COMPANIES & FINANCE INTERNATIONAL: Energy groups' earnings likely to be hit hard 
Financial Times; Oct 15, 2001

COMPANIES & FINANCE INTERNATIONAL: Tata in talks to buy Enron power plant 
Financial Times; Oct 15, 2001
Base Metals Traders Struggle In Tough Trading Conditions
Dow Jones International News, 10/15/01
INDIA: Tata Power Q2 net seen down 8.5 pct yoy.
Reuters English News Service, 10/15/01
India: FDI: Suffering from sectoral infirmities
Business Line (The Hindu), 10/15/01
International: Indian Enron looks for way out of Greenfield Shipping
Lloyd's List International, 10/15/01



COMPANIES & FINANCE INTERNATIONAL: Energy groups' earnings likely to be hit hard 
Financial Times; Oct 15, 2001
By JULIE EARLE

Disintegrating oil and gas prices are set to weigh on third-quarter earnings for US energy companies due this week. 
Oil drillers, which have been pummelled in recent months as energy companies scale back on drilling and exploration in response to lower commodity prices and the terrorist attacks, are likely to report sharply lower third-quarter earnings and could issue further profits warnings, analysts said. 
Oil prices have slumped to Dollars 26.50 a barrel, from Dollars 31.58 a barrel in the year-ago quarter and natural gas prices slid in the third quarter to Dollars 2.63 MMBtu (million British thermal units) from Dollars 4.31 MMBtu in the same quarter a year ago, and from Dollars 4.19 MMBtu at the start of 2001. 
A slowdown in activity in the gas-rich Gulf of Mexico following the September 11 terrorist attacks is also likely to hit offshore drillers' earnings in the next six months. 
Global Marine, which is being acquired by Sante Fe International to create the second-biggest offshore drilling contractor, is due to report today. Consensus estimates were for 33 cents a share. Sante Fe International is also due to report today. 
Salomon Smith Barney expects North American spending on drilling to fall by 20 per cent in 2002, with spending outside North America to rise by 10 per cent to 15 per cent. 
Mark Urness, an SSB analyst, said earnings estimates for most drillers remained too high for the fourth quarter and needed to be cut. "We are expecting them to provide lower guidance for 2002 as third quarter earnings are reported," he said. 
On the exploration and production front, Bill Featherstone, a UBS analyst, said fourth-quarter results for companies including Devon and Apache would also be hit by weak oil and gas prices. "Obviously fourth- quarter results will trend down for the sector given reduced oil and natural gas prices," he said. 
Companies will need to show financial discipline and outline policies of keeping their spending in line with operating cash flow. Analysts are likely to look closely at capital expenditure budgets. 
Energy trader Dynegy also reports today, followed by rivals Enron and Duke Energy tomorrow. 
Copyright: The Financial Times Limited



COMPANIES & FINANCE INTERNATIONAL: Tata in talks to buy Enron power plant 
Financial Times; Oct 15, 2001
By SHEILA MCNULTY and KHOZEM MERCHANT

Tata, the Indian conglom-erate, has held exploratory talks to buy a controversial power plant from Enron, the US energy giant. 
Tata Power, part of the Bombay-based industrial group, has written to the Indian government expressing interest in the plant, which is India's biggest foreign investment. However, it said any deal would have to address the high tariff structure and interest rate burden on the project. 
Kenneth Lay, Enron's chief executive and chairman, told the Financial Times in August that Enron and its partners wanted to retrieve the Dollars 1bn incurred building the now-defunct Dabhol plant. 
It is understood that Enron is considering an offer price of about 80 cents to the dollar. 
Enron declined on Friday to confirm it was in talks with Tata, but said the best solution would be for the Indian government, or one of its Indian financial backers, to take on Dabhol. 
Tata Power recently held talks with Indian financial institutions involved with the project. Officials from Dabhol Power Company, Enron's Indian arm, also attended. 
About 70 per cent of the Dabhol plant was funded by debt, with Indian financial institutions providing Dollars 1.4bn and foreign lenders the balance. Enron's Indian unit defaulted in September on interest payments to international lenders, blaming stopped payments by the Maharashtra State Electricity Board (MSEB), the plant's sole client. 
Analysts favour a quick sale. "Tata would be a faster exit and resolve it once and for all," said Ronald Barone of UBS Warburg. "It is better to take a small loss and move along. Dabhol periodically becomes a problem and an issue, and it depresses the stock." 
Analysts said the fit between Tata and its putative target would be complementary, though it would probably stretch the company's balance sheet. 
The Tata group is already committed to a heavy capital expenditure of some Rs30bn (Dollars 625m) on power-related projects over the next three years. 
A further Rs9bn is slated for telecommunications and broadband projects. 
Copyright: The Financial Times Limited


