While a Utility May Be Failing, Its Owner Is Not
The New York Times , 04/30/01

Enron Utility Sale Falls Through
The Oil Daily , 04/30/01

Scot Power in talks to buy Portland-sources
Reuters, 04/30/01

London shares ease back from highs at midday ahead of Wall St opening
AFX News, 04/30/01

Portland General Seen Fit With Scottish Power Strategy
Dow Jones, 04/30/01

ENRON OF THE US NOT INTERESTED IN COMPLETION OF INDIAN PROJECT
Asia Pulse, 04/30/01

CHAMBER CHIEF CALLS FOR PRIVATISATION OF INDIA'S POWER SECTOR REFORMS
Asia Pulse, 04/30/01

Fleet Street
The Daily Deal, 04/30/01

WB HAS NO MAGIC FORMULA FOR REGIONAL POWER CONTRACTS: PRES.
Asia Pulse, 04/30/01

POWER TRADERS ARE ALL CHARGED UP
Business Week, 04/30/01

Time to sail
Business Standard, 04/30/01

Godbole to head DPC renegotiation panel
Business Standard, 04/30/01

DENMARK INHERITS THE WIND The tiny country now leads the world in windmill 
technology
Business Week, 04/30/01

GLOBAL WARMING: LOOK WHO DISAGREES WITH BUSH
Business Week, 04/30/01
 
Oil Is Thicker Than Blood; Florida presents a tough lesson in Bush brotherly 
love
Newsweek , 04/30/01

Top Business Schools (A Special Report) --- And the Winners Are... --- Six 
European Schools Rank Among World's Top 50 M.B.A. Programs
The Wall Street Journal Europe, 04/30/01

Flying On The Web In A Turbulent Economy Times are tough, but the pressure to 
Webify hasn't let up. Four lessons on getting it right.
Fortune Magazine, 04/30/01

BIG BLUE LAUNCHES TESTING CENTRE IN BANGALORE
Computers Today, 04/30/01

Exxon Mobil CEO Lee Raymond Tries to Prove Bigger Is Better
Bloomberg, 04/30/01

SURVEY - ENERGY & UTILITY REVIEW: US demand boosts marketplace: LIQUEFIED 
NATURAL GAS by David Buchan: With prices for natural gas set to stay high, 
LNG seems to be back in fashion 
		Financial Times, 04/30/01

		
		

		




Business/Financial Desk; Section A
While a Utility May Be Failing, Its Owner Is Not
By By RICHARD A. OPPEL Jr. and LAURA M. HOLSON

04/30/2001
The New York Times 
Page 1, Column 5
c. 2001 New York Times Company 
Pacific Gas and Electric, the giant California utility, may have just made 
one of the largest bankruptcy filings in history, but it has been a banner 
year for the rest of its parent company, the PG& E Corporation. 

In Bethesda, Md., far from the energy crisis in California, another PG& E 
subsidiary, National Energy Group, earned $162 million last year and ranked 
as the nation's third-largest power trader. Compensation for the unit's 
executives soared. Many investors now believe that the subsidiary, just a 
decade in the making, is by itself worth more than its 96-year-old utility 
sibling.
How did National Energy get so big so fast? By using cash, partly generated 
by its sister utility, to buy unregulated power plants in the Northeast, 
expand trading-floor operations and sell power across the country. The exact 
numbers are in dispute, but much of Nationals Energy's profits last year came 
from California. 

Most other large utilities have done the same thing over the past decade, 
building national or even global power companies from roots in local 
monopolies. But nowhere is the success of these unregulated businesses more 
of an issue than in California, where PG& E's investments may be challenged 
in bankruptcy court. 

Still, such transfers of assets were fundamental to deregulation plans in two 
dozen states, and they were encouraged by federal rules designed to build a 
new wholesale marketplace in electricity. 

And today, the offspring of the nation's utilities dominate that market, 
after industry leader Enron. Eight of the nation's 10 largest power marketers 
are affiliates or spinoffs of regulated utilities, controlling about 42 
percent of power trading. 

It is largely these unregulated power producers and traders whose sales of 
power in California have prompted accusations by state leaders of price 
gouging, and demands for the price caps that federal regulators took their 
first, halting steps toward embracing last week. 

The profitability of the utilities' unregulated operations is becoming clear 
as companies report earnings for the first three months of the year. 

For example, Reliant Energy reported that operating income at its unregulated 
wholesale energy business soared to $216 million in the first quarter, or 16 
percent more than at its regulated utility, which serves Houston. This week, 
Reliant expects to spin off its unregulated businesses through an initial 
public stock offering that would put a market value on the new company of as 
much as $8.8 billion -- more than the rest of Reliant. 

A number of other major utility companies have spinoffs or trading and 
generation units that now earn nearly as much as, or more than, their core 
utility operations. These include Duke Energy in Charlotte, N.C.; Sempra 
Energy of San Diego; the Southern Company in Atlanta; the Constellation 
Energy Group in Baltimore; and Utilicorp United in Kansas City, Mo. 

In some places, the growth of the unregulated businesses continues to raise 
questions of fairness -- particularly where utilities have been permitted to 
transfer plants to the new units at deep discounts to their market value. 
Critics say that ratepayers, whose bills paid for the plants' construction, 
should benefit more when the plants are sold. 

In Florida, a commission on energy deregulation formed by Gov. Jeb Bush has 
proposed permitting such transfers on the grounds that they are needed to 
create a new wholesale marketplace. Opponents, including the Florida 
Municipal Electric Association, which represents utilities owned by local 
governments, say the plan would produce a $9 billion windfall that should go 
to ratepayers. 

In California, some creditors of Pacific Gas and Electric have signaled that 
they will want the bankruptcy court in San Francisco to review parent PG& E's 
efforts to keep its unregulated businesses out of creditors' reach. 

And the California Public Utilities Commission is investigating whether PG& E 
and Edison International, whose Southern California Edison utility unit is 
also near insolvency, have improperly transferred cash to their parents and 
to unregulated sister companies. 

A recent audit ordered by the commission showed that Pacific Gas and Electric 
transferred $4.1 billion to PG& E from 1997 to 1999. Most of that went to 
dividends and stock repurchases, but $838 million was invested in other 
subsidiaries, primarily its National Energy Group unit. Southern California 
Edison transferred $4.8 billion to its parent company between 1996 and 
November 2000, a separate audit showed; Edison International invested $2.5 
billion in its unregulated Mission Group subsidiaries during the same period. 

Executives of the companies say the transfers were proper. Audits have shown 
that ''we followed the rules and didn't do anything wrong,'' said PG& E's 
chief executive, Robert Glynn. ''We did not ask consumers in California to 
support any of the losses that occurred in those businesses when we started 
them up,'' he said. Now, forcing the unregulated units to support their 
ailing sister utility, he said, ''would be no different than calling up 
shareholders and saying, 'The California electric bills are pretty high; send 
some money in so we can give it back to them.' '' 

Loretta Lynch, the president of the utilities commission, took a different 
view. ''Should we look backward,'' she asked, ''and say, 'Hey, wait a minute 
-- that corporate structure profited by all of our power payments to them in 
the past, and they should participate in helping us through to get to a 
solution in the future?' '' 

The cornerstone deal of PG& E's unregulated energy business was struck four 
years ago, when it acquired the hydroelectric and fossil-fueled generation 
plants of New England Electric System for $1.6 billion. PG& E is now one of 
the largest generators in the Northeast, operating plants that can light up 
to five million average-sized homes. 

While California officials say Pacific Gas and Electric's woes have been 
caused, at least in part, by market manipulation by out-of-state generators, 
the Justice Department has been investigating possible market abuses 
involving PG& E and two other companies in New England. Mr. Glynn said that 
PG& E had done nothing wrong and that the company has responded to Justice 
Department requests for information. 

Overall, PG& E's National Energy Group has 30 power plants in 10 states, and 
others under development or construction that include one in Athens, N.Y., 
that is expected to begin supplying electricity to New York City in 2003. It 
also operates an energy trading operation in Bethesda and controls a natural 
gas pipeline into Northern California. 

To Wall Street, the utility companies' investments in unregulated businesses 
were a necessary survival tactic, as investors demanded faster-growing 
profits. 

''The stock market was going like gangbusters, and the utilities' returns of 
11 percent weren't cutting it,'' said Richard Cortright, a utility analyst at 
Standard and Poor's, the bond rating agency. 
Moreover, as deregulation loomed, industry executives saw no choice but to 
make new investments. ''It looked like the utility opportunity was going to 
start shrinking,'' Mr. Glynn said. 
Consumer groups question whether utilities would have invested more in 
improving basic service if they had not had the option of putting money 
elsewhere. 

Mike Florio, a lawyer with The Utility Reform Network, a consumer group in 
San Francisco, cited findings last year by state regulators that from 1987 to 
1995, Pacific Gas & Electric spent nearly $550 million less on maintaining 
electric and gas facilities than had been factored into its rates. 
Separately, in 1999, the utility agreed to pay about $29 million to settle 
charges that consumers were endangered because it failed to trim trees near 
high-voltage power lines. 
''Several hundred million dollars didn't get spent for maintenance, and that 
ultimately falls to the bottom line as profit,'' Mr. Florio said. 

Mr. Glynn said the utility had always spent appropriate sums on maintenance, 
coming within one-half of one percent of the amount built into rates over a 
20-year period. 
In the big picture, he said, it was hard to see how PG& E had been a winner 
in deregulation, even before its utility's humiliating bankruptcy. ''If you 
look at what happened, the net of it was a loss,'' Mr. Glynn said, ''because 
the value leaked out on the regulated utility side faster than we were able 
to build it on the nonregulated side.'' 
About This Report 

This article is part of a joint reporting effort with the PBS series 
''Frontline,'' which will broadcast a documentary about California's energy 
crisis on June 5.

Charts: ''The Biggest Power Marketers'' Most of the biggest unregulated power 
marketers and traders are owned by the the country's biggest electric 
utilities or have been spun off by them. Here are the top 10, based on 2000 
sales. Companies owned or spun off from utilities: Enron Power and 
affliliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 590.2 MARKET SHARE: 13.03% 
CHANGE FROM 1999: + 97% Companies owned or spun off from utilities: American 
Electric Power Service MEGAWATTS SOLD IN 2000 (IN MILLIONS): 401.3 MARKET 
SHARE: 8.86 CHANGE FROM 1999: +84 Companies owned or spun off from utilities: 
PG&E Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 282.6 MARKET 
SHARE: 6.24 CHANGE FROM 1999: +62 Companies owned or spun off from utilities: 
Duke Energy and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 276.2 MARKET 
SHARE: 6.10 CHANGE FROM 1999: +226 Companies owned or spun off from 
utilities: Reliant Energy and affiliates MEGAWATTS SOLD IN 2000 (IN 
MILLIONS): 204.3 MARKET SHARE: 4.51 CHANGE FROM 1999: +166 Companies owned or 
spun off from utilities: Mirant Americas Energy and affiliates MEGAWATTS SOLD 
IN 2000 (IN MILLIONS): 202.6 MARKET SHARE: 4.47 CHANGE FROM 1999: +23 
Companies owned or spun off from utilities: Aquila Energy Marketing MEGAWATTS 
SOLD IN 2000 (IN MILLIONS): 186.7 MARKET SHARE: 4.12 CHANGE FROM 1999: +4 
Companies owned or spun off from utilities: Cinergy operating companies 
MEGAWATTS SOLD IN 2000 (IN MILLIONS): 166.4 MARKET SHARE: 3.67 CHANGE FROM 
1999: +246 Companies owned or spun off from utilities: Constellation Power 
Source MEGAWATTS SOLD IN 2000 (IN MILLIONS): 162.3 MARKET SHARE: 3.58 CHANGE 
FROM 1999: +222 Companies owned or spun off from utilities: Williams Energy 
and affiliates MEGAWATTS SOLD IN 2000 (IN MILLIONS): 138.4 MARKET SHARE: 3.05 
CHANGE FROM 1999: +127 (Source: Platt Power Markets Week)(pg. A17) ''Outdoing 
Their Parents'' Taking advantage of deregulation, many of the country's 
biggest power utilities have set up unregulated subsidiaries to trade and 
produce power. These subsidiaries have become extremely profitable, often 
outperforming their regulated corporate siblings. UTILITY: Duke Energy 
OPERATING INCOME (MILLIONS) 1Q '00: +$465 1Q '01: +460 UNREGULATED BUSINESS: 
North American Wholesale Energy OPERATING INCOME (MILLIONS) 1Q '00: +82 1Q 
'01: +348 RELATIONSHIP OF UNREGULATED BUSINESS TO UTILITY North American 
Wholesale Energy is a subsidiary of Duke Energy. UTILITY: Reliant Energy 
OPERATING INCOME (MILLIONS) 1Q '00: +$202 1Q '01: +186 UNREGULATED BUSINESS: 
Wholesale Energy OPERATING INCOME (MILLIONS) 1Q '00: -22 1Q '01: +216 
RELATIONSHIP OF UNREGULATED BUSINESS TO UTILITY Reliant Energy plans to sell 
18 percent of Reliant Resources -- mostly Wholesale Energy -- this week. 
UTILITY: Southern OPERATING INCOME (MILLIONS) 1Q '00: +$439 1Q '01: +483 
UNREGULATED BUSINESS: Mirant OPERATING INCOME (MILLIONS) 1Q '00: +169 1Q '01: 
+279 RELATIONSHIP OF UNREGULATED BUSINESS TO UTILITY Southern completed the 
spinoff of Mirant on April 2. (Source: S.E.C. filings)(pg. A17) 



Enron Utility Sale Falls Through

04/30/2001
The Oil Daily 
(c) 2001 Energy Intelligence Group. All rights reserved. 
Sierra Pacific Resources, parent of two Nevada utilities, said late Thursday 
that its deal to buy Enron's Portland General Electric utility subsidiary has 
been terminated by mutual agreement. 
The collapse of the $2 billion deal was widely anticipated. Enron Chief 
Executive Jeff Skilling said last month that there was only a "5% 
probability" that the sale would go through (OD March27,p8).
Sierra Pacific has been unable to sell its interest in certain generating 
assets, which it needed to do to complete the purchase of the Portland, 
Oregon-based utility from the Houston-based energy giant. 
(c) Copyright 2001. The Oil Daily Co. 
For more infomation, call 800-999-2718 (in U.S.) or 202-662-0700 (outside 
U.S.).


