, contain cancer-causing chemicals. They have demanded to be supplied with masks, overalls and gloves to protect themselves. The workers are employed by a sub-contractor, ASL Scaffolding of Lowestoft, which refused to comment yesterday. But a spokesman for Enron Europe, the company building the station, said the insulation material was routinely used in all types of building projects and was quite safe to install in normal operation".93
6.1.3 Enron's safety record - the major accidentsEnron has been officially condemned as responsible for dangerous explosions in both Puerto Rico and the UK in 1996.
A huge explosion in Nov. 21, 1996 killed 33 people and injured 69 others at San Juan Gas, Puerto Rico, a subsidiary of Enron. A preliminary report by the US government National Transportation Safety Board (NTSB) found that: "... the parent, Houston-based Enron Corp, knew since 1985 that the gas company's operations did not comply with pipeline safety requirements and recommended industry practices, and it failed to require the gas company to comply with those requirements and practices".
The NTSB stated that : "Enron Corp. did not provide a working environment that encouraged the employees of the gas company to follow its operating policies and practices strictly, and it did not oversee employees' actions enough to identify and correct unsafe practices." 94
An Enron employee was nearly killed, and received 62 % burns in a dangerous explosion at Teesside power station in July 1996. The blast occurred when liquid Naptha fuel leaked from a pipe joint and caught fire. "Enron and maintenance contractor Westinghouse International each pleaded guilty to a charge of breaching safety regulations at the power station. Enron was fined £10,000" 95
70 Interviews conducted for Newshour with the New York Times, Blackout http://www.newshour.com/wgbh/pages/frontline/shows/blackout/71 Power firm vetted Bush energy regulators Special report: George Bush's America Julian Borger Guardian May 26, 200172 The San Francisco Chronicle MAY 26, 2001 Enron's Secret Bid To Save Deregulation; Private Meeting: Chairman Pitches His Plan To Prominent Californians By Christian Berthelsen, Scott Winokur74 The Guardian, January 10, 2001, Wheen's world: How Enron wins friends and influence: cash for no questions by Francis Wheen75 Copyright 2001 Express Newspapers The Express January 23, 2001 Labour Should Apply Its New Workplace Ethics To Friends Too; Industry's Bad Guys Stick Close To Blair By Simon Hinde76 Earth Island Journal June 22, 2001 Plan Colombia; drugs and oil in American plan No. 2, Vol. 16; Pg. 1577 The Oil Daily December 1, 1995 White House rescued Enron's deal to develop Mozambique's Pande field. By Bearman, Jonathan78 The Enron Corporation: Corporate Complicity in Human Rights, Human Rights Watch, http://www.hrw.org/reports/1999/enron/enron8-2.htm79 FT Bus Rep 25 Sep 199880 21 Sep 1998 Nord Pool's Richter Leaves For Enron Nordic Energy: Reuter Economic News Reuter Textline.81 Africa Energy & Mining March 29, 2000 Rocky Ride for Enron82 Africa Energy & Mining March 29, 2000 Rocky Ride for Enron83 KRTBN Knight-Ridder Tribune Business News, 2 November 199784 Enron Annual Report 200085 FT Energy Newsletters - European Energy Report May 1, 1992 Special Report: Independent UK Power 86 The Times May 31, 1999, Wessex chiefs in line for second windfall by Adam Jones
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7 Annexes7.1 Annex A - Directors
Top Officers (Source: www.hoovers.com)