Base Metals Traders Struggle In Tough Trading Conditions
By Wong Chia Peck
Of DOW JONES NEWSWIRES

10/15/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

SYDNEY -(Dow Jones)- The spate of decisions by big-name participants to scale down or quit base metals trading last week didn't surprise participants in Asia, given the market's tough trading conditions, they said. 
In fact, should the current dismal conditions prevail for the next six months, more such announcements are likely, they added.
Their comments follow the recent decisions by prominent members of the London Metal Exchange to either downsize their base metals trading divisions or quit entirely. 
"Clearly, they, like us, are victims of reduced volumes," said a senior LME trader in Sydney, adding that all market participants are suffering from the declining throughputs and trade volumes. 
Figures from the LME's Web site show that the trading volumes for aluminum, copper, lead, nickel, tin and zinc fell a total 10.6% to 41,027,075 contracts for the first nine months of this year from the same period last year. 
"We're just seeing the beginning of it," a senior trader with a big U.S.-based trading house in Tokyo told Dow Jones Newswires Monday. 
Last week, N M Rothschild & Sons Ltd. said it would cease base metals trading except for its Australian business. 
Chairman Evelyn de Rothschild said in a statement, "In light of difficult trading conditions in the base metals markets, we have concluded that our limited base metals operations are no longer viable." 
ScotiaMocatta, the base metals trading unit of Toronto-based Bank of Nova Scotia (T.BNS), said it would cut staff as well as exit LME ring dealing. 
With ScotiaMocatta's exit, there will be 11 LME ring dealing members. These members have the exclusive right to trade in the open-outcry ring. 
Earlier, Houston-based Enron Metals said it would cut staff by 10%-20% in Europe, while associate broker clearing member Mitsui Bussan Commodities Ltd. in July ceased its market-making activities to focus on clearing and broking. 
The senior trader said he wasn't surprised by these developments and ominously projected more to come should the difficult trading conditions continue in the next six months. 
Market Not Pricing Future Demand 

"People are really not pricing any future demand" into their positions, he said. 
One indication is the lack of forward pricing in LME's base metals contracts despite the current depressed prices, he said. 
With LME three-month copper and aluminum prices around 25% down from their levels at the start of the year, he would have expected to see forward buying following previous experience. 
"But if everybody's restructuring, you don't even know if you are going to be here into 2002, 2003," he said. 
Despite having tumbled to very low levels, analysts and market participants project further downside for base metals prices as they push back forecasts of a price recovery following the Sept. 11 terrorist attacks on the U.S. 
One of Japan's trading giants, Marubeni Corp. (J.MRB), said Monday that the attacks have pushed back the timing of the aluminum market's recovery by two to three months. 
It also cut its forecasts for this year's trading range of the LME three-month aluminum contract to $1,250-$1,450 a metric ton, compared with last year's $1,451-$1,730/ton range. 
Indeed, the past few years have thrown base metals into extremely difficult trading conditions, traders said. 
Just as the Asian markets were recovering from the 1997 financial crisis, the U.S. economy sputtered to a halt, they said. The terrorist attacks Sept. 11 and the subsequent retaliation threw a spanner in the works, they added. 
The bellwether copper and aluminum contracts last week fell to their lowest levels in 28 months, while zinc prices also notched 14-year lows. Tin prices are at their lowest levels in 20 years. 
A prominent casualty is the world's largest combined lead and zinc producer, Australia's Pasminco Ltd. (A.PAS). 
Having to compete for business in such a tough environment, brokers have had to cut their commissions, said the Tokyo-based trader. 
Another Tokyo-based trader said buying interest has been thin, as buyers prefer to wait for lower prices. 
"There are buyers in the market, but their (price) targets are lower," he said. 
He added that the company he is with stopped trading for a week after hearing talk that Rothschild was scaling down its operations. 
At 1010 GMT, LME three-month copper was at $1,401/ton; three-month aluminum was at $1,302/ton; three-month zinc was at $791.50/ton and three-month tin was at $3,800/ton. 
-By Wong Chia Peck, Dow Jones Newswires; 612-8235-2957; chia-peck.wong@dowjones.com -0- 15/10/01 10-40G