Scot Power in talks to buy Portland-sources
Monday April 30, 8:38 am Eastern Time 
LONDON, April 30 (Reuters) -Scottish Power Plc has held talks with Enron Corp 
(NYSE:ENR - news) about buying its Portland, Oregon-based power utility 
Portland General, a good geographic fit for the British group's existing U.S. 
arm PacifiCorp, industry sources said on Monday.
``It's an obvious one and, yes, there have been discussions,'' said one 
source speaking after the official breakdown last week of energy trader Enron
's talks to sell Portland to Nevada-based utility Sierra Pacific Resources 
Corp (NYSE:SRP - news). 
PacifiCorp operates in six U.S. states including Oregon, and has its 
headquarters in Portland, the state capital. 
Utility holding company Sierra had been preparing to pay about $2 billion for 
Portland and assume $1 billion in debt. But the deal ran into trouble as the 
U.S. West Coast power crisis unfolded earlier this year, and talks were 
officially called off last Thursday. 
Reports that Britain's biggest utility may step in for Portland's 700,000 
customer base and 2,000 megawatts of generating capacity surfaced at the 
weekend in Britain's Observer newspaper. 
PacifiCorp faces its own power crisis fallout, including $1 million a day 
buying-in costs resulting from the failure of one of its generators. The 
problems have helped depress Scottish Power's share price to a point where it 
now registers five percent UK sector underperformance over the past two 
years. 
And analysts said Portland has a significant exposure to current high U.S. 
power prices, with only about 2,000 megawatts of its own generating capacity 
but 3,700 megawatts of peak demand to satisfy. 
Nevertheless, Scottish Power has said it intends to expand further in the 
U.S. to exploit opportunities for merger cost savings in a highly fragmented 
market. 
Its current weak share price and lack of cash after the PacifiCorp buy has 
hindered development, but in March it made clear it may sell its UK water 
business, Southern Water. 
The proceeds are earmarked for acquisition purposes, and industry sources 
have put the price sought at 1.8 billion pounds ($2.4-2.6 billion). Enel of 
Italy has confirmed an interest. 
On Monday, Scottish Power was tightlipped. ``We do not comment on market 
speculation,'' said a spokesman. 
But analysts said Portland was an obvious choice, given that it serves mainly 
the city of Portland and its surrounding area, in the middle of one of 
PacifiCorp's key markets. 
``It's hard to see them finding a better company to buy in terms of 
geographic fit and potential cost savings,'' said Peter Atherton of Schroder 
Salomon Smith Barney, who released a note last week pointing out the 
opportunity. 


London shares ease back from highs at midday ahead of Wall St opening

04/30/2001
AFX News 
(c) 2001 by AFP-Extel News Ltd 
LONDON (AFX) - Leading shares continued to ease back in midday trades, though 
gains in digital economy shares continued to underpin the market ahead of an 
anticipated strong opening on Wall Street this afternoon, dealers said. 
Sentiment continued to be boosted by hopes that the strong U.S. first quarter 
GDP may signal that the U.S. economy will avoid a recession, dealers added.
Elsewhere, Scottish Power dropped 3-3/4 to 443 after The Observer newspaper 
reported that it is considering a bid of up to 3 bln stg for U.S. Enron's 
Portland General. 
el/mkp For more information and to contact AFX: www.afxnews.com and 
www.afxpress.com
 
 

Portland General Seen Fit With Scottish Power Strategy
By Andrea Chipman
Of DOW JONES NEWSWIRES

04/30/2001
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
LONDON -(Dow Jones)- U.K. integrated utility Scottish Power PLC's (SPI) 
reported bid for U.S. utility Portland General would be a good fit for the 
U.K. company and could be accomplished without increasing its debt burden, 
analysts said Monday. 

A Scottish Power spokesman declined to comment on a report in The Observer 
that it was considering bidding some $3 billion for Portland General after 
talks between Portland's owner, Enron, and Nevada-based Sierra Energy broke 
down last week. The spokesman called the report media speculation.

But several analysts said the acquisition would be a logical one for Scottish 
Power, which bought Portland, Oregon-based utility Pacificorp last year. 

"It's contiguous, so there would be operational cost savings and synergies," 
said Gareth Lewis-Davies, a utilities analyst at Lehman Brothers in London. 

"They would be silly not to be looking at it," said another analyst at a 
large London investment bank. But he said regulatory concerns might be giving 
Scottish Power pause for thought. 
"(Portland) only generates a small amount of the power it sells, and if it's 
not allowed to recover costs, it might face large power purchase costs," the 
analyst added. 

Scottish Power found Pacificorp to be a costlier purchase than initially 
expected, after an explosion at the company's Utah-based Hunter generation 
plant in November forced it to buy power on overheated western-U.S. wholesale 
electricity markets. During the six-month outage, which is scheduled to end 
next month, Scottish Power has faced costs of some $1 million a day. 

Nevertheless, the company has said it hopes to take advantage of electricity 
shortages in the region once its problems with Hunter are resolved, and that 
it hopes to ultimately make further acquisitions. 

If it chooses to bid for Portland, Scottish Power could cover the acquisition 
costs with the GBP1.8 billion that has been widely reported as a likely sales 
price for Scottish Power's U.K. unit, Southern Water, Lewis-Davies and others 
said. 

Company Web site: www.scottishpower.com 
-By Andrea Chipman, Dow Jones Newswires; 44-207-842-9259; 
andrea.chipman@dowjones.com

 

ENRON OF THE US NOT INTERESTED IN COMPLETION OF INDIAN PROJECT

04/30/2001
Asia Pulse 
(c) Copyright 2001 Asia Pulse PTE Ltd. 
MUMBAI, April 30 Asia Pulse - India's Enron-backed Dabhol Power Company (DPC) 
said it is "not interested" in completing the US$3 billion power project in 
India's western state of Maharashtra, following non-payment of dues by the 
state electricity board (MSEB) and the federal government's refusal to honour 
the Rs 1.02 billion counter-guarantee. 
In DPC's board meeting in London on April 25, Enron India managing director K 
Wade Cline and DPC president Neil McGregor made it clear that they were "not 
very keen to complete the project, because management felt that both the 
state government and the the federal government were undermining the gravity 
of the situation," a senior state government official who attended the 
meeting told PTI.
Cline told the DPC directors that since the state government had "not shown" 
any serious interest in dissolving the difficult situation, DPC and its 
international lenders were "not in favour of continuing the project". 
When contacted, the DPC refused to comment. 
The fate of DPC's 2,184 MW project, which is 92 per cent complete, hangs in 
the balance, since the Indian financial institutions (FIs) led by the 
Industrial and Development Bank of India (IDBI) have stopped funding the debt 
portion of the project, with around 70 per cent of the US$1.8 billion worth 
of total disbursement already pumped in. 
"Naturally, we have stopped disbursement because we think that it is indeed a 
loss-making proposition. If the State Electricity Board begins paying, we 
will go ahead with our funding as well," an IDBI official said. 

 

CHAMBER CHIEF CALLS FOR PRIVATISATION OF INDIA'S POWER SECTOR REFORMS

04/30/2001
Asia Pulse 
(c) Copyright 2001 Asia Pulse PTE Ltd. 
NEW DELHI, April 30 Asia Pulse - Confederation of Indian Industry (CII) has 
demanded 'depoliticisation' of power sector reforms to 'enthuse and 
encourage' private investment even as it said that the Enron controversy 
would not impact future investments in the sector. 

"We need to depoliticise tariff fixation and set up a strong and independent 
regulator without interference from state governments," Sanjeev Goenka, 
President, CII told PTI.

"There are lessons to be learnt from Enron...the premise on which the 
agreement was based was faulty. We should not have had a counter-guarantee 
clause in the agreement," he said. 
Expressing confidence that the issue would be resolved soon, Goenka said even 
if Enron decides to pull out it will have no impact on private investment in 
the sector. 

He said no fresh investments have come in because of Enron. "Investments will 
come only if investors are confident of getting viable returns." 

Blaming poor confidence and low returns for lack of private sector investment 
in power sector Goenka said, the present policy of cross subsidisation had 
placed an extra burden on the power companies and rendered them 
uncompetitive. 

Goenka said the state electricity boards (SEBs) should be privatised and 
restructured to improve distribution and cut transmission losses. 

In reference to privatisation of state-owned BALCO, the CII chief said the 
centre should play a more agressive role in pursuing disinvestment. 

"Autonomy to states is meant for local governance, it is the centre which is 
to govern the country," he quipped. 


 
M and A
Fleet Street
by Peter Moreira

04/30/2001
The Daily Deal 
Copyright (c) 2001 The Deal LLC 
Deal talk from the British pages. 

LONDON -- The London press on Sunday focused largely on the two biggest 
stories in town -- the engagement of Bank of Scotland to Halifax plc and the 
financial troubles at British Telecommunications plc.

In other stories, The Observer said Scottish Power plc is considering a move 
to bolster its American west coast operations by buying Portland General 
Electric Co. of Portland, Ore., for $3 billion. Portland's owner, Enron 
Corp., last week broke off talks with U.S. utility Sierra Pacific over a deal 
said to be worth $3.1 billion. A Scottish Power official declined to comment. 
 
http://www.thedeal.com

 

WB HAS NO MAGIC FORMULA FOR REGIONAL POWER CONTRACTS: PRES.

04/30/2001
Asia Pulse 
(c) Copyright 2001 Asia Pulse PTE Ltd. 
WASHINGTON, April 30 Asia Pulse - World Bank President James Wolfensohn has 
said his organisation did not have a "magic formula" for regional contracting 
in power projects and renegotiation of contracts like Enron-promoted Dabhol 
Power Company in Maharashtra may not be needed in future as public opinion 
"is more alert" to details of the contracts. 

Wolfensohn made the remarks when an Indian correspondent asked him at a news 
conference whether the World Bank could aid developing countries to negotiate 
the right kind of contracts to avoid the kind of problems now confronting the 
DPC.

"I think we have been helpful with a lot of the Governments in terms of 
rationalizing the power issue. It is not just pricing. The issue is also line 
(transmission) losses which have been tremendous in many of the countries," 
he said. 

"I don't think we have a magic formula for regional contracting," said 
Wolfensohn, adding "but I would say it has come into prominence more in 
recent years on both negotiation of contracts and on the establishment of 
pricing." 

U.S. analysts have noted that Dabhol rates and the Pakistani rates are very 
much higher than even in the United States where labour is much more 
expensive. 

What he sees going on today, the World Bank chief said, is a "much more 
transparent and vigorous and active process in terms of public opinion. That 
never happened five or ten years ago. So, (thanks to public opinion) it is 
correcting itself." 
 
 
In Business This Week
POWER TRADERS ARE ALL CHARGED UP
Edited by Monica Roman

04/30/2001
Business Week 
48
(Copyright 2001 McGraw-Hill, Inc.) 
It was an electrifying quarter for power traders Enron, Dynegy, and Duke 
Energy. All three had strong first-quarter earnings, mostly due to 
California's energy crisis. At Houston-based Enron, the largest U.S. energy 
trader, revenue nearly quadrupled, to $50.1 billion, as earnings rose 26%, to 
$425 million. Fellow Houstonian Dynegy more than doubled first-quarter sales 
and profits, to $14.7 billion and $139.5 million. Revenues at Charlotte 
(N.C.)-based Duke also more than doubled, to $16.5 billion, as earnings 
surged 17%, to $458 million.