Chairman: Mr. Kenneth L. Lay, age 59, $8,300,000 pay President, CEO, and Director: Mr. Jeffrey K. Skilling, age 47, $6,450,000 pay EVP and CFO: Mr. Andrew S. (Andy) Fastow, age 39EVP and Chief Accounting Officer: Mr. Richard A. (Rick) Causey, age 41EVP and Chief of Staff: Mr. Steven J. Kean, age 39EVP and Chief Risk Officer: Mr. Richard B. Buy, age 49EVP and General Counsel: Mr. James V. (Jim) Derrick Jr., age 56EVP Corporate Development: Mr. J. Mark Metts, age 43EVP Investor Relations: Mr. Mark E. Koenig, age 46EVP Human Resources and Community Relations: Ms. Cindy K. OlsonSVP Board Communications and Secretary: Ms. Rebecca C. CarterChairman and CEO, Enron Accelerator: Mr. Lou L. Pai, age 54Chairman and CEO, Enron Energy Services: Mr. Dave Delainey, age 35Chairman and CEO, Enron Wholesale: Mr. Mark A. Frevert, age 46, $2,520,000 pay Chairman and CEO, Enron Transportation Services: Mr. Stanley C. (Stan) Horton, age 51, $1,720,000 pay VC, Enron Energy Services: Mr. Thomas E. White, age 57President and CEO, Enron Americas: Mr. John J. Lavorato, age 35President and CEO, Enron Global Assets: Ms. Rebecca McDonald, age 49President and CEO, Enron Global Exploration and Production: Mr. Jeff Sherrick, age 46President and CEO, Global Energy Services: Mr. Daniel P. Leff, age 41President and CEO, Enron Global Markets: Mr. Michael S. McConnell, age 41President and CEO, Enron Industrial Markets: Mr. Jeffery McMahon, age 40President and COO, Enron Wholesale Services: Mr. Greg WhalleyPresident, Enron Europe: Mr. John Sherriff, age 47Managing Director and Chief Commercial Officer, Enron Transportation Services: Mr. Danny J. McCarty, age 44CEO, Enron Broadband Services: Mr. Kenneth D. Rice, age 42, $2,170,000 pay COO, Enron Americas: Ms. Louise Kitchen, age 32COO, Enron Broadband Services: Mr. Kevin HannonCOO, Enron Europe: Mr. Michael Brown, age 38COO, Enron Energy Services: Mr. Harold Buchanan, age 35COO, Enron India: Mr. K. Wade Cline, age 38COO, Enron Industrial Markets: Mr. Raymond M. Bowman Jr., age 41
7.2 Annex B – Major subsidiariesCountry Company Sector % % Via CapsuleArgentina Azurix Buenos
AiresWater 31.5 Azurix Water and wastewater concessions for
two regions of the province of Buenos Aires, Argentina, awarded in June 1999.
Argentina ECEA Electricity trading
Enron's power marketing entity for Argentina, was granted the marketing license in April 1998 by the Energy Secretariat, becoming the first independent power marketer in Argentina.
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Country Company Sector % % Via CapsuleECEA closed it's first contract in the 3rd quarter of 1998 and has been actively marketing power since. To support it's trading activity, Enron has signed several power purchase agreements (PPA) to backup it's supply obligations and create the marketing platform needed to become a lead player in the Wholesale Electricity Market (WEM). (www.enron.com)
Argentina Enron (Argentina)
Energy In 1998, "Enron became the first electric power marketer in Argentina".
Argentina OS Mendoza Water 11.235 Azurix A 95-year concession, awarded to the highest bidder in June 1998, a consortium of Enron, SAUR (which operates the concession) and Italgas. This is Enron's first involvement in water.
The concession serves 1.1 million people in water and 900,000 in wastewater.Water services have recently (March 1999) collapsed for 20 hours in the capital of that province, raising severe critics and punishments.
OS Mendoza must pay the Province a yearly royalty. This amounts to 3.85% of net operating revenues collected in the first five years of the concession and will then increase to 9.98%.
Argentina TGS Gas transmission
Gas transport affiliate to Enron. In early 2000, Enron threatened Argentina it would resort to an international court unless a deal was reached on a US$ 500m tax claim by some Argentine provinces on TGS.
Australia Enron (Australia) Energy In 1998, Enron began power trading in Australia
Bolivia BBPP (Bolivia) Gas transmission
29.75
International consortium between the Bolivian State, the Brazilian state energy company, Petrobras, and companies BG, Enron, El Paso Energy, BHP and Shell, set up to develop the Bolivia-Brazil gas pipeline. Other shareholders include Bolivian pension funds.(ElPaso/Brazil1099.htm)
Among the shareholders, Bolivia owns 25.50%, Petrobras owns 9%, BG 2%, El Paso 2%, BHP Power 2%, Enron 29.75%, Shell 29.75% (www.BGplc.co.uk).
The pipeline, whose project costs are estimated at US$1.8 billion, is expected to become operative in 1999.
