THRIVING UNDER SUSPICION El Paso will be sitting pretty even if it has to pay fines
BusinessWeek, 08/06/01
Dabhol jeopardy
The Economic Times, 08/03/01
Petrobras tries to prevent BG accessing Brazil-Bolivia pipeline - report
AFX News, 08/02/01

The Corporation: STRATEGIES
THRIVING UNDER SUSPICION El Paso will be sitting pretty even if it has to pay fines
By Stephanie Anderson Forest in Houston, with Christopher Palmeri in Los Angeles

08/06/2001
BusinessWeek
72
(Copyright 2001 McGraw-Hill, Inc.)

Market manipulator. Poster child for California's energy woes. Member of the Texas cabal shaking down West Coast consumers. As the Golden State's energy debacle picked up speed this spring, El Paso Corp. suddenly found itself cast in the role of Public Enemy No. 1. State and federal regulators are investigating charges that El Paso used its control of a key pipeline to sharply boost the price of natural gas flowing into the state. El Paso says it certainly didn't manipulate the market and blames higher prices on California's unique energy problems. Still, investors have reacted to the possibility of millions of dollars in fines--and now quickly falling natural gas prices--by knocking the company's stock down 33% this year. 
All the headlines about legal troubles, however, are obscuring how well hard-charging Chief Executive William A. Wise, 56, has positioned El Paso in the rapidly mutating energy business. Ironically, El Paso was left holding the excess California pipeline capacity only because a big customer had decided in 1995 to dump it. That blow nearly sank El Paso and sent Wise off on a diversification strategy that has taken the company from a sleepy little regional outfit to one of the biggest players in the energy bonanza. Houston-based El Paso grew from $2.9 billion in revenues in 1995 to $21.9 billion in 2000, and will pass $50 billion this year. Its earnings of $652 million last year reversed a $255 million loss the year before.
In the process, El Paso has become North America's largest pipeline company and the nation's fourth-largest energy outfit, with a hand in everything from natural gas exploration and production, to wholesale power and gas trading, to power generation. It is also pushing to become a major player in the growing market for liquefied natural gas. On July 25, El Paso reported a 40% increase in second-quarter income, to $413 million, on sales of $13.4 billion. The stock price, however, remains in the doldrums, hovering around $48 a share. Falling prices have hurt much of the sector: Rival Enron Corp. is off 48% this year while Dynegy Inc. is down 23%. 
Even if the company is forced to cough up a big fine--and no one is speculating how big that fine could be--many analysts and investors doubt that will crimp Wise's diversification push. ``El Paso is the biggest and best-positioned [company] to take advantage of the nation's natural gas supply crunch,'' says Donald Coxe, chairman of Harris Investment Management Inc. in Chicago, which owns El Paso shares. 
Wise really had no choice but to branch out. In the mid-'90s, Pacific Gas & Electric Corp. and other utilities were paying millions of dollars for capacity they couldn't use because overbuilding had led to a huge pipeline glut. With the blessing of friendly state regulators, PG&E and others gave up their pipeline rights, with PG&E returning 1.14 billion cubic feet a day of capacity to El Paso. In one stroke, that erased $125 million of El Paso's annual revenue. FRUGALITY AND LUCK. Wise worked quickly to put El Paso back on a firm footing. He slashed $100 million in costs, in part by laying off more than a third of El Paso's employees, freezing executives' pay, and taking no salary himself for three years. He also negotiated a $60 million settlement with PG&E and the other utilities for dumping the capacity. By last year, the situation had shifted 180 degrees. As demand jumped and California faced skyrocketing energy costs, that same pipeline space had become a precious commodity. And El Paso was in the driver's seat as the state's largest gas supplier. ``That's what's so ironic now. The capacity that everybody's complaining about in California was basically the capacity that PG&E gave back,'' says H. Brent Austin, El Paso's chief financial officer. 