The Smart Investor
Time to sail
Indira Vergis

04/30/2001
Business Standard 
6
Copyright (c) Business Standard 
India's largest shipping company, Shipping Corporation of India (SCI), has 
been attracting growing interest from analysts of late. The main reasons 
include higher freight rates and the strong possibility of the government 
offloading its stake in SCI this financial year. The government holds 80 per 
cent of SCI stock and is aiming to divest upto 40 per cent. Indeed, the plans 
for disinvesment are being viewed as a powerful trigger that can send its 
stock price soaring. 
Swinging fortunes
The shipping industry holds all the promise and perils of a cyclical 
industry. When it comes to growth prospects for shipping companies, much 
hinges on the level of activity in world trade and shipping tonnage. 
Nearly 94 per cent of India's external trade moves by sea. Major products 
transported include crude oil, petroleum products, iron ore, steel and 
grains. 
Mighty force 
With its army of 99 ships in its fleet boasting 4.48 million tonnes in dead 
weight tonnage (dwt), state-run SCI represents a powerful force in the Indian 
shipping industry. It accounts for nearly 40 per cent of the country's total 
operating tonnage. Sailing behind are private competitors like GE Shipping, 
Essar and Varun Shipping. 
Ships can be broadly classified into tankers and bulk carriers. Tankers 
include crude carriers carrying crude oil, product carriers for transporting 
other liquid cargo like petroleum products and chemicals carriers. Bulk cargo 
carriers move dry cargo like ores and grains. 
As on April 2000, crude carriers made up nearly 44 per cent of SCI's gross 
registered tonnage(grt) while product. carriers accounted for around 11 per 
cent. Bulk carriers took up nearly 20 per cent. 
Better times ahead 
After weathering stormy waters in the past few years, the shipping industry 
seems ready to chart higher growth in calmer climate propelled by higher 
freight rates. Over the past year, freight rates have climbed, on an average, 
50-60 per cent, in the tankers market to around $24,000. 
Similarly, in the dry bulk segment, the Baltic Freight Index, the most 
widely-watched global indicator of spot dry bulk rates, is still floating at 
1,500 levels, after having peaked at 1,800 levels in September 2000. While it 
has slipped from the 1,600 levels a year ago, analysts expect the index to 
remain perched around these levels. For many, these are signs of better 
fortunes for shipping companies like SCI. "We expect freight rates to stay 
firm in 2001-02, probably just marginally lower from current levels," says 
P.K.Srivastava, chairman and managing director, SCI. 
Restructuring helps 
SCI has also made some restructuring efforts. It includes attempts to prune 
business segments seen to be a drag on company profits, like the liners 
division. Over the past year, the company has found buyers for 10 vessels, 
half of them liners. 
"This definitely helps them improve profits and cash flows," says Deepak 
Agrawal, analyst at kotakstreet.com. 
The selling of old ships, however, is a recurring theme in shipping 
operations. These sales not only improve cash flows but also lift some burden 
off operating costs. In SCI's case, it accounts for nearly 75 per cent of the 
sales. "This cash can also be employed in the tanker business ," Agarwal 
adds. 
In another step, SCI is also thrashing out the details of a voluntary 
retirement scheme for employees. It has more than 10,000 employees on its 
roster. In addition, heeding consulting house Pricewaterhouse Coopers'(PwC) 
recommendations, it is also turning to information technology to improve 
operational efficiency. However, PwC's suggestion that SCI be split into 
three separate companies has been rejected by the government. "The 
restructuring moves are having a positive impact on the company," says 
Agarwal. 
Winds of change 
Experts say that certain emerging global trends will also influence future 
operations of SCI. For one, international maritime laws can lead to a supply 
dip in large carriers like tankers. "The International Maritime Organisation 
(IMO) regulations could see the supply of tankers coming under slight 
pressure," agrees Agrawal. The IMO has asked the global shipping industry to 
gradually phase out single hull tankers and embrace newer double hull tankers 
seen as more environment-conscious. As scrapping of old design tankers 
gathers pace, the nature of shipbuilding will ensure that they won't be 
replaced immediately. 
Industry sources say that it takes roughly three years to build and operate 
large carriers like tankers. The impending imbalance in tanker demand and 
supply also seems reason enough for some to believe that freight rates for 
the segment will remain pegged at higher levels. Besides, production pattern 
changes in India's oil industry - a major client for the shipping sector - 
are also engineering changes in some segments. 
Improved oil refining capacity in the country is already signalling declining 
demand for product tankers carrying petroleum products. On the other hand, 
demand for crude tankers is slated to rise as demand for crude surges to feed 
increased refining capacity. India imports nearly 70 per cent of its total 
requirements of crude oil. 
In 1999-2000, SCI was the country's largest carrier of crude, bringing in 61 
per cent of the total requirements of the state-run and joint venture oil 
companies. 
There is also growing evidence that more consumers are shifting smaller 
break-bulk cargoes into containers. Industry watchers say, that this rate of 
containerisation of cargo is set to quicken. Container shipping forms 
slightly more than half the world's cargo shipping, yet currently, forms just 
under three per cent of SCI's grt. 
"It is a very important segment for us, next only to the LNG segment," says 
Srivastava. "However,"he adds, "we are looking more at alliances in this 
segment and not additional capital expenditure here." 
The brightest spot 
One opportunity that experts forecast will be a revenue-grosser for the 
Indian shipping industry in the coming years, is the budding demand for 
natural gas. With demand expected to far outstrip local supplies, the 
government is already considering legislation for the transportation and 
import of liquefied natural gas(LNG). SCI, with its Mitsui OSK Lines-led 
consortium, has already edged ahead of rivals in this arena by clinching a 
$400 million deal with Petronet LNG to build and operate two LNG carriers by 
2003. 
It has also formed a joint venture with US energy giant Enron Corp and Mitsui 
for a vessel to transport LNG from the Middle East to Enron's subsidiary 
Dabhol Power Company by the end of 2001. But the current imbroglio over 
whether Enron wants to continue operations in India or pull out does put a 
question mark on the contract. 
Besides, in a bid to strengthen fleet size, SCI has also placed orders worth 
Rs 823 crore to build four Aframax tankers in South Korea and an LR2 tanker 
in Cochin. 
"In fiscal 2002, we are looking at acquiring 10-12 ships" says Srivastava. 
While the company has a stash of Rs 1,390 crore in reserves, it often turns 
to domestic and international financial markets to finance its fleet 
expansion. Recently, it raised $115 million (Rs 535 crore) in external 
commercial borrowings at 100 basis points above the London Interbank Offered 
Rate (LIBOR). In fiscal 2000, total debt for the shipping firm stood at Rs 
1,473 crore. 
Financials 
The benefits of restructuring accompanied by buoyant freight rates were 
reflected in SCI's financial performance last year. For the nine months 
ending December 2000, operations generated Rs 2,203.48 crore in sales, 
jumping 16 per cent from the year-ago period. But net profit zoomed a 
mindboggling 203 per cent to Rs 232.15 crore from Rs 76.6 crore in the same 
period last year. Cost cutting measures contained total expenditure. It rose 
just 11 per cent to Rs 1,735.98 crore from Rs 1,566.9 crore. Operating 
margins added 387 basis points to 21.22 per cent from 17.35 per cent. Slicing 
costs further were declining interest payments at Rs 61.83 crore compared to 
Rs 68.36 in the same period last year. Depreciation costs rose marginally 
from Rs 196.33 crore to Rs 186.77 crore. But lower interest and depreciation 
figures did translate into a hefty tax bill of Rs 65 crore - double the 
figure it paid in the year-ago period. 
In fiscal 2000, return on net worth stood at 9.8 per cent. 
Valuations 
An overwhelming chunk of shares in the hands of the government has often 
deterred investors from trading in SCI stock. Yet, the stock remains 
noteworthy since it has turned in a better performance than the benchmark BSE 
Sensex. 
Over fiscal 2001, while the Sensex sunk 27 per cent, SCI's stock handed out a 
stunning 100 per cent return to shareholders. Starting out at Rs 15 in March 
2000, it more than doubled to Rs 34 twelve months later. And that's still 29 
per cent off the year high of Rs 48 witnessed in February 2001. 
Analysts continue to remain positive on the stock. Significantly, at Rs 34, 
the stock quotes at just around half its book value of Rs 66.79. Trading at 
just six times its 2000 earnings, the share still offers good value.

 

Godbole to head DPC renegotiation panel
Renni Abraham MUMBAI

04/30/2001
Business Standard 
2
Copyright (c) Business Standard 
With the Madhav Godbole committee along with a central government 
representative to conduct the renegotiation in the Dabhol Power Company (DPC) 
project for effecting reductions in the latter's power tariffs and 
restructuring the Power Purchase Agreement (PPA) the ball is now in the power 
major's court. 

The Godbole committee's recommendations with regards to the renegotiation 
process were arrived at unanimously, an aspect that its chairman confirmed to 
Business Standard on Sunday.
Godbole, however, stated that he was yet to receive any official intimation 
of his appointment on renegotiating team. 

Maharashtra's energy minister Padmasinh Patil, however, confirmed that the 
Godbole Committee would renegotiate the DPC project and said: "The chief 
minister would be announcing the names officially on Monday. We are now 
hopeful of a speedy negotiation process to resolve the DPC imbroglio." 

Godbole, when asked how long the renegotiation process would take, said: "I 
would have to see the stand taken by Enron on the issue of renegotiations 
before commenting on this issue." 
With the government deciding to sustain the resolution process with the same 
team (Godbole Committee), the recommendations made by it would for all 
purposes set the benchmark for the renegotiation process. 

Godbole told Business Standard: "As far as the restructuring of the PPA and 
other recommendations made by the committee with regards to the DPC project 
are concerned, there was unanimity among all the members." 

The committee's report notes, "The exact terms need to be agreed between the 
contracting parties, but, in the committee's opinion, unless the negotiations 
proceed on these broad guidelines and various parties make concessions of 
this magnitude, the ultimate result is likely to be as infructuous as the 
earlier renegotiations in 1995." 

The concessions, recommended by the committee include "the seperation of the 
LNG facility. It is critical that the cost of this facility be distributed 
over its entire capacity and not just over the amount sold to the power 
plant... the LNG facility be seperated into a distinct facility, whose 
capital costs are reflected in the fuel charge, not as take or pay, but only 
in proportion to the extent of fuel re-gasified for power generation, 
compared to the total re-gasification capacity." 
Also recommended are: renegotiation of the LNG supply and shipping 
agreements, converting the tariff into two-parts, removal of all dollar 
denomination in the fixed charge component and financial restructuring of DPC 
and cancellation of escrow agreement amongst other things. 
Meanwhile, president of Enron Indian, Wade Kline, when contacted offered no 
comments on the DPC issue.

 

Industrial Management: ENERGY
DENMARK INHERITS THE WIND The tiny country now leads the world in windmill 
technology
By William Echikson in Ringkobing, Denmark, with Janet Ginsburg in Chicago

04/30/2001
Business Week 
126B
(Copyright 2001 McGraw-Hill, Inc.) 
Gabled red-brick farmhouses dot the gently rolling green fields of the 
Jutland peninsula on Denmark's west coast. It's a scene straight out of a 
Hans Christian Andersen fairy tale--except for one prominent feature: Rising 
30 stories are space-age white towers, topped with giant, three-bladed 
propellers that span 120 feet. Windmills have been part of Denmark's 
landscape for centuries--but not like these, and never with so much economic 
impact. ``Many of our farmers make more money out of power generation than 
farming,'' says Johannes Poulsen, managing director of Vestas Wind System. 
Vestas leads a cluster of companies that have made tiny Denmark, population 5 
million, the world's top producer and exporter of windmills. 

For Denmark, wind power is a fairy tale come true. Not only does the wind 
industry supply about 13% of Denmark's power but Danish companies currently 
control about 50% of the $4.5 billion global windmill market, and their share 
is increasing. What's more, the market itself has been growing by 30% to 40% 
a year since the late 1990s, creating a tidy windfall for the manufacturers. 
Vestas, for example, has seen its stock rise twentyfold in three years. 
Revenues grew by 37% last year, to $738 million, and profits hit $103 
million. ``Wind is the great energy success story of the last decade,'' says 
Roderick Bridge, an analyst at HSBC Investment Bank in London. 