Brazil Azurix Brasil Water 35 Azurix Azurix acquired the business interest of AMX in September 1999 for $55.6m. Azurix Brasil "supplies water resource through drilling and delivery to industrial and municipal client base". With a staff of 140, it holds "nearly 90" long-term supply contracts from five to 15 years. Azurix sees Azurix Brazil as a base for
PSIRU profile of Enron www.psiru.org June 2001
Country Company Sector % % Via Capsuleexpansion in the Brazilian and Southern Cone market. The Rio de Janeiro- and Sao Paulo-based companies acquired from AMX are:- Geoplan - Assessoria, Planejamento e Perfuracoes Ltda.; - Aguacerta - Sistemas de Abastecimento Ltda.; and - Aguacerta Saneamento Ltda. (www.azurix.com)
Brazil BBPP (Brazil) Gas transmission
7 Brazilian end of pipeline
Brazil Cuiaba Electricity 50 Gas-fired power station in Matto Grosso, joint venture between Enron and Shell, who are building a pipeline from Bolivia to supply gas to the plant.
Brazil Elektro Electricity Electricity utility for Sao Paulo"(In 1998) Enron acquired a controlling interest in Elektro Eletricidade e Serviços S.A., Brazil's sixth largest electricity distributor. The company serves approximately 1.5 million customers in the state of São Paulo through 82,000 kilometers (51,000 miles) of distribution lines. Elektro serves a high demand growth area and is one of Latin America's most efficient power distributors. This acquisition is an essential component of Enron's energy strategy for the Southern Cone and complements the company's integrated energy business in Brazil".(www.enron.com)
Brazil Enron Gas (Brazil)
Gas Various gas distribution companies
Brazil Enron Internacional Cono Sur
Gas Based in Sao Paolo, set up in 1998 to coordinate Enron's gas interests in southern cone.
Brazil Enron Servios Electricity
Canada Azurix North America
Water 35 Azurix Water management company operating in Canada and USA, managing 18 water and sewerage operations for municipalities and serving 700,000 customers. Bought by Enron's Azurix in May 1999 for US$ 107.4m.
The company conducts the North American operations for Azurix. It operates facilities in five of the 10 provinces in Canada, with a concentration of operations in Ontario. In the US, operations are in Alabama, Arizona, Florida, Georgia, Louisiana, Maine, New Jersey, Texas and Washington.
From the 18 May 1999 acquisition to 31 December 1999, Azurix North America had sales of US$ 87.8m and EBIDTA of US$ 10.0m. It employed 890 workers.
Its largest contract is a contract to operate and maintain a large water and
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Country Company Sector % % Via Capsulewastewater treatment plant in Hamilton-Wentworth, Ontario, Canada.
Its second largest operation is the 20-year design-build-operate contract awarded in 1996 for the Tolt Treatment Facility in Seattle, Washington, USA. Azurix CDM, Inc., 80% owned by Azurix North America, is to receive US$ 74.7m in design and construction fees, plus US$ 1.7m a year in operation fees. The service fees are "subject to modification".
Canada Enron (Canada) Energy Enron are attempting to break into Ontario as an electricity supplier.
Canada Terratec Water treatment chemicals
35 Azurix "The premier municipal biosolids recycling company in Ontario", acquired by Azurix in December 1999 "for an undisclosed amount". It "services 21 wastewater treatment plants and storage facilities, including the facilities for the city of Toronto". It employs about 80 people.
Azurix intends to use Terratec to offer its other services (engineering, operations and maintenance services, carbon regeneration and underground rehabilitation) to the existing Terratec's customers.
China Enron (China) Electricity Hainan Island 154MW power station
Colombia Enron Gas (Colombia)
Gas Various gas distribution companies in Colombia.
Croatia Enron (Croatia) Energy Enron got an agreement from former president Tudjmann to build a 150 MW power plant at Jertovec (near Zagreb) with a PPA for HEP to buy the output for 20 years at a fixed price. In August 2000 this contract was scrapped. Enron will now be allowed - should it decide so - to build, own and operate a power plant at Jertovec and sell electricity at the market.
Dominican Republic
Puerto Plata Electricity 185MW power station.
Finland Enron Finland Energy
Energy 100 Bought oil and petroleum products trading arm of Greenergy in 1998.