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

INDIA: Tata Power Q2 net seen down 8.5 pct yoy.

10/15/2001
Reuters English News Service
(C) Reuters Limited 2001.

BOMBAY, Oct 15 (Reuters) - Tata Power Company, India's largest private utility, is expected to report profit for the past quarter fell 8.5 percent on year, squeezed by higher interest costs and slower sales, analysts say. 
The company, which is negotiating to buy U.S. energy giant Enron Corp's stake in its troubled Indian unit, reports results for the July-September second quarter on Tuesday.
"I expect profit to be hit by higher interest costs on new projects such as transmission and telecoms, and sales growth to be affected by the absence of supplies to BSES Ltd this year," said Pranav Securities analyst Rohita Sharma. 
She said the sale of power to BSES Ltd , a rival producer and leading distributor of power to Bombay, was a major factor in boosting sales in the year-earlier quarter. 
"I see operating margins falling to 19.05 percent from 19.85 percent," Sharma added. 
A Reuters poll of 14 brokerages, released last week, forecast net profit would drop to a median 1.27 billion rupees ($26.4 million) from a year earlier, on a 8.45 percent rise in sales to 10.11 billion rupees. 
Tata Power generates thermal and hydroelectric power and distributes electricity across the western Indian state of Maharashtra, including its capital Bombay. 
As part of its new initiatives, the company commissioned a broadband optic fibre cable network in Bombay in late August. 
Jaideep Goswami, head of research at UTI Securities, said profit would be flat, helped by extraordinary income from the sale of its stake in Tata Liebert, a maker of air-conditioning equipment and UPS, or uninterrupted power supply, for computers. 
Tata Power sold the stake for 765 million rupees in September. 
"Other income will be a crucial factor with power sales struggling as a result of the slowdown in the economy," he said, adding it could benefit from some businesses like captive units. 
Tata Power runs captive power units for India's largest private steel producer Tata Iron and Steel Company (TISCO) and the country's second largest cement maker Associated Cement Companies . 
An independent power project, in Belgaum, in southern India, went on stream in March. 
SHARES WATCH ENRON 
Goswami said the possible buyout of Enron's 65 percent stake in Dabhol Power Company could be the major driver for the stock. 
"At this point it's by no means certain the deal will happen, but if it does, a lot would depend on how it is structured and the cost of the project," he said. 
"It's definitely a big booster for sentiment as Enron's unit supplies to areas contiguous to Tata Power's," he said. "But there are concerns about how its cash flows will be impacted." 
Shares in Tata Power were little changed at 97.50 rupees in afternoon trade while the Bombay benchmark index was up 0.7 percent. 
Tata Power managing director Adi Engineer told Reuters earlier this month that he had held preliminary talks with Enron to buy the American firm's stake in the $2.9 billion Dabhol unit. 
"Everyone knows some solution has to be found for Dabhol...we will go ahead with this only if it makes sense from the consumers' angle and the stakeholders' angle," he said. 
Dabhol was forced to shut its 740 MW plant on the west coast of India, after its sole customer, a state-owned loss-ridden Indian utility, stopped buying power. 
The utility, the Maharashtra State Electricity Board, earlier defaulted on payments. 
The shutdown has stalled an expansion programme, which was almost complete and would have taken the capacity to 2,184 MW. ($1 = 48 Indian rupees).