FLAWED POLICY. The U.S. could have played a bigger role. American companies 
began to build the first generation of truly modern windmills in the early 
1980s, armed with Carter-era tax credits aimed at promoting green energy. The 
credits got the industry off the ground, but the policy was flawed. Both the 
Federal government and California offered tax credits only for the 
installation of windmills, not for operating and maintaining them. So when 
the windmills broke down, they were often simply left to rust. After energy 
prices fell and funding for wind programs under Ronald Reagan contracted, the 
U.S. gave up its lead in wind technology. ``It was Uncle Sam that birthed the 
industry, then lost it to the rest of the world,'' laments James Dehlsen, 
founder of U.S. turbine maker Zond Corp., which was sold later to 
Houston-based Enron Corp.

Denmark's public policy has been more consistent and was better conceived 
from the start. The government chose to pay windmill owners above-market 
prices for their power, subsidizing upkeep and investment in new technology. 
``The original California system encouraged doctors and dentists to buy wind 
turbines,'' says Vestas' Poulsen, ``but our [wind producers] have much more 
of an incentive to care whether they work.'' 

Another difference: From the beginning, Danish windmill makers knew they 
needed to export. ``Our small home market gives us no choice,'' says Per 
Hornung Pedersen, chief financial officer at the second-largest Danish 
producer, NEG Micon. This early export focus gave the Danes a leg up on big 
competitors in Germany and Spain. 

Wise technology choices helped the Danes build on the generous government 
support. While U.S. manufacturers working with aerospace technology 
concentrated on lightweight materials that were efficient but fragile, Danish 
companies started off as heavy-duty farm machinery makers. ``The original 
Danish turbines were more than twice the weight of comparable American 
turbines and proved much more durable,'' recalls Birger T. Madsen, managing 
director of Denmark-based BTM Consult, a leading wind power consultancy. 

Gradually, the Danes improved the efficiency of their devices. Where early 
models were outfitted with 225 kilowatt generators, today's models can churn 
out as much as of 2 megawatts, enough to power 2,000 homes. Larger 2.5- and 
3-megawatt machines are under development--some of them destined for offshore 
environments where the wind is reliable but storms, waves, and salty 
conditions demand unprecedented ruggedness. And improvements in computerized 
control systems are helping turbines squeeze out more watts from the wind 
more efficiently. The best windmills now can produce a kilowatt-hour of 
electricity for about 4 cents--half the cost of five years ago and 
approaching the price of power generated by gas-fired plants. 

Still, the wind business must overcome some giant hurdles, starting with 
political risks. In the U.S., a tax credit for wind power comes up for 
congressional renewal this December, at a time when President George W. Bush 
is pushing for a 30% cut in federal funding for renewable power and 
conservation programs. And even though wind power is increasingly cost 
competitive, many would-be windmill operators in both the U.S. and Europe 
still need subsidies to win long-term financing. So if the tax credit isn't 
renewed, the Danes' largest market could blow away. LITTLE SECRET. Critics 
contend that the subsidies themselves are a problem. They argue that wind 
power will never prove its merit until the artificial tax credits and price 
supports on both sides of the Atlantic are removed. The Danish government 
pays more than $300 million to wind generators every year. ``Partly as a 
result of those high subsidies, the Danes pay the highest rates for 
electricity in the world,'' argues Brian O'Connell, author of a book critical 
of renewable energy policies. 

Skeptics have other objections, as well. Birds sometimes get chopped in the 
turbines. And people who live near wind farms often say they are an eyesore. 
But the biggest problems are intrinsic: Windmills only produce when the wind 
is up, and for now, there is no way to store the surplus electricity. Until 
that issue is resolved, BTM Consult figures wind systems could supply a 
maximum of about a third of global electricity demand. That's much more than 
now, but with solar and other renewables lagging far behind, the difference 
would still have to be made up by fossil fuels. 

At least some of wind's liabilities may eventually be solved. Power-storage 
technologies are in development in laboratories around the world. And while 
the U.S. has officially repudiated the 1997 Kyoto Protocol, which called for 
dramatic cuts in carbon emissions, other governments are likely to encourage 
more wind power as part of the effort to reduce greenhouse gases. The 
European Union, for one, has set targets for a fivefold growth of renewable 
energy by 2010. 
Worldwide, the Danes face growing competition from ABB. The giant 
Swedish-Swiss power company recently announced a novel type of gearless 
windmill that converts turbine rotation to energy by means of a magnet-run, 
transformerless high-voltage generator. Since the gearbox is often a source 
of trouble, ABB's gearless device could make a big splash in the market. 

Nevertheless, many analysts believe the Danes have a comfortable edge. NEG 
Micon recently raised $100 million in fresh financing and is expected to 
report a profit for 2000. Its stock has more than tripled over the past year, 
yielding a market cap up to $1.5 billion. Vestas' market cap is $5.5 billion, 
and privately held companies report soaring sales. 

Already, the windmill business has revived rural Jutland's economy, which 
previously struggled along on shipbuilding, fishing, and farming. When the 
shipyard in the town of Ringkobing went broke in 1999, Vestas converted the 
facilities to make windmills. Now, it's expanding the site and has doubled 
its workforce, to 3,000, in the past five years. ``All the shipyard workers 
got jobs here,'' says Vestas welder Thomas Knudsen. Wind power may look like 
an anachronism. But it's gaining ground more quickly than other renewable 
sources. It may well turn out to be the green power of choice for the 21st 
century.

Photograph: WIND SUPPLIES 13% OF DENMARK'S POWER PHOTOGRAPH BY CLAUS 
BONNERUP/POLFOTO 
Photograph: OUTBOUND: A windmill component leaves the plant. The Danes hold 
about 50% of the global market COURTESY NEG MICON Illustration: Chart: 

 

Business Week International Editions: Environment: Commentary
GLOBAL WARMING: LOOK WHO DISAGREES WITH BUSH
By Paul Raeburn

04/30/2001
Business Week 
72EU11
(Copyright 2001 McGraw-Hill, Inc.) 
When President Bush discarded the Kyoto Protocol--an international agreement 
to cut emissions of carbon dioxide and other global-warming gases--he blamed 
the decision on a slowing U.S. economy and an energy crisis. ``The idea of 
placing caps on CO2 does not make economic sense for America,'' Bush said on 
Mar. 29. 

Some of the world's largest companies disagree. DuPont, for example, has 
already made substantial cuts in its greenhouse-gas emissions and says it 
will continue to do so despite the Administration's reluctance.

``The announcements around Kyoto don't change our resolve,'' says Paul Tebo, 
corporate vice-president for safety, health, and environment at DuPont. Why? 
Because the company's environmental program pays off in enhanced shareholder 
value, says Tebo. ``You can't measure this to the penny, but it is very real. 
Corporate reputation is a very valuable part of our company.'' GOOD SENSE. 
DuPont is not alone. On Apr. 4, the Business Roundtable proposed various 
solutions to the global-warming problem in a report titled, ``Unleashing 
Innovation: The Right Approach to Global Climate Change.'' Earnest W. 
Deavenport, chairman and chief executive of Eastman Chemical Co., who chaired 
the Business Roundtable's environment task force, said the report 
``represents the business community's interest in being part of the solution 
to concerns about global climate change.'' 

Increasingly, corporations are deciding to join efforts to curb global 
warming because the strategy makes good business sense. Others include BP 
Amoco, Royal Dutch/Shell, Ford, and General Motors--all companies that would 
be expected to fight limits on greenhouse-gas emissions. Until recently, 
these four companies were members of the Global Climate Coalition, a group 
formed to oppose mandatory limits on greenhouse emissions. All have pulled 
out. 

BP and Shell aren't stopping with that gesture. They have joined two dozen 
other companies--including Alcoa, Enron, Georgia-Pacific, and Toyota--in a 
new group called the Pew Center on Global Climate Change. The center brings 
companies together to search for solutions to the global-warming problem. ``I 
think they are convinced that at one time or another there will be regulation 
of greenhouse gases because this is a real problem,'' says Pew Center 
President Eileen Claussen. 

It's difficult to know whether the companies will keep their resolve when the 
time comes to act on their pledges to cut emissions. Some of them, however, 
have already begun to act. BP and Shell, for example, have each established 
internal emissions-trading schemes. The idea is to reduce emissions more than 
necessary where it is economical to do so, creating emissions ``permits'' to 
be sold to other units within the company. If emissions trading among 
companies becomes a reality, BP and Shell, unlike their competitors, will 
already know how to use it to their advantage. 
The Big Three auto makers have likewise jumped ahead of regulators with a 
game of one-upsmanship to boost vehicle mileage. Ford Motor Co. took the lead 
in 2000 when it publicly promised to improve the fuel economy of all its SUVs 
by 25% over five years. General Motors Corp. promised to beat Ford's 
improvements. And DaimlerChrysler has just joined the game, saying it will 
meet or beat any Ford SUV fuel-economy gains. 

These moves represent a significant change in corporate behavior. So far, it 
has been mostly promises. But if those promises aren't kept, environmental 
groups, which are watching very closely, will do their best to stage a public 
flogging. 

The Bush Administration, with its narrow view of the world's energy problems, 
sees boosts in oil exploration and production as nonnegotiable goals. Cheap 
energy is good for the economy, and boosting supply is one way to help bring 
down prices. But the Administration has given no hint that it perceives 
global warming as a serious problem. And such a stance carries a risk: While 
some uncertainty remains about the consequences of global warming, the 
overwhelming evidence suggests that the phenomenon is real. The probusiness 
Bush Administration should listen a little more closely to what some 
businesses are actually saying.


News of the Week; ENERGY
Oil Is Thicker Than Blood; Florida presents a tough lesson in Bush brotherly 
love
By Howard Fineman and Martha Brant With Joseph Contreras in Miami and T. 
Trent Gegax in Washington

04/30/2001
Newsweek 
31
Copyright (C) 2001 Newsweek Inc. All Rights Reserved. 
Jeb Bush didn't waste time. The day after returning to Tallahassee from his 
brother's Inauguration, he fired off a letter imploring the (George W.) Bush 
administration not to allow new drilling for oil and gas in the Gulf of 
Mexico near Florida. In Washington the next month, Gov. Jeb Bush made the 
same appeal to the new Interior secretary, Gale Norton. He's spoken about the 
issue with Vice President Dick Cheney, chief of staff Andy Card and, most 
important, his brother, whom he keeps bumping into--fishing with Dad in the 
gulf after the election, sitting down to Thanksgiving dinner and at the 
Inaugural-parade reviewing stand. But last week Norton told Jeb the bad news: 
she was taking the next step toward allowing the sale of Lease 181--6 million 
acres of gas-rich ocean floor in the gulf. 

President Bush spent most of last week urgently trying to improve his 
standing on environmental issues before Earth Day, and before Cheney's secret 
Energy Task Force next month unveils proposals that are sure to make greens 
see red. But all politics is local--and, in the Bush world, familial. Bushes 
have a history in the gulf. Dad made his grubstake there 40 years ago as a 
pioneer in offshore drilling. As president, he stopped the development of 
some already-leased tracts in the gulf. Now his eldest son faces a dilemma in 
the same waters.

It turns out that there is more petroleum--especially natural gas--in the 
depths of the gulf than anyone realized. And the country desperately needs 
natural gas, since our de facto energy policy long has favored the 
construction of new, clean-burning, gas-fired electric-power plants. Dubya 
knows all this. He also knows that gulf-state senators--including Republican 
leader Trent Lott and cagey Democratic dealmaker John Breaux--are pushing 
hard for lease sales. So, of course, is the energy industry, home to some of 
Bush's most generous contributors. One of the biggest big shots in the 
gas-power-plant business is Ken Lay, the head of Enron--a dear friend and 
big-time fund-raiser. 

But Florida is the Big Green Plantain: Bush's California, his must-win 
megastate. Jeb is likely to seek a second term as governor in 2002. The White 
House is trying to help, appointing an anti-Castro Cuban-American at State 
and a Jeb ally at Health and Human Services. Florida is a nature-loving state 
full of environmentalists, even if they don't all own up to the label. Jeb 
has labored hard to be green: enacting a 10-year, $3 billion land-acquisition 
plan to help the Everglades, allocating $300 million for water-quality 
projects. This week he announces creation of the Tortugas Reserve in the 
gulf, the nation's largest no-fishing zone. 

Still, Jeb has no margin for error. Democrats, seething at Al Gore's 
court-supported Florida defeat, have declared a jihad. "They will flood 
Florida with money and troops," frets a GOP strategist. Even the weather is 
an enemy. A drought forced Jeb to seek--and get--federal permission to pump 
half-treated water into Florida aquifers. A decision by his brother to open 
the gulf to drilling could be a political disaster. 

Jeb may have another chance to turn the tide when the president visits 
Florida this week. Meanwhile, Bushies in Washington and Tallahassee were 
looking to deal. The likely play, sources told NEWSWEEK, would allow the sale 
of Lease 181 to go ahead with slightly redrawn boundaries. In exchange, 
Commerce Secretary Don Evans (an oilman himself) could turn down Chevron's 
request to begin drilling the closer-to-the-coast Destin Dome lease, which 
the company bought in 1988. Ironically, it was Bush senior who suspended 
drilling rights there. Chevron later named an oil tanker after Dubya's 
foreign-policy tutor, Condoleezza Rice. Nice try, guys, but family comes 
first. 

