We arranged to buy the coal on a CIF basis instead of FOB - problem solved - no additional cash requirement needed.

George

 -----Original Message-----
From: 	Shankman, Jeffrey A.  
Sent:	Monday, November  26, 2001 7:26 AM
To:	Mcclellan, George
Subject:	FW: Received fax from 01372 386764

did you guys take care of this.?

 -----Original Message-----
From: 	Bradley, Peter  
Sent:	Wednesday, November 21, 2001 8:07 AM
To:	Shankman, Jeffrey A.
Cc:	Mcclellan, George; Mcgowan, Kevin; Gresham, Wayne; Grossman, Samuel; Massart, Delphine; Abdo, Peter; Aury, Pierre; Staley, Stuart; Connelly, Chris
Subject:	FW: Received fax from 01372 386764


Good morning Jeff/Wayne

The Enron International coal group are having major issues with our key Colombian coal supplier, Drummond (us based company)- fax attached. George has asked me to send this to you.

Situation

They supply us on a regular basis one cape and three panamax's of coal a month with the contract finishing by July 2002. Cost of the coal for the cape is 28.00 usd per metric tonne basis 11,300 btu/lb gar and the cost of the panamax's is 28.25 usd per metric tonne basis 11,350 btu/lb gar. (gar means gross as received). 

In the contract we have 15 days payment terms such that we pay for the coal 15 days after completion of loading of the vessel. Unfortunately they are refusing to load any vessels at present unless we load cash up front. They will compensate usd for the early payment in reduced price however I realise this is scant consolation. In most circumstance We would sue these guys however the implications associated with not loading the coal and going to court are the following=

coal purchase price 28.00       usd  per mt Lump sum cash required 4.424 mill usd.
freight costs             3.75       usd  per mt
sales price             37.45       usd  per mt
deal cash flow          5.70       usd  per mt

tonnage 158,000 metric tonnes

======================
               900,600 usd     
======================


This deal in typical circumstances is credit enhancing. The customer pays in 11 days and we only payout in 15 days. If we don't load the vessel our customer will default, the market will know and Enron's franchise/credibility in the coal is gone. On the follow on vessels we should be having similar type cash flows.

We have the following vessels loading in the next two months.

Nov  20- 24 one cape 158,000 mt above vessel loading at present completing on the 24th Nov
Nov  24- 26 one pmax 63,000  mt loading 24th Nov completing 26th Nov
Nov  23- 31 one pmax 70,000  mt no eta  26 th nov completing 28th Nov
Dec   3-12  one cape 148,000 mt
Dec  14-23 one pmax 70,000  mt
Dec  26- 4 jan   pmax 63,000  mt
Dec  26- 4 jan   pmax 70,000  mt


Solution

What can we do - either raise an L/C or we pay cash up front (4.4 mill)- considering the present vessel is loading and the time it takes to raise an l/c then we think cash upfront for this one is going to be the only present solution. Naturally we are looking at other options which means that we don't have to send cash out of the door- one of the being selling them the freight and then them selling CIF - I will work this direct with their guys in London- but meanwhile I would appreciate you guys help in the interim time before George flies into Houston this morning to see what can be done internally to pay upfront on this first vessel at least.

many thanks in advance

peter









 


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Sent:	21 November 2001 09:22
To:	Bradley, Peter
Subject:	Received fax from 01372 386764

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