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

India: FDI: Suffering from sectoral infirmities

10/15/2001
Business Line (The Hindu)
Fin. Times Info Ltd-Asia Africa Intel Wire. Business Line (The Hindu) Copyright (C) 2001 Kasturi & Sons Ltd. All Rights Res'd

THE exit of Enron and AES from the Indian power scene has generated worry. For, more than affecting power generation, this might have a lasting impact on the prospects of foreign direct investment in India. This is because the US is the biggest investor in India, and power generation was seen as one of the most attractive areas. But, then, this did not happen suddenly, and the portents were visible from ever since Cogentrix pulled out. 
But despite such fears, FDI increased substantially in 2000. On an approval basis, it increased 27.5 per cent in 2000 (from $6,750 million in 1999 to $8,610 million in 2000). American investments rose 14.6 per cent (from $851.2 million in 1999 to $975.6 million in 2000).
What then is the fallacy? One reason why the flows were not affected is that, overall, the FDI trend in India is not affected by any sector, no matter how important it is. Presently, the policy constraints to foreign investment are confined to select sectors, and sectoral policies are emerging the determinants of the FDI flow trend. The policies in some sectors such as power, telecommunications and oil may not be conducive, but in others, particularly manufacturing, they are comparable to any other countrys. 
Even after a decade of liberalisation, independent power producers are finding it difficult to set up operations, with the State electricity boards in financial straits. Thus, of the 50,000 MW projects approved in the private sector, only 3,000 MW were added during 1991-99. Non-transparent policies in basic, cellular and wireless local loop services are preventing foreign investors from coming into the telecom and oil refining sector sin a big way. Nothing is as yet clear about the dismantling of Administrative Price Mechanism in the petroleum sector that is scheduled for April 1, 2002. 
However, this is not true for other sectors. In automotive or in electrical/electronic industries, no MNC has so far pulled out. Instead, more players are coming in. As a result, the actual flow of foreign investments has been in automobile and electrical/electric equipment sectors though FDI was approved largely in power and telecommunications. 
For instance, in 2000 nearly 30 per cent of the actual total flow of FDI was in the transport sector, mainly automobiles and electrical equipment industries against only 15 per cent flow in power, oil refinery and telecommunication. In contrast, 36 per cent of FDI was approved in transport and electrical industries against 41 per cent approved in power, oil refinery and telecommunication during 2000. The automotive sector attracted a $1.2-billion in FDI in the 1990s and grew at 20 per cent from 1991-99; the result of the flow of foreign investment and its impact on the industry. 
Further, contradicting the fear hyped over the foreign investment prospect due to the Enron exit, a recent study by the American Chamber of Commerce reflected the US investors positive perception of Indias vast potential. According to the study, the country has the potential to attract FDI of $100 million over the next five years, if certain improvements are made in the regulatory measures and to the sectoral policies that are acting as barriers to foreign investors. 
A study by the RBI unveiled a glorified result of the business performance of foreign-invested firms in India. The study, covering 334 firms, revealed that their average return on equity was 12.5-13 per cent during 1998-99 and 1999-2000, which, in terms of global standards, is lucrative. The interesting part of the study is that the rate of return on equity in case of US-invested firms was as high as 12 per cent. Japanese and British firms, however, recorded higher returns on equity 22 per cent and 18 per cent, respectively. 
Further, these high rates of return on equity were reaped up mostly from domestic sales, and the firms had to exert less to export, and area where competition is intensifying by the day. The study revealed that the ratio of export intensity of sales was 4-6 per cent during 1998-99 and 1999-2000. That is, these firms are garnering higher returns by selling more than 95 per cent of their production in the domestic market. In terms of industry, the RBI study revealed that not only the return on equity, but also the growth rate of returns were high in automobile and electrical industries. Thus, the attraction of these sectors and the consequent large actual flows of FDI. The return on equity in the auto industry was 14.6 per cent in 1999-2000 the second highest after pharmaceutical and the growth rate in return was 27 per cent over the previous years. 
The return for the electrical equipment industry was 10.5 per cent in 1999-2000 and growth rate in return as high as 40 per cent over the previous year. Therefore, the barriers often highlighted for the slow pace of FDI are not strictly related to the countrys overall policy. The FDI gets bogged down because of sectoral policy constraints, each different from the other. 
The American Chambers study admits that such macro-level factors as inflexible labour laws and poor infrastructure play a relatively less important role in encouraging foreign investment than the sectoral policy constraints. 
It is difficult to offer an ideal investment policy. But, certainly, the country has inherent strengths such as skilled manpower, huge domestic market and a stable democratic government that are conducive to attracting foreign investments. The RBI study confirms this. It only remains to tap this potential. 
S. Majumder