With Joseph Contreras in Miami and T. Trent Gegax in Washington 

Photo: Family time: Jeb appealed to his brother and Norton (inset) to stay 
drilling in the Gulf of Mexico 

 

Top Business Schools (A Special Report) --- And the Winners Are... --- Six 
European Schools Rank Among World's Top 50 M.B.A. Programs
By Ronald Alsop and Edward Taylor
Staff Reporters

04/30/2001
The Wall Street Journal Europe 
32
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
Six European institutions rank among the world's 50 best business schools in 
a new Wall Street Journal survey of corporate recruiters. 

In a result that's sure to surprise many business schools and students alike, 
ESADE of Spain, INSEAD of France and IMD of Switzerland beat such elite 
American institutions as Columbia University, the University of California at 
Los Angeles and the Massachusetts Institute of Technology. The other European 
schools in the top 50 are London Business School of the U.K. and Instituto de 
Empresa and IESE of Spain.

The Tuck School at Dartmouth College, the world's first graduate school of 
business, ranks No. 1 in the Journal's first survey of M.B.A. recruiters. 
Darmouth beat out such institutions as Harvard University, Stanford 
University and the Wharton School at the University of Pennsylvania. 
Recruiters who rated the schools in an online survey praised Dartmouth's 
small, collegial M.B.A. program for producing general managers who make loyal 
team players. (For more on Dartmouth, see the story on page 33.) 

Close behind Dartmouth in second and third place were two other small M.B.A. 
programs with fewer than 500 full-time students -- Carnegie Mellon 
University's Graduate School of Industrial Administration and Yale 
University's School of Management. Both received high marks for their 
students' teamwork strengths and analytical and problem-solving skills. 

The rankings are based on a survey conducted last fall by Harris Interactive 
Inc., in which 1,600 recruiters rated schools they knew from firsthand 
experience. 

The survey reached people in the field doing the actual recruiting -- the 
heads of business units, line managers and others -- not just the 
human-resources executives stationed at corporate headquarters. Each school 
was ranked on 27 factors that influence a recruiter's decision to visit a 
particular campus and hire a particular graduate, such as the career-services 
office, the core curriculum and students' leadership potential and teamwork 
skills. In addition, a school's final ranking took into account its "mass 
appeal," based on the number of recruiters who rated it. 
There's no question that all of the schools in the study offer quality M.B.A. 
programs. But The Wall Street Journal/Harris Interactive study of M.B.A. 
programs is the only major survey that focuses exclusively on the opinions of 
recruiters -- the buyers of M.B.A. talent. Consider it a consumers' ranking 
of M.B.A. programs -- with results that differ considerably from those in 
other business-school guides. 

The M.B.A. programs outside the U.S. made a strong showing in the survey, 
representing nearly 20% of the ranked business schools. That's especially 
impressive because 83% of the recruiters rated only U.S. schools, 10% 
selected non-U.S. schools only, and 7% selected both American and non-U.S. 
schools. 

The M.B.A. degree, an American creation, is being offered by more 
universities, and their graduates appeal to multinational companies seeking 
managers with a strong international perspective. Canada claims the 
highest-ranked non-U.S. school -- the University of Western Ontario in 22nd 
place -- while the six European schools are joined by one in Mexico and a 
second one in Canada. 

"There's a very good showing of non-U.S. schools in the survey," says Joy 
Sever, a senior vice president at Harris Interactive. "For some of the 
schools, it may have been the first time they had been approached to 
participate in a ranking." 

Moreover, she says, "people's assumptions about what's `best' needs to be 
thought about in a different way," given that several European schools 
outranked some American heavyweights. 
Indeed, the one of the biggest surprises of the survey is the mixed reviews 
garnered by the big, prestigious business schools. Some of the titans, 
including Northwestern, the University of Chicago and Harvard, ranked in the 
top 10. But Wharton placed only 18th, and Columbia University, M.I.T. and 
Stanford finished much further down in the rankings. Recruiters complained 
that graduates of some of the most prominent schools expect too much too soon 
in terms of salary and position and are difficult to retain for very long. 

Not a single school in the Western U.S. made it into the top 20. The 
top-rated school in the West -- the Haas School of Business at the University 
of California, Berkeley -- placed 21st. 
In fact, recruiters say they have stopped visiting some of the California 
schools, especially Stanford, because their graduates are simply unwilling to 
leave the sunshine and Silicon Valley behind. Business schools in California 
also lagged behind the other schools on students' leadership potential, their 
general management point of view and recruiter satisfaction with the 
career-services office. 

"What school is best depends on the recruiters' needs," says recruiter Laura 
Barker Morse, at venture-capital firm Atlas Venture. The Boston-based 
recruiting principal has recruited for early-stage technology companies in 
the U.S. and Europe for more than 20 years, choosing students from Harvard, 
Stanford, M.I.T., Berkeley, Wharton, Columbia and INSEAD because they met 
certain needs. 

"We want to be helpful to our fast- growing companies. So for a strong 
technology and business orientation in Europe, we tend to go to INSEAD, which 
uses the case-study method patterned after Harvard." Ms. Barker Morse says. 
"But for European companies we also go out of our way to get to know the 
Europeans who attend U.S. schools." 

What set the top 10 schools apart from the rest? For one thing, they 
significantly outscored the others on five specific attributes: teaching 
analytical and problem-solving skills; recruiters' past success with the 
quality of graduates hired from that school; the school's preparation of 
students for the New Economy; graduates' strategic thinking; and "chemistry," 
or general good feelings about the school. 

Many of the top-ranked schools also received high scores for their graduates' 
communication and interpersonal skills, which nine out of 10 recruiters said 
they consider very important. 

Jeff Puzas, a manager at the consulting firm PRTM in Washington, D.C., has 
recruited at both Harvard and Carnegie Mellon and believes Carnegie Mellon 
has the edge in analytical and technical skills while graduates of Harvard 
excel in interpersonal communication. 

"Interpersonal skills are like a sixth sense and have been highly underrated 
as a differentiating factor for students," says Mr. Puzas, a Carnegie Mellon 
graduate. "Most of what I do every day as a management consultant has to do 
with interpersonal skills, not my I.Q." 

The need for companies to effectively communicate with clients means Elena 
Florez, Spanish recruiting coordinator for American Management Systems Inc. 
in Madrid, recruits mainly from IESE, the International Graduate School of 
Management in Barcelona and Instituto de Empresa in Madrid. "In Spain not 
many people speak English so we need people who can understand the language 
and culture," she says. 

Being small clearly was a virtue for many of the business schools in the 
survey. Half of the top 10 schools and 14 of the top 25 report full-time 
M.B.A. enrollments of fewer than 500 students. In general, recruiters say, 
they find graduates of small M.B.A. programs more collaborative and 
personable than their counterparts at large schools. 

Paolo Raffaelli, key account manager at Guidant Corp., a U.S. developer of 
cardiovascular products, says smaller schools like Switzerland's IMD, with a 
class size of around 80 students, offer a more intimate studying environment. 
This allows faculty to observe each student more closely, he says. As one 
survey respondent remarks about Switzerland's IMD, there's "a real focus on 
getting students a great job that is a really good fit." 

Another respondent, Julie Hamrick, president of Ignite Sales, a four-year-old 
Internet marketing firm in Dallas, has visited business schools of all sizes. 
"But we find time and time again better-prepared students at the small 
schools; they're less theoretical, more hands-on," she says. "They also seem 
more team-oriented, and it's critically important that you can rely on every 
member of the team in a start-up like mine." 

Adds a recruiter who has hired students from IMD, "Small is clearly 
stronger." 

Ms. Hamrick scouts for M.B.A. talent at her alma mater, Southern Methodist 
University, which ranked ninth in the survey and has a full-time M.B.A. 
enrollment of 236. She also has recruited at Dartmouth, with 375 full-time 
students, and found that in many ways it epitomizes the small-school 
environment. The student-faculty ratio is 7 to 1, team projects figure 
heavily in the curriculum, and many students live in campus dorms and belong 
to school hockey teams and ski groups in remote, snowy Hanover, New 
Hampshire. 

"You have to get along at a small business school like Tuck; there's no place 
to hide," says Bill Sones, a consultant for a software company in Boston, who 
received his M.B.A. degree from Yale in 1998. "The student and alumni 
networks are very close-knit at Dartmouth and Yale. Students aren't out for 
No. 1 as much; you don't have to watch your back." 

But a small class size can sometimes work against a school. Lucy Barry, head 
of recruitment for London-based strategy consultants L.E.K Consulting, 
recruits more people from Fontainebleau-based INSEAD than IMD in Lausanne. 
"It's a numbers game," says Ms. Barry. "We are more likely to find a 
candidate at a school with a larger class size, particularly if there are a 
large number of recruiters." INSEAD has nearly 700 M.B.A. students in 
Fontainebleau and Singapore. 
The business-school survey included an academics section in which recruiters 
nominated schools they considered exceptional in certain fields of study. 

Three schools placed first in two different academic disciplines: Wharton for 
accounting and finance; Stanford for e-commerce and entrepreneurship; and 
Harvard for general management and strategy. 

But academic reputation had surprisingly little bearing on recruiters' 
overall rankings of the schools. Faculty and curriculum were among the 
least-significant factors in the survey. That helps explain why some of the 
academic starts didn't dazzle recruiters and didn't necessarily receive a top 
ranking. "In the finer academic institutions, virtually 100% of the faculty 
are Ph.D.s," says Jack Bragin of the recruiting firm Michael Page 
International Inc. "But students can benefit from professors who are more 
streetwise and have more real-world experience." 

Many recruiters said they find it especially difficult to compete for 
graduates from some of the academic elite. That may change amid the economic 
slowdown as the job market eases. But at the time of the survey, respondents 
complained that they often came away from the elite schools empty-handed 
because of graduates' unrealistic salary and career expectations. They also 
criticized the graduates for having arrogant attitudes and said they find few 
team players at some of the prestigious schools. 

Recruiters are clearly ambivalent about schools like Harvard, which they 
overwhelmingly name as the M.B.A. program with the most competitive 
environment. They see it as the gold standard of business schools, but the 
largest number think of "arrogance" when asked what first comes to mind when 
they hear the Harvard name. Even so, when recruiters were asked which school 
they would choose to get an M.B.A. degree, Harvard ranked third in number of 
mentions. 

"Harvard graduates I have interviewed are discernibly different from other 
Ivy League graduates -- more well-rounded, entrepreneurial and worldy," says 
Mr. Bragin. "But you have to deal with their excessive expectations about 
what their M.B.A. degree will get them. Some seem to expect to be CEO within 
two years." 

Kristin Gandy, associate recruiter for Enron Corp., was disappointed with her 
visit to M.I.T. last year. She recalls that about half the students on her 
interview schedule failed to show up and didn't bother to call or write a 
letter of apology. 

"We didn't have a good fall season at M.I.T. and weren't at all pleased with 
the results," Ms. Gandy says. But, she adds, the school seems to be changing 
for the better this year under its new career-development director. Indeed, 
Jackie Wilbur, the new director, says M.I.T. students will now lose 
recruiting services if they miss interviews. 

M.I.T.'s Sloan School of Management ranked 38th in the survey and received 
its lowest scores for its career-services office, value for the money spent 
on the recruiting effort and companies' success in retaining its graduates. 
Richard Schmalensee, the Sloan School's dean, is sympathetic to recruiters' 
frustrations, but he doesn't apologize for his students' selectivity. 
"You can make the argument that our students are expensive and hard to keep," 
Mr. Schmalensee says. "But if they weren't, I'd have a problem with that. 
People who like to take risks and are looking for challenging work are drawn 
to M.I.T." 

Tim Butler, director of M.B.A. career- development programs at Harvard, 
believes recruiters too quickly blame the schools for their low recruiting 
yield or their inability to retain the graduates they do hire. 

"The real issue often is the attractiveness of the company and its ability to 
develop their careers and keep them interested," he says. "Companies think 
only of pay as a way to keep employees. They need to think more creatively of 
how to excite these top performers." 

