Interesting information floating up from some detailed review work by Tim - 
says a lot about the way MG do business I think.

RE NY we should ask the same questions - what prepayments exist ( Philip 
Bacon seemed uncomfortable with the need for a DASH for each prepayment on a 
contract ) add to this the absence of credit people in NY and we may have 
some issues - although Marcelo and others stressed the fact that Concentrates 
appeared to move no product without a letter of credit, which was then often 
discounted to realise cash!!

Shona we should also discuss the legal contract issue - another comment 
yesterday from Philip was that each of his concentrates contracts were 
'unique' - whilst I can accept that each may be tailored to customer 
preferences - they still need to be CACSed - we should look at the 
enforceability/legal risk here.

Whilst information prepayment risk for Metals should come from London - 
accessing any relevent inofrmation from NY may be helpful

Will call later !
---------------------- Forwarded by Mike Jordan/LON/ECT on 27/07/2000 09:33 
---------------------------


Tim Poullain-Patterson
26/07/2000 21:53
To: Eric Gadd/LON/ECT@ECT, Goran Novakovic/LON/ECT@ECT, Robert 
Quick/LON/ECT@ECT, David Hardy/LON/ECT@ECT, Mike Jordan/LON/ECT@ECT, Justin 
Boyd/LON/ECT@ECT, Howard Carter/The Metal & Commodity Co Ltd/MGLTD@MGLTD
cc: Richard Sage/LON/ECT@ECT, Diana Higgins/LON/ECT@ECT, Fernley 
Dyson/LON/ECT@ECT, Steve W Young/LON/ECT@ECT, Bjorn Hagelmann/HOU/ECT@ECT, 
David P Tregar/MGLTD_London/MGLTD@MGLTD 

Subject: MG : Russian Prepayment Exposure

The situation at present is as follows:

MG have nine open contracts with four counterparties sourcing mainly copper 
from the Russian Federation on a prepayment basis

all contracts are on a floating price basis (LME less discount)

notional value of each contract is circa $0.5-3mm

prepayment is on a unsecured trade finance basis, for between 90-95% value 
with balance on exchange of title evidenced by documents

The issues break down into three broad areas:

1) Commercial

At present Enron does not engage in prepayment activities with Russian 
Federation counterparties.

No further prepayments are permitted until RAC have performed a DASH for this 
activity. As this is likely to take several weeks Howard will liase with 
Commercial to manage issues with existing prepayment counterparties arising 
from this suspension. Howard and David Hardy will also take immediate steps 
to manage down existing prepayment exposures.

2) Legal

Based on a cursory review of the confirmations by Robert, if we are to 
continue this activity Legal need to instructed to perform a full review for 
several reasons, including:

the confirmations contain ambiguous language concerning basic economic terms, 
e.g. pricing date

they are light on the mechanics of the prepayments, and are generally not 
constructed in an appropriate way for this type of activity.

"Conditions of Purchase" are attached to the confirmations which refer to 
English Law, but as they are not always countersigned, under conflict rules 
the closest or real connection may be deemed to be Russian law which, in the 
absence of a properly executed agreement raises concerns about enforceability.

there are several "open" contracts with volumetric shortfalls where we are 
beyond the delivery period, and which could be considered to have been 
discharged by breach. Again the confirmation does not contain adequate 
language.

3) Credit/Operational

There are no formal counterparty limits. Nor are prepayment and volumetric 
exposures tracked on a contract by contract basis. This information is 
necessarily to ensure transparency over contract performance, and needs to be 
factored into the overall credit monitoring process.

David has requested this information from MG, and will follow up this one off 
exercise by introducing a spreadsheet workaround to enable us to track 
exposures based on the methodology developed for Helsinki.


Further work is required to quantify our exposures and to demonstrate that, 
despite the issues identified with contractual terms, there is performance 
against the contracts. David is pursuing this from a Credit perspective and 
will report back to his group his findings by Friday latest.

The issues raised regarding contractual language suggest that we need to 
accelerate a planned review of contract language for all MG's activities in 
all jurisdictions. Mike and I will discuss bringing this review forward with 
Justin.

Any questions, please call.

Regards,
Tim