Germany Kraftwerk Bitterfeld
Electricity 50 Joint owner of 116MW power station in eastern Germany. Partner is MeAG
Germany Lurgi Bamag Water treatment engineering
35 Azurix Process engineering company specialising in the water sector, acquired by Azurix in October 1999 for $30.2m. The company has offices in Germany, Brazil, the UK and Egypt. It "provides process engineering services to industrial and municipal customers at locations throughout Europe, Asia, the Middle East, Africa, South America, and Australia". (www.azurix.com)
Germany WMD Water Water 17.5 Azurix
Guatemala Puerto Quetzal Electricity 110 MW power station
India Dabhol Power Energy 50 This was one of the first big IPPs in India. Originally, it was 80% owned by Enron
PSIRU profile of Enron www.psiru.org June 2001
Country Company Sector % % Via Capsuleand 20% by Entergy. By 1999, Enron's stake had been reduced to 50% and the Maharashtra State Electricity Board (MSEB) owned 30% of the plant.
The project continues to be subject to controversy, due to the high costs ("production of the 740MW phase one cost $1.078bn; the second phase is a 1,624MW plant, costing $1.87bn"). Also, "within two days of the Enron project starting production, MSEB had stopped buying power from a cheaper electricity provider".
India Enron (India) Energy 100 Enron India Private Limited (EIPL) is the wholly owned subsidiary of Enron Corp. Set up in late 1997, EIPL is engaged in building an integrated energy and communications business in India. The current focus is primarily on the four states of Maharashtra, Karnataka, Andhra Pradesh, and Gujarat.
Indonesia Enron (Indonesia)
Energy
Italy Enron (Italy) Electricity Enron has a declared intent to set up a joint venture with ENEL to share ownership of a number of power stations with up to 5000MW capacity. As at November 1998 this remained as a declaration of intent.Enron also has a share in a 550MW power station at Sarlux.
Italy Sarlux JMV Electricity 45 A 550MW power station at Sarlux, Sardinia, under construction. Partner is Saras SpA, an Italian chemical company.
Korea Enron (Korea) Gas distribution
Gas Distribution Project"In December 1998, Enron signed a joint venture agreement with Korea's SK Corporation to distribute natural gas. The joint venture is the largest marketer of gas and liquefied petroleum gas. Enron acquired interests in and jointly markets gas through SK's five city gas companies, Daehan, Pusan, Cheongju, Pohang and Kumi City Gas and an LPG importer, SK Gas. These companies currently comprise the largest distributor of natural gas in Korea, with approximately a 20 percent share of the Korean natural gas market and a 50 percent share of the Korean LPG market". (www.enron.com)
Mexico Azurix (Leon) Waste water
14 Azurix Joint venture building a US$ 25m wastewater treatment plant in Leon. Construction of the plant was expected to be completed during the summer of 2000.Azurix is also "participating in a smaller wastewater treatment plant in Matamoros".
Mexico Azurix Cancun Water 17.465 Azurix Privatised water and wastewater concession serving 390,000 people in the tourist resort of Cancun. and Islas Mujeres area.The concession was
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Country Company Sector % % Via Capsuleoriginally given to Mexican company Grupo Mexicano de Desarrollo S.A. in 1995, who formed a joint venture with Aguas de Barcelona (Agbar). In March 1999, Azurix bought Agbar's half share for US$ 13.5m with the right of operation for 25 years.
Azurix has three seats in the Board of Directors while Grupo Mexicano de Desarrollo (which owns 50.1%) has only two. Azurix has also the right to appoint the CEO, the chief financial officer and the chief operating officer.
Azurix estimated that, in 1999, 65% of operating revenues were obtained from the provision of water supply to local tourist hotels (with revenues in US dollars), with the remaining coming from residential consumers.
As of December 1999, less than 40% of the wastewater collected in the urban area of Cancun was treated.
In January 2000, "Azurix and DHC (were) building a $10 mn state-of-the-art wastewater treatment plant" (www.azurix.com).
Mexico Enron Energia Industrial de Mexico
Enron Mexico subsidiary
Mexico IACM Water maintenance
Azurix Subsidiary to IASA, and indirectly to Enron's Azurix.
IACM "provides metering, billing, collections, operations and maintenance services for one quarter of the Federal District within Mexico City, a service area that constitutes approximately 2.0 million people".
(Enron press release; see Enron/Azurix1 for full text; see also Azurix/AR99part1.htm)
Mexico IASA Water 17.15 Azurix "Azurix announced today (03/6/99) that it has entered into an agreement to acquire a 49% interest in Industrias del Agua, S.A. de C.V. (IASA), a water and wastewater service company based in Monterrey, Mexico. Azurix bought (for $22.5m) the 49% stake from Severn Trent (see News Item1 about the difficulties ST and other companies were facing in Mexico City).