More important, Wise, who declined to be interviewed, set out on an aggressive new strategy to diversify away from California--which had delivered 75% of El Paso's revenues before 1996. Wise had spent his entire career at El Paso, joining in 1970 out of the University of Colorado School of Law and taking over the CEO's post in 1990. His shopping spree began in 1996 when he scooped up Tenneco Inc.'s pipeline business. The $4 billion deal tripled El Paso's size and gave it the only coast-to-coast natural gas pipeline. In all, Wise has snapped up some $35 billion worth of acquisitions in five years, including his biggest, the $24 billion purchase in January of Coastal Corp. That substantially boosted El Paso's exploration and production operations, expanded its capacity to some 60,000 miles of pipeline nationwide, and added oil refining to the company's mix. Along the way, El Paso also has bought interests in some 44 natural gas-fired power plants across the country. BALANCE OF POWER. Today, such nonregulated businesses as natural gas marketing and trading operations, exploration and production, and the power plants account for more than 60% of El Paso's earnings before interest and taxes, vs. 8% in 1996. Analysts say the new El Paso's ``wellhead-to-wire'' operations give it a big advantage over Enron, Dynegy, and other competitors at a time when the power industry is rapidly changing and clean-burning natural gas is growing in popularity. Meanwhile, its wide-reaching stable of assets means it doesn't have to rely on high natural gas prices, which have dropped roughly 70% nationwide since the beginning of the year. 
But it's that very mutifaceted structure that may have landed El Paso in hot water in California. State regulators allege that the company's pipeline unit, El Paso Natural Gas, rigged a pipeline-capacity auction last year in favor of its energy-marketing affiliate, El Paso Merchant Energy Group. Regulators charge that the two wholly owned units passed secret information between them that helped the merchant group's bid. Federal hearings on this charge are to begin on Aug. 2. Ralph Eads III, the merchant group's president, counters that ``the pipeline [unit] didn't have any say-so over whose bid it took, it just said whose bid was the highest. Our bid was the highest. There are [Federal Energy Regulatory Commission] rules that govern the behavior between our pipeline and our marketing affiliate. And we are very scrupulous in observing those rules.'' 
In their second allegation, authorities claim that the company withheld pipeline capacity into California to jack up prices illegally; a judge's ruling is expected in October. Regulators note that spot prices for natural gas in Southern California spiked to more than double national spot rates. ``A big reason for the increase in consumers' electricity bills is because El Paso manipulated prices at the California border,'' alleges Harvey Y. Morris, the state utilities commission attorney arguing the case before FERC. 
Eads denies El Paso withheld capacity. Instead, the company blames the runup in natural gas prices in Southern California on an unusually hot summer last year and a cold winter this year, low reserves, rising electricity demand, and a now-inadequate pipeline system into the state. In any case, Eads says, El Paso didn't fully benefit from rising prices because the merchant group shipped 95% of its gas under fixed-price contracts as a hedge against a possible price drop. ``As prices went up, we lost money,'' says Eads. ``If we were smart enough to manipulate the market, we would have been smart enough not to have hedged.'' 
Maybe so. Either way, given the company's smart transformation over the past five years, El Paso seems well-prepared to ride out whatever twists California has in store for it.

