Bob,

This e-mail describes the tax consequences arising from Enron North America 
Corp. ("ENA") offering to sell various pulp and paper products ("Products") 
through EnronOnline ("EOL") to counterparties throughout Europe whereby such 
Products would be stored in bonded warehouses located in the Netherlands.  As 
I understand, it is intended that any ENA counterparty located in Europe will 
be able to purchase Products from ENA and obtain physical possession of such 
Products by taking delivery within bonded warehouses located in the 
Netherlands that are owned by unrelated parties to whom ENA would make 
payments for providing storage space.  The tax consequences arising from 
ENA's sales of Products in the Netherlands are described below.  (I will 
follow-up as soon as possible to provide you with the tax consequences 
arising from ENA engaging in the same activity in Belgium.)


Sales within a bonded warehouse in The Netherlands

In general, sales of Products by ENA in the Netherlands may be subject to 
taxation in both the United States and the Netherlands, thus resulting in a 
combined effective tax rate equal to at least 58 percent.  By selling 
Products in a specific manner, however, ENA can substantially limit its 
exposure to taxation in the Netherlands and, by doing so, should only be 
subject to U.S. taxation (at a rate equal to 35 percent).

To limit its exposure to Dutch taxation on the sale of Products stored in a 
bonded warehouse in the Netherlands that is owned by an unrelated party, ENA 
should comply with all of the following criteria:

Other than the limited activity to be performed on behalf of ENA by the owner 
of the bonded warehouse ("Warehouseman") described below, all of ENA's 
activities related to the sale of Products to a counterparty should occur in 
the United States.  For example, the pricing for the Products to be offered 
should be determined by an ENA employee physically located in the U.S.  If 
any negotiations occur between ENA and a counterparty, the ENA employee 
engaged in negotiations should be physically located in the United States.  
If a contract is entered into between the parties, an ENA employee should 
execute the document while physically present in the United States.  (As I 
understand, those transactions effected through EOL occur by the counterparty 
making an offer (i.e., clicking on the "offer" icon contained in EOL) and are 
accepted by ENA if (among other things) the price related to the 
counterparty's offer is still valid.  If this is the case, then ENA's 
"acceptance" should be considered to occur in the U.S. if the individual with 
the authority to set prices is physically located in the U.S. when actually 
setting the price.)
ENA should enter into an agreement with the Warehouseman located in the 
Netherlands whereby the Warehouseman's only activities on behalf of ENA 
consist of storing the Products and making them available to the counterparty 
to take physical delivery at the warehouse.  The Warehouseman should not have 
the authority to engage in any other activity on behalf of ENA, including 
(but not limited to):  

  a.  negotiating any of the terms of the agreement between ENA and the 
counterparty;
  b.  concluding any agreement between ENA and the counterparty on behalf of 
ENA;
  c.  soliciting or receiving orders from a counterparty on behalf of ENA 
(and transmitting such orders back to ENA); and
  d.  delivering Products to counterparties on behalf of ENA.

Thus, for ENA to mitigate its risk of exposure to Dutch tax on sales of 
Products in the Netherlands, the Warehouseman should engage in only two 
activities on behalf of ENA:  storing the Products for a fee, and making such 
Products available to counterparties to take possession of them at the 
warehouse.  All other activities related to the sale of Products in the 
Netherlands should be undertaken by ENA in the United States.

If you have any questions, please contact me at ext. 35777.

Best regards,

Jeff