Azurix claims it effectively controls IASA (Azurix/AR99part1.htm).
Through its subsidiary, Industrias del Agua de la Ciudad de Mexico, S.A. de C.V., IASA provides metering, billing, collections, operations and maintenance
PSIRU profile of Enron www.psiru.org June 2001
Country Company Sector % % Via Capsuleservices for one quarter of the Federal District within Mexico City, a service area that constitutes approximately 2.0 million people.
In addition to holding an equity interest in IASA, Azurix will serve as a technical participant in providing services under the Federal District contract. IASA has provided these services since 1993, when it signed this 10-year contract with the Water Commission of the Federal District (CADF).
Subject to administrative and regulatory approvals, including CADF approval of Azurix becoming the technical participant under the IASA contract, the transaction is expected to close in six to eight weeks".
(Enron press release; see Enron/Azurix1 for full text)
The other owner of IASA is SAMSA S.A. de C.V.
Mexico IASA (Torreon) Waste water
15.435 Azurix Consortium awarded a services contract in August 1999 to build and operate a US$ 20m wastewater treatment plant in Torreon.
Construction was expected to be completed in the summer of 2001. The contract provides for an operating period of 18 and a half years.
The consortium also includes FYPASA Construcciones, S.A. de C.V.
(Azurix/AR99part1.htm)
Mozambique
MISP Manufacturing
50 Proposed new steel plant in Mozambique, jointly owned by Enron and IDC (South Africa). Largest single investment in Mozambique. Fuelled from Enron gas field offshore.
Nepal Enron (Nepal) Electricity
Nigeria Enron (Nigeria) Electricity generation
In August 1999, Enron "signed an agreement to build a 560 MW power plant in Nigeria's commercial capital Lagos".
Norway Enron Nordic Energy
Energy Set up as electricity trading-only company. By 1998 it had become the main trader on the Nord Pool. The general manager of the Nord Pool joined the company in September 1998.
Palestine Enron Gaza Electricity generation
50 Enron in partnership with a group of Palestinian investors and a government development company has signed a 20 year power purchase agreement with the Palestine Energy Authority. The agreement is to supply electricity from a 136MW combined cycle power plant project currently under construction. The project will be located south of Gaza City
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Country Company Sector % % Via Capsulein the Gaza strip.US $140m-worth, 136 MW combined-cycle power plant project developed by Enron in partnership with the Palestine Electric Company. The project, will be located south of Gaza City and will be the first independent power project in Palestine.Enron has also signed a 20-year power purchase agreement with the Palestine Energy Authority.
Panama Bahia las Minas Electricity generation
50.1 "Enron International, acquired a majority stake in Central America’s largest thermal power generation facility, Bahia las Minas in Panama. Enron Internacional assumed control of the 355 MW thermal power plant complex immediately". (www.enron.com)
In April 1999, Enron was reported as planning a $ 400mn investment "to increase Panama's power generation capacity and build a underwater gas pipeline from Colombia to Panama". (EnronPress990504.doc)
Philippines Enron (Philippines)
Electricity Power stations at Subic Bay 116MW and Batangas 110MW.
Philippines Enron Development Piti
Electricity generation
50 Enron International, a wholly owned subsidiary of Enron Corp., and Tomen Corporation announced today that they have commenced commercial operation on the 80-megawatt Enron Development Piti L.L.C. independent power project in Piti, Guam. Total project cost for the combined cycle facility is approximately US$155 million.
In September 1996, Enron signed a 20-year Energy Conversion Agreement with the Guam Power Authority (GPA), an agency of the Guam government, for the development of the power project.
Enron and Tomen are equal partners in the project, and Enron operates the power plant.
Poland ENS Electricity 73 Constructing 116MW gas-fired IPP at Nowa Sarzyna
PuertoRico Ecoelectrica Electricity 507MW power station
PuertoRico San Juan Gas Energy Huge explosion in Nov. 21, 1996 killed 33 people and injured 69 others.
Russia Enron/UES Electricity 50 Joint venture between Enron and UES to extend network for export purposes.
Spain Enron (Spain) Electricity 100 In 1998 the Spanish government gave Enron permission to join the electricity market as the country's fifth supplier. Enron is operating only as a trader, buying its supplies off the pool.In May 1998 it announced it will contract a 750 MW power station near Cartagena.