Illustration: Chart: SUPPLY SQUEEZE OR MARKET FORCES? CHART BY ALBERTO MENA/BW Photograph: RAW POWER: An El Paso natural gas plant in New Mexico 
Photograph: EADS: Defending El Paso in Washington PHOTOGRAPH BY RICH PEDRONCELLI/AP/WIDE WORLD 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Dabhol jeopardy
Girish Kuber

08/03/2001
The Economic Times
Copyright (C) 2001 The Economic Times; Source: World Reporter (TM)

We are committed to India. We are not in any discussion right now on selling the plant... -- Kenneth Lay, Chairman, Enron, after the companys annual meeting in Houston on May 2, 2001. 
BARELY a couple of months after pledging the company`s commitment towards India when Kenneth Lay last week expressed Enrons desire to get out of the troubled Dabhol Power Company.
But it evoked hardly any reaction in Maharashtra or among industry watchers as Enron International had already announced its corporate strategy of wanting to pull out of developing countries and Lays statement that it wants to leave the Konkan coast was seen as a yet another move by the company to bully the government. 
So a combative union power minister Suresh Prabhu retorted that ``Enron is not the only US company operating in India. 
There are at least six other US companies currently operating in the power sector in India. Although AES has recently expressed reservations about operations in Orissa it wants to invest in other states. 
Enron watchers are of the view that it is difficult for MSEB and the US energy major to get rid of each other. Enron has 20-year contracts for 2.1m tonnes a year of LNG for use in its power plant, with Oman LNG and Abu Dhabi Gas Liquefaction Company, and Lay admitted that Enron might prefer to seek other buyers. 
And its been getting increasingly difficult for the company to launch into yet another round of tiring renegotiations with the state government, an exercise it has done twice in the past. 
However, the most crucial question is: Where are the buyers? The Maharashtra government has tried to pose the entire controversy as an issue which can be solved only if the centre steps in either by bailing it out or by allowing a central power utility like NTPC to buy it. 
If Enron prefers to pack up, the state has already steered clear of its responsibility of finding a new buyer. 
The states energy minister Padmasinh Patils view that Enrons departure ``will be Gods biggest blessing for us, underlines the states intransigent stance. 
However, Madhav Godbole, the man who is heading the Enron renegotiation panel, when asked to comment, was realistic in judging the situation. Realising Enrons game plan Mr Godbole indicated that ``the next meeting (of the renegotiating committee) will not be necessary now. 
He knew that if Enron were really serious about its withdrawal plan it would stay away from the next meeting. And if it really did so, the job of the committee becomes much easier. 
Vinay Bansal, chairman MSEB, who single handedly brought the US energy major to its knees, was cautious in his reaction. 
``Since we have rescinded the PPA with Enron, we have no locus standi on this issue, he said. However, is MSEB interested in buying out Enrons state in the project? And does MSEB have the required financial muscle to buy out Enrons equity. ``Its too early to react, said Bansal. 
The Godbole committee will be meeting soon internally to decide the future course of action, Godbole said. Vinay Mohan Lal, the states energy secretary hinted that considering the Enrons desire, the state might submit an interim report. 
What it means is that if the company sticks to its stand on the issue, the committee may release its report unilaterally, obviously blaming the company for the failure of the talks. 
Godbole said the committee, which has been set up to renegotiate the PPA signed between the US energy major and MSEB would have to review the entire situation after DPC made a public announcement about its desire to exit and sell the plant to the union government or the lenders. 
Enron had said that the best approach to resolve the protracted dispute between DPC and MSEB was to sell its entire stake in the project to the centre or the lenders and that any sale would need to be on terms of providing complete recovery of capital costs and related expenditures. 
The Centre has asked FIs led by the IDBI to work out a package in this regard. The package is to be submitted to a committee chaired by the finance secretary Ajit Kumar. 
However, the centre has ruled out any possibility at this stage of a buyout by a central utility. In fact Prabhu said, ``We are not going to allow a company like NTPC or PTC to buy out such equity. The state government and Enron have to try and resolve their issue. 
According to Patil, power ministers of four states have evinced interest in purchasing power generated from DPC, provided the tariff per unit was below Rs 2.50. 
Madhya Pradesh was willing to buy 100 mw, Karnataka 300 mw, Delhi 150 mw and Haryana 100 mw. The state was not in a position to absorb power from phase II of the project and there was an urgent need for the centre to intervene in the project.

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


Petrobras tries to prevent BG accessing Brazil-Bolivia pipeline - report

08/02/2001
AFX News
(c) 2001 by AFP-Extel News Ltd

SAO PAULO (AFX) - Petroleo Brasileiro SA unit Gaspetro is trying to prevent BG Group PLC from accessing the Brazil-Bolivia pipeline, newspaper O Estado de Sao Paulo reported citing market sources. 
The report said that Gaspetro sent a threatening letter to BG last week.
BG Brazil president Luis Carlos Costamilan did not deny nor confirm that he received the letter; but Petrobras press office confirmed it sent a letter, denying however that the letter contained threats, O Estado said. 
Petrobras said that it reminded BG that in the shareholders' agreement in Transportadora Brasileira do Gasoduto (TBG) -- the company which operates the pipeline -- a clause stipulates that a shareholder cannot be detrimental to any other shareholders. 
Petrobras owns 51 pct of TBG, while BG has a minority stake, along with TotalFinaElf, Enron Corp, Royal Dutch/Shell. 
The ANP oil regulator has already ruled in favour of BG, and granted BG transport quotas for 2001 and 2002. 
BG recently signed a supply contract with Cia de Gas de Sao Paulo (Comgas), a company its controls through a consortium formed with Royal Dutch/Shell. 
jmp/an/ For more information and to contact AFX: www.afxnews.com and www.afxpress.com

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