--- The Rating Criteria
Recruiters rated business schools and their students on these 27
attributes

School Attributes
-- The career-services office at that school
-- The past success recruiters have had in terms of the number of
graduates they have hired from that school
-- The past success they've had with the
quality of graduates they have hired from that school
-- The core curriculum
-- A particular specialty that is offered at
that school
-- The faculty
-- The students' average number of years of work experience
-- The willingness of the school's students to relocate to the job
location recruiters require
-- The long-term success recruiters have had with students hired from 
the school
-- The success they have had retaining
students hired from the school
-- The school's success in preparing students for the New Economy
-- "Chemistry" - that is, the general like or dislike recruiters have 
of the school overall

Student Attributes

-- Communication and interpersonal skills
-- Original and visionary thinking
-- Leadership potential
-- Ability to work well within a team
-- Analytical and problem-solving skills
-- Strong international perspective
-- Strategic thinking
-- Ability to drive results
-- Specific functional expertise

For More Information
The articles in this report are based on data collected by Harris
Interactive Inc. as part of a survey jointly developed by The Wall
Street Journal and Harris Interactive. In addition to the results
appearing in this report, 1,257 pages of extensive survey results and
information, including recruiters' comments, are available in the
e-book "The Wall Street Journal Guide to Business Schools" (available
at WSJbooks. com). General and customized research reports are also
available through Harris Interactive.

For further information about The Wall Street Journal/Harris
Interactive Business School Survey, please contact, in the U.S.:

Joy Sever, Ph.D.
Senior Vice President
Harris Interactive
1-877-919-4765, ext. 50
bschoolsurvey@harris
interactive.net

The Wall Street Journal is not involved in the sale of Harris
Interactive research reports, which are prepared and sold only by
Harris Interactive.

 

Features/E-Corp Special Report
Flying On The Web In A Turbulent Economy Times are tough, but the pressure to 
Webify hasn't let up. Four lessons on getting it right.
Fred Vogelstein Reporter Associate Paola Hjelt

04/30/2001
Fortune Magazine 
Time Inc. 
142+
(Copyright 2001) 
Visit the folks at Boeing these days and if they're not too busy fending off 
chagrined Seattleites, they'll talk your ear off. There's just a good chance 
that the conversation won't be about planes. Don't misinterpret this. The 
past year has been kind to the 15th-largest company in the world. Revenues 
fell, but earnings and operating margins were surprisingly strong. And while 
every stock big and small seemed to crater, Boeing's shares are up some 40% 
since April of last year. But just building planes isn't doing it anymore at 
Boeing. Demand for jets is slowing as airlines consolidate, and competition 
from Airbus is pressuring margins. So what's got Boeing execs really fired up 
lately? You guessed it: the Internet. 

Who's going to buy a jet online? you may ask. Who knows? Who cares? respond 
Boeing execs. That's not why they're consumed with the Internet. Boeing 
doesn't want to be the Amazon.com of the aerospace industry. What Boeing 
wants to do is rethink its business. It needs to build planes faster and for 
less money. More significant, it needs to get into less cyclical, 
higher-margin businesses, like aircraft maintenance. The math here is pretty 
simple: Boeing earns 9% margins building planes. It can make more than 20% 
margins servicing them. Theoretically, at least, the Internet will make doing 
all this easier; in other cases, it will make it possible.

What's happening at Boeing is hardly new. A handful of corporate executives 
like John Chambers, Larry Ellison, Kenneth Lay, Michael Dell, and Jack Welch 
have understood the power of the Internet for years. It's why virtually no 
paper changes hands at Cisco; it's why Oracle could even claim to have saved 
$1 billion a year; it's why Enron has been able to transform itself from a 
low-margin natural gas supplier to a high-margin energy-trading firm; it's 
why Dell has no stores and no inventory; and it's why GE can boast it will 
more than double pretax earnings in the next few years. 

The difference today is that the stakes are much higher. Embracing the Net 
when the economy was booming and few competitors understood the technology 
was one thing. Then, failure could be repositioned as a "learning 
experience." Now, with recession--not stock options--the dominant topic at 
cocktail parties, there is little room to screw up. Investors are demanding 
fiscal discipline and so technology budgets are tightening, expected to grow 
just 4% to 6% this year, down from 12% last year. At the same time, the 
pressure on corporations to develop a Net game before their competitors do is 
only growing. It's a scary combination. At a recent conference, Merrill Lynch 
CEO David Komansky said he couldn't remember a time, at least in his 
business, when there was such an "enormous premium on being right." 

The pressure isn't keeping them from trying. Even with tech spending slowing, 
when it comes to using the Web to make operations more efficient, few CEOs 
are scaling back, according to Chuck Phillips, a Morgan Stanley analyst who 
regularly surveys chief information officers. Ralph Szygenda, GM's CIO, brags 
that he's cut GM's tech spending by 20% in five years, to $3.2 billion, and 
still made a $1.6 billion investment in e-business. For companies just now 
gearing up, they're lucky: The Net has been with us long enough that a 
handful of lessons are emerging. 

Looking at Boeing's Internet strategy is particularly instructive. It may be 
the most ambitious of any major corporation yet. True, GE and the automakers, 
too, are using the Internet to run their core businesses better. But talk to 
Boeing execs and you'll find that everything at the company is being 
reexamined, from how it interacts with its customers and 15,000 suppliers 
right down to whether plane- making should be its core business. The goal is 
to change the entire fabric of the company. 

Part of the reason for the overhaul is that for such a high-tech operation, 
Boeing until recently was a pretty backward place. Sure the company liked to 
think it knew more about building planes than anyone in the world, but good 
luck trying to get your hands on that information after the planes were 
built. Much of its extensive knowledge about aerospace design and 
manufacturing was locked in giant paper binders or in one of 18 incompatible 
procurement computer systems. The only people who could find it were people 
who knew where to look. 

Even until the middle of last year, suppliers could be making the same part 
for a handful of Boeing divisions and, because of the distinct procurement 
computers, get 18 different contracts. A big chunk of the work is finished, 
but there's still more to do. Many small parts, like brackets, which connect 
overhead bins to the fuselage, are still designed and manufactured from 
scratch every time. "Right now, if you wanted to look inside Boeing to see if 
another division had manufactured a part with the specs you needed, you can't 
do that," says CIO Scott Griffin. 
Digitizing the data is already helping to solve the problems. Even better, 
it's helping trim costs. Boeing generates a billion pages of paper a year 
building planes. In two years Griffin wants to have cut that by 30% to 50%. 
"There are costs in printing paper, in managing it, in shipping it," he says. 
None of this has anything to do with building a plane. "It's evil," he says, 
"like inventory." The hope: to run Boeing as efficiently as Cisco, where 
memos, invoices, engineering drawings--virtually everything--happen over the 
Net instead of on paper. 

Eventually, as Boeing goes down this road, Webifying the company will help 
ease entry into new lines of business and increase sales. To compete in the 
maintenance market, Boeing is arming its crews with wireless devices that 
connect to the company's databases. If a crew member wants to consult the 
manual while on the tarmac, he can do so without having to drive back to the 
hangar. This summer Boeing is going to begin purchasing airplane production 
parts online from its suppliers. Standardizing and reducing the number of 
parts has helped boost margins on plane-building to 9% from 5% in 1999. Last 
month, for the first time, Boeing conducted an online reverse auction for 
natural gas, which it uses to heat many of its plants. It got the gas 10% 
cheaper and sealed the deal in a few hours instead of several weeks. And the 
company is increasingly giving its customers the easy access to Boeing 
information they crave. On myboeingfleet.com, customers can now research 
design and maintenance issues for almost all of the airline's commercial 
fleet and order many of the parts they need. The upshot: Online sales of 
Boeing spare parts are up more than 10%, and where Boeing once retained some 
60 employees just to handle faxes and phone calls from its customers, it now 
does the same work with 12 people. 

The ultimate payoff for Boeing could be huge. But its strategy is fraught 
with risks. Think about it. In maintenance, one of Boeing's big 
competitors--GE--is also one of its biggest customers. More broadly, Boeing 
is spending millions of dollars to get its 198,000 employees to change the 
way they work. And people don't like to change the way they do anything. For 
Griffin, or any of Boeing's senior executives, implementing all this isn't 
particularly glamorous work. Not like, say, buying or turning around 
companies. Webifying is an expensive, disruptive, unsexy management 
challenge. When Boeing started on its reengineering four years ago, costs 
skyrocketed and, at first, productivity dropped. It's like fixing subway 
tracks: a necessary evil, that, when completed, goes largely unnoticed. 

Look at what's happened to Nike. Last year the company decided to automate 
its entire supply chain so that when retailers ordered shoes, they could do 
it on the Nike site. The hope was that the system would automatically take 
payments, deliver the shoes, and, when supplies dropped, notify the 
manufacturers in Asia. The reality was that Nike wound up with too much 
inventory in some models and not enough in others. Earnings for the quarter 
ended Feb. 28 fell 33% as a result. Analysts believe the problem will take 
the rest of the year- -at least--to correct. "This is what we get for our 
$400 million?" wondered Nike Chairman Phil Knight. 

What makes Boeing's strategy even riskier is that there's no guarantee that 
success will lead to a lasting competitive advantage. Charles Schwab is 
learning that right now. It revolutionized the brokerage industry in early 
1998 when it started allowing clients to research, buy, and sell stocks 
online. By mid-1999 that experiment had proven so successful that big 
brokerage firms were quaking. For a few weeks Schwab's market cap exceeded 
Merrill Lynch's, even though Schwab had one-fifth its sales. That isn't so 
anymore. Merrill and the other big firms launched their own electronic 
trading products soon after, and today Merrill's offerings are as 
sophisticated as Schwab's. Schwab's market capitalization is now less than 
half Merrill's. 
So what's a big ol' corporation to do? Here are four lessons: 

1. Grab the low-hanging fruit first. The conventional wisdom among 
consultants and other reengineering cognoscenti is that in order to truly 
leverage a business on the Internet, one has to follow Boeing's lead and 
rethink the business model from the top down. Otherwise, says Ray Lane, a 
partner at Kleiner Perkins and the former No. 2 at Oracle, the process stalls 
as 40-year-old department heads who "think they know everything" get caught 
in turf battles. He may be right. But most companies don't have the stomach 
for that kind of risk. 

Indeed, the near-billion-dollar cargo operations of United and American 
airlines are taking a different tack. They've started small, teaming up with 
a new Dallas company called NextJet to offer businesses and consumers 
door-to-door, same-day package delivery. On domestic flights a huge 
percentage of passenger planes' cargo space goes unused. Airlines have long 
sold this excess space, but it was up to the sender to get the package to the 
airport, find the right flight, and arrange to have the package picked up at 
the destination. NextJet created software that trolled reservation systems, 
figured out the quickest way to route packages, and worked with couriers for 
delivery. American and United simply rebranded NextJet's system and stuck it 
on their Websites. 

The result? United started offering the service in early March and says that 
in the first three weeks it scored 300 steady customers, with zero marketing. 
"We had everyone from architects and lawyers needing to get documents across 
the country by day's end, to parents on vacation sending house keys to their 
locked-out teenage children," says Jim Hartigan, who runs the United Cargo 
operation. At $200 a pop, each package is like having an extra passenger--and 
you don't have to feed the cargo or give it legroom. Soon United will market 
the service more aggressively to corporate customers. Hartigan says he can 
see doubling the size of United's cargo business using the Net. But starting 
small helps his team understand the pitfalls of the business without too much 
risk. 

2. Don't get fixated on the technology. Certainly the right hardware and 
software are important to be successful. But they are catalysts, not 
solutions, says Adrian Slywotsky, a consultant at Mercer Management in 
Boston. Webifying a business is about getting employees to work more 
efficiently, he says. And that has everything to do with good management and 
little to do with technology. Not that many CEOs get it. "To this day most 
start with the technology rather than the business issues," he says. 

Lisa Harris, the CIO at Staff Leasing, a $3.1 billion Florida company that 
acts as the HR department for 10,700 small to medium- sized businesses, says 
her company learned that lesson the hard way. It spent millions on an online 
system two years ago, with the idea of using the Net to offer customers 
24-hour self-service HR support, backed up by a call center to answer more 
complicated questions. The only trouble was that operators in the call center 
were being evaluated based on how many calls they answered. As a result, they 
didn't encourage clients to use the Website but rather to continue calling 
with their questions. The solution: Staff Leasing began evaluating 
call-center operators not just on volume of calls answered but on errors 
generated. In addition, the company started handing operators bonuses for 
every account they moved to the Web. It was B.F. Skinner meets the Web: 
Operators could do things the old way, make a mistake, and get penalized, or 
they could get a bonus for doing things the new way. They quickly fell in 
line. 

Then another problem cropped up. Once customers became comfortable using the 
Web to handle basic HR needs, the only questions they had for the operators 
were questions most couldn't answer. Difficult dilemmas had previously been 
handled by specially trained HR consultants. Solution: Fire some call-center 
operators, retrain others, and hire more consultants. Today, with 40% of 
Staff Leasing's customers using the Web, the company has cut $2.5 million a 
year in expenses. A good lesson, says Harris, but one that took too long to 
figure out. "When we started the project, it was strictly an infotech 
operation," she says. "It wasn't until a year later that it became a project 
sponsored by the entire business." 