Switzerland SC Technology Environm 35 Azurix Swiss company selling and operating
PSIRU profile of Enron www.psiru.org June 2001
Country Company Sector % % Via Capsuleental services
sludge drying plants, taken over by Wessex Water in 1996. It does business under the name of Swiss Combi.
In 1999 Swiss Combi, which employed 60 all around the world, had has some 40 plants completed or under construction, mainly in Western Europe.
(Azurix/AR99part1.htm)
Trinidad and Tobago
SECC Gas production
The SECC Block offshore Trinidad, acquired by Enron Oil and Gas in 1992, has continued to be a strong contributor to cash flow. Reserves from early drilling successes in Trinidad is sufficient to meet current demand of 110 to 125 MMcf/d beyond 2000 with the potential for 50 to 70 MMcf/d of incremental deliveries should EOG win the right to supply potential incremental industrial demand.
Turkey Marmara Power Energy 50 480 MW Gas CCGT (combined cycle gas turbine) power plant, under construction or commissioning.(NatPower.Finances98.doc)
UK Enron Direct Limited
100 Enron Europe
Enron Direct has been supplying Industrial and Commercial gas customers in England, Scotland and Wales since October 1993, owned by Enron Europe
UK Enron Europe Electricity 100 Enron Europe has two roles. Firstly, it is Enron's holding company for European operations. Secondly, it is Enron's electricity trading company in the UK. In the UK Enron Europe first came to prominence when it began building a large power plant in Teeside in 1989.
UK Enron Power Electricity 100
UK Wessex Water Services
Water 35 Azurix UK regional water company (serving South-Western England - supplied population: approx. 1.1m; wastewater services covering a population of some 2.5m) taken-over by Enron's subsidiary Azurix.
USA Azurix Water 35 In October 2000, Enron bought back the shares in Azurix which it had sold publicly eighteen months earlier. The price paid was $7 per share, rather less than the $19 per share paid at the IPO in 1999. In March 2001, Azurix formally merged with Enron.
Azurix was Enron's international water division, formed when it bought Wessex Water of the UK in 1998 with a view to becoming a key player in the international water supply business. Things did not go as planned. Share prices plummeted after initial buoyancy. The CEO, Rebecca Mark, resigned as result and in April 2001, it was announced that Azurix was to be broken up.
USA Azurix (Glynn Water Azurix 5-year water and wastewater operation
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Country Company Sector % % Via CapsuleCounty) and management contract signed by
Azurix with Glynn County, Georgia in November 1999. The contract, covering 58,000 people, amounts to $10m in total. "Under the terms of the contract, approximately 20 county employees will be transferred to Azurix".
USA Clinton Energy Energy Energy consultancy and facilities management company in USA.
USA ECT Energy 100 ECT is Enron's trading division. It claims that it is:"the largest purchaser and marketer of natural gas and the largest wholesale marketer of electricity in North America; a leader in providing physical and financial natural gas and power products in the U.K. and Europe; and an established power marketer in the Nordic region. ECT also markets natural gas liquids worldwide and manages the world's largest portfolio of fixed-price natural gas risk management contracts.
The company's day-to-day activities are based on three core businesses:
Cash/Physical - this group includes the buying, selling, transporting and storage of natural gas, crude oil and natural gas liquids, as well as the buying, selling and transmission of power.
Risk Management - this group encompasses managing risk for customers through various products such as swaps, options, hybrids; long-term, fixed-price contracts; innovative pricing structures, such as commodity prices tied to alternative fuels and energy supply prices indexed to output; and contract restructuring alternatives for utilities, local distribution companies and independent power producers.
Finance - this group provides customers with access to low-cost capital for a variety of needs and also provides a range of alternatives for securing affordable debt and equity."
USA Enron Communications
Communications
100 Enron Communications, a wholly owned subsidiary of Enron Corp (NYSE: ENE), is focused on delivering high quality, high bandwidth screen-to-screen applications. Enron Communications is building a long-haul fiber-optic network on strategic routes throughout the United States in an effort to create a data-centric national Pure IPsm backbone known as the Enron Intelligent Network.
USA Enron Energy Services
Energy 93 Enron' main operating company in the USA. 7% of shares were bought by CalPERS and Ontario teachers pension funds as part of $150m investment with
PSIRU profile of Enron www.psiru.org June 2001
Country Company Sector % % Via CapsuleEnron.
USA Enron Engineering
Construction
100 Enron's electrical engineering division, which constructs electrical installations.
USA Enron Wind Corp
Electricity Wind-generated electricity company. Has built 109MW wind-powered station in northern USA.