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

International: Indian Enron looks for way out of Greenfield Shipping
SHIRISH NADKARNI IN MUMBAI

10/15/2001
Lloyd's List International
5
Copyright (C) 2001 LLoyds List; Source: World Reporter (TM)

AMERICAN energy major Enron is looking at a price of around Dollars 30m to exit from Greenfield Shipping Company, in which its affiliate Atlantic Commercial is a 20% equity partner. 
The desire to exit is part of Enron's move to pull out of all its projects in India.
The other two partners in the three-member consortium are Mitsui OSK Lines (MOL), which has 60% equity, and Indian national carrier Shipping Corporation of India (SCI), with a 20% stake. 
Greenfield Shipping had commissioned the construction of a 137,000 cu m capacity LNG tanker at Mitsubishi Shipyard in Japan. 
The vessel, christened LNG Lakshmi, will be ready for delivery on November 15 this year. 
It will be used for ferrying LNG from the Middle East to Enron's 2,184 mw mega-power plant at Dabhol, near Ratnagiri in southern Maharashtra. 
Although no official statement has come from Enron, a source at ANZ Investment Bank, which leads the lending consortium of banks, revealed that Enron would seek the return of Dollars 11m as its share of the paid-up equity of Dollars 55m, plus Dollars 19m for swapping the company's share of the loan component. 
The highly publicised imbroglio between Enron and Maharashtra State Electricity Board over the tariff to be charged for power induced Enron to seek an exit from the project. 
This has induced the lending consortium to be extra cautious after having disbursed Dollars 110m of the aggregate loan component of Dollars 165m. It has asked the promoters to bring in this amount. 
The intransigence of the lenders has left MOL and SCI with the difficult task of not only paying Enron off, but also bringing in the Dollars 55m debt amount, if they are to take delivery of the vessel on the scheduled date next month. 
The SCI board has had extensive discussions on the subject, but failed to come to a consensus on putting in the extra funds. And during discussions held in London recently, MOL had clearly told the lenders it was not in favour of putting in extra funds to salvage the LNG shipping deal. 
MOL feels the economics do not justify the extra expenditure. The consortium is now facing a charter hire rate of Dollars 60,000-Dollars 65,000 per day, compared with the rate of Dollars 98,600 initially negotiated with the Dabhol Power Company. 
If one took a daily charter hire rate of Dollars 60,000, Greenfield would earn around Dollars 22m per annum, of which Dollars 4-Dollars 5m would be spent on operating expenses of the tanker. 
That would leave Dollars 17-Dollars 18m, yielding an internal rate of return (IRR) of just 7%-8% for MOL on its 60% equity stake. This would be unacceptable for the Japanese line. 
For SCI, the IRR would be even lower - 4%-4.5%, far below the Indian government norm of 12% for projects involving state funding.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.