3. It's not about cutting out the middleman. Two years ago the chief benefit 
of a Web strategy was in allowing manufacturers to bypass distributors and 
reach out directly to customers. But today middlemen seem, if anything, to be 
thriving. Most early attempts to eliminate distributors have failed. What 
happened? 

The Internet enabled manufacturers to sell directly to customers, but it 
didn't teach them how to sell. It turned out that their distributors' lengthy 
relationships with their customers weren't easily broken. "In most markets, 
middlemen are the basis of trust to do the transaction," says Michael Nevens, 
a consultant at McKinsey & Co. in Palo Alto, Calif. Look at the resale market 
for semiconductors, he says. "When manufacturers have excess chips, they 
don't want to advertise that because it drives the price down, but they still 
want to sell them. Meanwhile, chip buyers want to be sure the chips they are 
getting are of good quality. Who solves that problem? A middleman both 
parties trust." 

In the computer hardware business, for example, there were a flood of online 
catalog companies like Buy.com, which were convinced that the Internet would 
quickly kill off the salesman and that the only way to compete was on price. 
Computer retailing giant CDW wasn't one of them. Instead it embraced its 
middleman status and made big investments in staff, not just technology, to 
pull it off. In 1998 CDW started bulking up, growing from 300 salesmen to 
nearly 1,200 by the end of last year. The result: a record year for revenue 
growth and earnings. To make this strategy work, CDW made sure that salesmen 
got a commission even when the sale went through the Internet. "Small and 
medium-sized businesses need efficiency, but there also are certain 
situations where you just need to talk to someone," says Jim Shanks, CDW's 
CIO. "Sure, a large percentage of our business comes unassisted through the 
Web, but the majority of the business is one where a customer gets educated 
and then calls the account manager." 

4. Don't reject plans with hard-to-measure results. Department store and 
advertising pioneer John Wanamaker once noted that half his advertising was 
wasted; he just didn't know which half. It's a cute way of saying that while 
advertising works, its bottom-line benefit is hard, if not impossible, to 
measure. Some Internet initiatives are going to be like that too. The smart 
companies will pursue them. 
Fidelity Investments, for example, last year began offering Web- based 401(k) 
administration for small companies. It's been an instant hit. The program 
added 750 companies last year. Historically it's been hard for small 
companies to have 401(k) benefits because administrators charged too much or, 
in Fidelity's case, didn't offer them at all because they were too expensive 
to operate. 

What's in it for Fidelity? Well, the program was expensive to set up, isn't 
profitable, and doesn't generate big fees. But e-401(k) isn't being measured 
by how much money it makes. It's about taking a small risk on a technology 
that might prove to be essential--both to getting into a new market and to 
discovering new tools for existing customers. "I had this same discussion in 
the early 1990s, when we went after the middle market," says Steve Elterich, 
president of Fidelity eBusiness. "At that point no one was offering 401(k) 
services to them. That's now our most profitable market segment." Why? A lot 
of those companies--like Microsoft--have grown into very, very big companies. 

Digesting all this change won't be easy. The Internet isn't just some passing 
management fad but a fundamental shift in the way Americans and the world 
conduct business. Indeed, some consultants like Don Tapscott still believe 
its impact will be as profound as the impact of the corporation itself more 
than a century ago. It won't happen fast, but it will happen. For those whose 
first inclination is to bury their head in the sand (at least until the 
economy picks up): Resist. Now is the time to look around and learn from 
those who have already made their mistakes. 

REPORTER ASSOCIATE Paola Hjelt 
FEEDBACK: fvogelstein@fortunemail.com 
Quote: Webifying is about getting employees to work more efficiently. That 
comes from good management, not technology.
COLOR PHOTO: PHOTOGRAPH BY THOMAS BROENING As plane demand slows, Boeing CIO 
Griffin is nosing forward new e-businesses. 

 

COUNTRY BUZZ
BIG BLUE LAUNCHES TESTING CENTRE IN BANGALORE

04/30/2001
Computers Today 
14
Copyright 2001 Living Media India Ltd 
IBM has launched its test centre in Bangalore in partnership with IBM's 
Global Testing Organisation based in North Carolina, USA, making India the 
fourth country outside the US, France and Mexico to host a facility of this 
kind for the technology giant. Inaugurating the centre, IBM's Global Testing 
Organisation director Lyle Hart said the centre aims to provide the best 
application software testing services to IBM units and customers worldwide. 

The new testing centre plans to recruit and train top-class practitioners in 
software testing and test methodology. The testing team will work as an arm 
of its global software development teams. The centre will also serve as a 
clearinghouse of processes, methods and various tools supporting the 
discipline of software testing. Elaborating on the difference between the 
Bangalore centre and other centres, Hart said the Bangalore software exports 
division has attained SEI-CMM Level 5 accreditation, where as other divisions 
are yet to reach the same level. 

Enron Buys Stake in Net Services Arm, To Invest $50 m 

Enron Corp., the US energy major, in a major diversification measure, has 
decided to make Internet services its main source of revenue in the country. 
The firm plans to invest $50 million in its restructured entity, Broadband 
Solutions Pvt. Ltd. Enron, which holds 49 per cent stake in Broadband, is 
buying out Chardonnay Investment Pvt. Ltd and True Blue Investrix Pvt. Ltd, 
that hold 25.5 per cent stakes each. The restructured entity will focus on 
the emerging market of Web-hosting, data management and data storage 
solutions.
 

Exxon Mobil CEO Lee Raymond Tries to Prove Bigger Is Better
2001-04-30 03:07 (New York)

Exxon Mobil CEO Lee Raymond Tries to Prove Bigger Is Better

      (Published in May issue of Bloomberg Markets.)

     Irving, Texas, April 30 (Bloomberg) -- Exxon Mobil
Corp.'s Hoover Diana drilling platform floats in the
sapphire-blue, barracuda-filled waters of the Gulf of
Mexico, about 160 miles off the coast of Galveston, Texas.
     The platform's three decks provide more than 4 acres of
living and working space as it taps the more than 400
million barrels of oil and gas trapped in two adjacent
fields 4,800 feet below.
     This massive project cost $1.1 billion -- a sum only an
oil company with assets by the barrelful can afford.
     That's a point Lee Raymond, Exxon Mobil's chairman and
chief executive, has made repeatedly as he faces the
toughest challenge of his career: convincing investors that
his $85.2 billion acquisition of Mobil Corp. on November 30,
1999 was a good idea -- that bigger really is better.
     Raymond, 62, has weapons to make his case. The marriage
of Exxon Corp. and Mobil Corp. created a behemoth with $149
billion in assets, including oil and gas fields in 200
countries and territories on six continents, 44 refineries
that sell about 200 million gallons of fuel a day in 118
countries, and 45,000 service stations worldwide.
     This should be his moment: With Internet and dot-com
stocks in decline, investors are looking harder at the value
Big Oil companies provide; there's an oil-patch veteran in
the White House; and those pesky environmentalists are in
retreat.

                    Stellar Balance Sheet

     Raymond can point to a stellar balance sheet as well.
Last year, Exxon Mobil squeezed out of those formidable
assets a profit of $17.7 billion, which was more than double
the year earlier and a record for a publicly traded company.
Revenue increased 25 percent to $232.7 billion -- also
a record.
     For the first quarter of this year, revenue rose 5.9
percent to $57.3 billion and profit climbed 51 percent to
$5.05 billion.
     The Irving, Texas-based enterprise is now by far the
largest publicly traded company on earth in terms of revenue
and profit.
     Past revenue title holder General Motors Corp. brought
in $183.3 billion in 2000, and Wal-Mart Stores Inc., 1999's
No. 2, had sales of $191.3 billion. Royal Dutch/Shell Group,
the No. 2 publicly traded oil company, earned $13.1 billion
from revenue of $191.5 billion, and No. 3 BP Amoco Plc
earned $11.2 billion from revenue of $161.8 billion.
     For further comparison, the No. 2 through No. 5 U.S.
oil companies -- Chevron Corp., Texaco Inc., Conoco Inc.,
and USX-Marathon Group -- had combined earnings of $10.1
billion from combined revenue of $176.3 billion.

                     Not Much Enthusiasm

     Investors haven't shown much enthusiasm for Exxon Mobil
this year. The company's stock price -- $89.06 on April 27 -
- is up 2.4 percent for the year; its shares have still
traded at a discount to the Standard & Poor's 500 Index,
which it has outperformed for 15 years, since 1986.
     If Exxon Mobil's price-earnings ratio were to rise to
the S&P's level of 28 from its recent level of 16.8, the
company's shares would cost $141, up 58 percent. BP trades
at 16.4 times earnings, Chevron at 10.6 times, and Texaco at
12.8. Twenty one of the 29 analysts who follow Exxon Mobil
rate the company a buy.
     Investors question whether Exxon Mobil can sustain its
performance if oil and gas prices fall. About 70 percent, or
$12.4 billion, of Exxon Mobil's 2000 profits came from the
sale of oil and gas, prices of which rose 60 percent and 45
percent, respectively, year over year.

                      Refining Business

     The company's refining business brought in $3.4
billion, its chemical business earned $1.2 billion, and the
remainder came from such operations as mining.
     Some critics, such as Enron Corp. CEO Jeff Skilling,
say the company might be better off if it broke into its
component parts.
     Investors seem to agree: Shares of Houston-based EOG
Resources Inc., the former exploration and production arm of
Enron, more than tripled last year, and shares of San
Antonio-based refiner Valero Energy Corp. rose 87 percent.
      ``Is it the best way to play energy? No,'' said
Charles White of Avatar Associates, which manages a little
more than $3 billion and counts Exxon Mobil shares as one of
its largest holdings. ``For instance, if you wanted
an exploration company and were willing to do the research
and trade often, you'd be better off with EOG, Apache Corp.,
or Devon Energy. But if you're just looking for a big
company, Exxon Mobil is the bellwether.''

                        Other Critics

     Other critics, including Michael Carpenter, Citigroup
Inc.'s head of investment and corporate banking, have
labeled Exxon Mobil's successful first full year a fluke.
     ``The only companies in the world that make more money
[than we do] today are a couple of oil companies that got
lucky with high oil prices,'' Carpenter told analysts in
January.
     Citigroup, the biggest U.S. financial services company,
earned $13.5 billion last year.
     With such critical shots aimed at his company, Raymond
often finds himself on the defensive. He counters by
pointing to the contributions that big projects like the
Hoover and Diana fields will make down the line: By 2002,
the Hoover Diana operation could produce about 100,000
barrels of oil and 325 million cubic feet of gas a day.
     At current prices, that translates into more than $1
billion of sales a year.

              Protected From Price Fluctuations

     Raymond also proclaims that his company will make money
irrespective of prices. ``The detractors or the critics can
say we've benefited from high oil and gas prices, and
there's no question that is true.
     But that's not really the way we analyze the
business,'' he said. ``Instead of saying, Given a price
here's what we're going to do, we went to the other side and
said, Let's accept that we cannot forecast the price, so
what can we do? That's a much more challenging task.''
     Oil and gas prices may actually have to fall for Exxon
Mobil to prove itself. When Exxon agreed to buy Mobil, oil
prices on the New York Mercantile Exchange were hovering
around $10 a barrel, the lowest levels seen since the Great
Depression. The merger was supposed to create a company with
an inventory of projects large enough and efficient enough
to withstand those types of prices.

                      $30 Per Barrel

     In its first full fiscal year as a company, oil prices
averaged more than $30 a barrel. It hasn't been tested on
the low side.
     Buying Mobil was just one of many steps Exxon has taken
in the past decade or so to switch from focusing on growth
to focusing on controlling costs.
     Raymond cites the cost savings that the company has
reaped following the merger; Exxon Mobil has raised its
merger-related savings estimate 64 percent to $4.6 billion a
year, in part by intending to cut 19,000 jobs by 2002.
     New technology is integral to the cost-cutting effort.
Raymond, who used to be with Exxon's research group
in Houston, often refers to Exxon Mobil as the NASA of the
sea. Exxon Mobil spends more than $500 million a year
developing proprietary technology for everything from
stronger steel so pipelines can take gas out of remote
places like Alaska to platform designs for fields deeper
than Hoover and Diana.

                       Deepwater Fields

     Because it can cost $20 million to $50 million to drill
a single well at deepwater fields such as Hoover and Diana,
William Drennan, the company's head geosciences researcher,
focuses on ensuring that few dry holes get dug.
     He spends much of his day standing in front of a
seamless 32-foot screen in a blacked-out room in Houston
that looks like a miniaturized IMAX theater.
     The auditorium contains stadium-style seats with large
tables for note taking. On the tables are 3-D glasses that
when worn turn the image on the screen into a hologram.
Drennan can then virtually walk through a map of an oil
reservoir and, working with his fellow scientists, determine
where wells should be drilled.
     Last year, advances in drilling methods and reservoir
mapping helped Exxon Mobil cut to 65 cents its cost to find
a barrel of oil, down from $1.20 in 1999.