USA Madera Water Bank
Water 35 Azurix Ground water storage facility Azurix is developing in Madera County, California. Water would be first stored and then extracted in dry seasons. Azurix acquired property of the land for $31.4m.
The water bank would have a capacity of 400,000 acre feet and maximum extraction could reach 100,000 acre feet a year.
Azurix revealed it planned to sell bulk volumes of water to various public and private sector customers in central and southern California under 20 to 30 lease agreements at fixed price. The remaining 20% would be retained to exploit favourable commercial conditions in periods of drought.
USA Portland General Electric
Electricity 100 Electricity distribution company in Portland, Oregon. Bought by Enron in 1997 - their first ever entry into distribution of energy. Efforts to sell PGE to Sierra Pacific Resources in 2001 failed due to changes in legislation affecting the revenue position of Sierra. The possibility of the state buying the distribution utility is now being reviewed by Oregon Gov. John Kitzhaber (May 2001).
USA Solarex Manufacturing
50 Solarex is the second largest manufacturer in the world of solar energy (photovoltaic) products. It was taken over by Amoco (now BP) in the 1980's, and then in 1995 Enron became a joint owner with BP.
USA Water2Water Consultancy
35 Azurix Internet site providing online trading, procurement and consultancy services to water operators.
The site, to be launched in April 2000, will allow subscribers to make transactions relating to the transfer of water and the purchase and sale of water storage and water quality credits. Azurix expects the first subscribers to be in the western United States.
The site will also offer online procurement services for the purchase and sale of equipment, services and chemicals. It will finally offer "interactive decisionsupport tools" and information from trade publications.
Azurix spent US$ 1.7m on Water2Water.com up to 31 December
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Country Company Sector % % Via Capsule1999 and expected to spend US$ 13.6m in 2000. Azurix said it would look for external investors to join the venture and share development expenses.
Venezuela Calife Electricity distribution
Venezuelan electricity distributor in Puerto Cabello
Venezuela Enron (Venezuela)
Manufacturing
88 Time June 18, 2001 Rank And Fire; Attrition isn't working, so best-to-worst grading is gaining--and those on the bottom get the boot by John Greenwald, 89 Recent lawsuits brought by past and present employees have charged Microsoft, Ford and Conoco with using the systems to favor some groups of workers over others--such as white males over blacks or women and younger managers over older ones. Time, 18/6/01
PSIRU profile of Enron www.psiru.org June 2001
PSIRU – University of Greenwich36
PSIRU profile of Enron www.psiru.org June 2001
11 Megawatt Daily April 18, 2001 Wholesale trading leads Enron results higher29 India The "Enron project" in Maharashtra -- protests suppressed in the name of development Report by Amnesty International 17/7/97 www.amnesty.org30 The New York Times March 20, 2001, High-Stakes Showdown; Enron's Fight Over Power Plant Reverberates Beyond India By Celia W. Dugger 45 PSIRU website, news item number 408248 Polish News Bulletin 17 November 1999 PSE - Enron Contract Suspected By Senators52 Bristol Evening Post July 21, 1999 Liquid Asset; Wessex Water chief executive Colin Skellett has risen from humble beginnings to a position that could make him a multi-millionaire. by Chris Maguire 58 The Oil Daily July 27, 2000 Groups Ask for Loan Withdrawal; Brief Article; Statistical Data Included 64 Anne Kates Smith June 18, 2001 U.S. News & World Report Enron's biggest assets are on paper 73 The Guardian, January 10, 2001, Wheen's world: How Enron wins friends and influence: cash for no questions by Francis Wheen90 KRTBN 02/11/9791 The Financial Post 8 Jan 199892 25 Aug 1998 Bolivian Workers Halt Pipeline To Brazil Works: Reuter News Service - Latin America Reuter Textline 93 Eastern Daily Press 28.10.98 94 Puerto Rico Puerto Rico San Juan Gas Tel: Fax: Huge explosion in Nov. 21, 1996 killed 33 people and injured 69 others. Source Business Insurance 01/01/98 Jan 1998 95 Chris Brayshay, Northern Echo Source Energy Economist 01/03/98 Source 09/06/98 09 Jun 1998 Firms Fined Pounds 25,000 For Power Station Fuel Blast: The Northern Echo World Reporter (Q1:46)
