They are working quite a complex tax structure in Canada.  I'm not sure what role I should play.  Should I just assume that they know what they are doing and let them do whatever they want sort of like the finance guys do with our balance sheet or should I get involved.  My first take was that this was way too good to be true.

John

 -----Original Message-----
From: 	Douglas, Stephen H.  
Sent:	Wednesday, May 23, 2001 6:29 PM
To:	Lavorato, John
Subject:	Project Slapshot

Just to follow up from our meeting yesterday morning, the total present value benefit from Project Slapshot is approximately $100 million (we do not at this point know the exact benefit because it is dependent on the yet undetermined interest rate to be charged in connection with the EIM financing).  The benefit will be realized by EIM Canada and Enron Canada Corp. through a reduction in the amount of taxes paid by each company.  The risk related to the transaction is that the interest deductions from the transaction are denied in part and, as to the part denied, EIM Canada and Enron Canada Corp. are required to pay interest to Revenue Canada on the amount of income offset by such denied interest deduction.  I will forward to you a calculation of the potential interest charge to Enron Canada Corp. in this circumstance as soon as I confirm with our Canadian counsel the method by which such interest charge is calculated, and the likely rate at which it would be imposed.  A more remote risk (due to actions we are taking in the financing documents) stemming from the transaction is that Revenue Canada could assert a withholding tax on interest payments made by EIM Canada to the lender in the transaction.  This risk would fall on EIM Canada.  I believe that it is highly unlikely that either risk will ever be realized and have obtained the highest level of comfort on this point possible from our Canadian counsel absent their telling us that there is no risk (specifically, Blake, Cassels believes that there is a 70 to 80 percent likelihood that our position will be sustained if challenged).  I am attending the Enron Tax Conference on Thursday and Friday of this week but can be reached at 713.817.5052 should you have questions regarding this transaction.  Best regards.  SHD.