                   Selective Investments

     Raymond says cost cutting is important because it
forces Exxon Mobil to be more selective in its investments
than its peers are. ``A bad investment decision could be
around for more than 20 years,'' he said.
     In August, he offered analysts a chart showing that
from 1990 to 1999, BP wrote off $9.4 billion worth of
projects, Shell wrote off $2.9 billion -- and Exxon Mobil
wrote off none.
     ``If you look around, you'll see all of our competitors
have had massive write-offs,'' Raymond said. ``And what
amazes me is that when that happens, the investment
community cheers and I kind of wonder, Were they cheering
when those investments were made?''
     Raymond's been applying his brand of frugality at Exxon
since joining the company as a production research engineer
in Tulsa, Oklahoma, in 1963, soon after receiving a Ph.D.
in chemical engineering from the University of Minnesota.
     A native of Watertown, South Dakota, who attended the
University of Wisconsin as an undergraduate, Raymond moved
up the ladder with Exxon in the U.S., Venezuela, and Aruba.

                        Exxon Nuclear

     He became president of Exxon Nuclear Co. in 1979 and
moved to New York in 1981, when he was named executive vice
president of Exxon Enterprises, a company that had principal
responsibility for Exxon's investments outside the areas of
petroleum, chemicals, and minerals.
     About that time, oil companies, cash rich from high
prices and in the hopes of diversifying profits, were making
acquisitions in businesses they knew little about: Exxon
sold office equipment. Mobil owned discount retailer
Montgomery Ward.
     The strategy reached the height of silliness when Gulf
Corp., later acquired by Chevron, considered buying Ringling
Brothers and Barnum & Bailey Circus.
     Analysts weren't much more impressed with Exxon's
forays beyond oil. They were especially turned off by
Exxon's $1.24-billion purchase of Reliance Electric Co., a
Cleveland-based manufacturer of motors and electrical
communications and weighing equipment, in 1979.

                   Energy-Saving Device

     The company hoped to profit from technological
developments contained in an energy-saving device for
electric motors; the technology eventually proved to be
commercially unfeasible.
     By 1983, Raymond had been named president and director
of what was then called Esso Inter-America Inc., with
responsibilities for Exxon's operations in the Caribbean and
Central and South America, so Reliance's downfall wasn't his
problem.
     He was named a senior vice president and director of
the corporation in 1984.
     Exxon sold Reliance for $1.35 billion in 1986 in a
leveraged buyout by a management group and what were then
Citicorp Capital Investors and Prudential-Bache Securities
Inc.
     That same year, Exxon sold Exxon Nuclear and its share
of the company's Rockefeller Center headquarters in
Manhattan. (It would move to its current headquarters in
Irving, Texas, in 1990.)
     One year later, Raymond became president of Exxon Corp.
He was named chairman and chief executive of Exxon Corp. in
April 1993, succeeding Lawrence Rawl, who was about to reach
the company's mandatory retirement age of 65.

                  Dark Suits, White Shirts

     Raymond -- a man who favors dark suits, white shirts,
and red ties -- has earned a reputation for hands-on
management. When he bought Mobil, for example, he and now
retired Mobil head Lucio ``Lou'' Noto hammered out most of
the details on their own, waiting until due diligence to
call in advisers.
     Raymond said the ultimate lesson he learned in the 30
years before he took control of Exxon is that efficiency is
king for large companies.
     ``If you're the most efficient competitor on a large
scale, then it's axiomatic in my mind that you're going to
end up over time with a very sound financial result and a
very strong cash flow and a high return on capital
employed, which is what the objective of Exxon Mobil is,''
Raymond said.

                     Return on Capital

     Exxon Mobil's return on capital employed, an
industry measure of how effectively a company manages
its capital, was 21 percent last year, the highest in the
industry. Shell's return was 19.5 percent, and BP's was 16
percent, according to the companies.
     From 1990 to 1999, Exxon alone generated a return on
capital employed of 12.7 percent, beating BP and Shell,
which each returned 9.4 percent.
     ``I believe they will continue to have the best returns
on capital employed, which ensures their premium
valuation,'' said Denis Walsh, of Boston-based State Street
Corp., Exxon Mobil's fourth-largest shareholder. State
Street, as of December, held about 70 million Exxon Mobil
shares.
     Under Raymond, Exxon Mobil has focused on capital
discipline. It is one of just seven public corporations
worldwide with AAA credit ratings by both Standard & Poor's
Ratings Services and Moody's Investors Service; it can
therefore borrow money at about 6 percent or less.

                         Net Debt

     At the end of 2000, Exxon Mobil had $6.2 billion in net
debt, which included $13.2 billion in debt and $7 billion in
cash. That's about 8 percent of its total capital compared
with an average of 19 percent for the S&P 500, 20 percent at
other major oil companies, and 50 percent for the oil
industry, analysts say.
     In its entire 119-year history, Exxon Mobil has never
been more able to deploy technology throughout its system,
say analysts.
     That's because when Exxon merged with Mobil,
it also restructured the company. Instead of only rolling
Mobil's assets into Exxon's existing corporate structure,
Raymond and Noto decided to set up an entirely new company
organization, changing from dozens of regional-based
business units into 11 global businesses.
      Five divisions based in Houston find and produce oil
and gas. Chemical and coal operations are also based there.
And four divisions based in Fairfax, Virginia, make and sell
fuels.

               New Ideas Across Old Boundaries

     The new structure is designed to promote new ideas
across old boundaries. Stephen Hart, who manages Exxon
Mobil's Baytown, Texas, refinery, said one of the first
steps in that process, dubbed ``cold eyes,'' involved
sending Mobil employees through his plants to see how they
would do things differently.
     The refinery, North America's largest, can process
508,000 barrels of crude oil daily. ``It was like Christmas,
being able to find out how each other did things,'' Hart
said. ``I know guys who have wanted to get into Baytown for
years.''
     Sharing best practices doesn't always work. During one
of the cold-eyes tours, former Mobil employees identified
what they thought was a way to reduce the maintenance time
on Baytown's catalytic cracker, a plant used to make
gasoline, to 35 days from 45 days.
     Hart says that due to unrelated issues, they weren't
able to complete the maintenance that fast.

                    How To Be Attractive

     Still, the effort continues. ``You have to be the
lowest-cost producer to be attractive in this business,''
Hart said. ``One of the powers of Exxon and Mobil coming
together is, we've now got the best brains in chemistry,
refining, engineering, et cetera, to figure out how to be
the leader in every product we produce.''
     Jim Guerra, an Exxon employee for 22 years, said
employees are linked by a former Mobil tool called BestNet,
an intranet message system. Before the advent of BestNet,
if he had a problem with a catalytic cracking unit, he was
supposed to call a regional central engineer on the phone
and ask for advice. This could take up to a day if the
engineer was in the field.
     Now Guerra and employees like him use BestNet to post
questions and instantly receive answers from colleagues
around the world who have wide experience.

                Efficient Deepwater Drilling

     Efficient deepwater drilling will be crucial to the
company's financial future. Although oil and gas companies
have begun to explore only half the known deepwater basins,
they've already found the equivalent of more than 40 billion
barrels of oil, and over 100 billion more barrels remain to
be found.
     Exxon Mobil leads the industry in deepwater prospects,
with nearly 800 blocks worldwide that cover more than 135
million acres, an area the size of France.
     Next year, the company plans to tap two fields near
Hoover and Diana, called Marshall and Madison, that hold
another 47 million barrels, moving the company toward an
ambitious goal of boosting worldwide production 3 percent a
year through 2005.
     The company is also involved in nine other Gulf of
Mexico discoveries in waters deeper than 1,350 feet that are
currently producing or advancing toward development. The
company's geologists expect these fields to hold more than
2.7 billion barrels of oil and gas.

                 Balance Sheet in Good Shape

     Because Exxon Mobil's balance sheet is in good shape,
it can focus on finding other things besides debt reduction
on which to spend the more than $20 billion in cash it
generates annually.
     Generally, the options include acquisitions, capital
spending, stock buybacks, and dividend increases.
     Analysts don't expect the company to make any sizable
acquisitions until after the company sells off some of the
assets it gained in the merger.
     ``They will remain disciplined in their focus on return
on capital employed and not spend their free cash flow
unwisely,'' said State Street's Walsh.
     As of January, Exxon Mobil planned to spend up to $13.4
billion on capital projects, including developing oil fields
and improving its refineries in 2001, up as much as 20
percent over last year.
     Though Raymond won't say what Exxon Mobil plans
to divest, Matthew Warburton, an analyst at UBS Warburg in
New York, says the company will sell about $1.5 billion
of Mobil's old oil and gas fields annually.

                    Sale of Aera Energy?

     Fadel Gheit, an analyst at Fahnestock & Co., says a
prime candidate for sale is Exxon Mobil's stake in Aera
Energy LLC, a joint venture with Shell in California that
currently produces about 250,000 barrels of oil and 90
million cubic feet of gas a day.
     Exxon Mobil's share could be worth more than $2
billion. ``Investors will be surprised at the scope and size
of the asset sales,'' said Gheit.
     Last year, Exxon Mobil raised $1.73 billion from asset
sales required by federal regulators. Exxon Mobil paid $6.12
billion in dividends, or $1.76 a common share, up from $5.84
billion, or $1.69, a year earlier -- the 18th straight
yearly increase.
     That leaves stock repurchases, for which the former
Exxon Corp. was famous. From 1983 to 1999, Exxon repurchased
more than 1.2 billion of its common shares at a cost of
about $26 billion. Mobil purchased about 77 million shares
during that period for about $3 billion.

                     Continuous Buyback

     Through the end of 2000, Exxon Mobil purchased 26.7
million shares at a cost of about $2.23 billion. Instead of
announcing a level for buybacks, like Shell's $6 billion
goal, Exxon Mobil buys continuously.
     With shares as undervalued as they are, UBS Warburg's
Warburton said the company could repurchase $14 billion of
stock in 2001.
     Because of the company's stature, Exxon Mobil shares
often serve as a proxy for the energy industry, said Michael
LaBranche, chairman and chief executive of LaBranche & Co.
As the company's specialist on the New York Stock Exchange,
LaBranche is responsible for raising the volume of Exxon
Mobil shares traded on the exchange.
     An average of about 6.3 million of Exxon Mobil's 3.5
billion common shares outstanding change hands daily, up
from about 5.5 million daily last year. That kind of
liquidity is good when a company is trying to attract large
institutional investors.

                    Fidelity and Barclays

     Exxon Mobil's two largest shareholders are Fidelity
Investments and Barclays Global Investors, both of which
sell many index-related funds. Many of these funds must own
Exxon Mobil shares because the company makes up a large
percentage of key indexes such as the S&P 500 and the Dow
Jones Industrial Average.
     For example, $2.73 of every $100 invested in an S&P 500
fund buys Exxon Mobil shares. Only General Electric Co., at
$4.10, and Microsoft Corp., at $3.07, get more of the
investment. Exxon Mobil shares make up 5.32 percent of the
Dow.
     There are side effects to this status. Some investors
use Exxon Mobil's liquidity to treat the company like a
bank, buying the company's shares and holding them until
their favorite stock starts to rise again. This is something
the company has to suffer through -- in part because of its
status as a defensive or antitechnology stock.

                    Exxon and the Nasdaq

     When the Nasdaq started to plummet in March 1999, you
could often use the index's daily performance to track how
Exxon Mobil shares traded for the day. Usually, the
relationship was an inverse one.
     ``My wife has the view,'' Raymond said, ``that when she
looks at the stock market in the morning, if she sees the
Nasdaq is up, she says, `Well, I'm not even going
to look at [Exxon Mobil].' And if the Nasdaq is down, she
goes, `Hooray! Exxon's up, don't even need to look.'''
     That may no longer be true, as investors, beaten down
by the drop in the Nasdaq so far this year, search for
companies that have earnings.
     ``Exxon Mobil is the place to hide for the time
being,'' said Allen Ashcroft, a portfolio manager with
Allied Investment Advisors Inc.
     This year, Exxon Mobil is expected to earn $4.60 a
share, or about $16 billion, according to First Call/Thomson
Financial. Estimates range from $3.65 to $5.27 a share, or
about $13 billion to about $18 billion.

                     Conventional Wisdom

     ``The conventional wisdom is that Exxon's earnings last
year were as good as it gets,'' said Fahnestock analyst
Gheit, who used to be at Mobil Corp. and who rates Exxon
Mobil shares a buy, ``but this old dog may have a few new
tricks.''
     Size doesn't always guarantee success for Exxon Mobil.
In March, the company lost to BP a contract to build a
liquefied natural gas terminal in China.
     And the company, after being slapped with a $5 billion
judgment in its infamous Valdez oil spill in 1996, has since
become a magnet for other large judgments, including a $3.5
billion case related to natural gas royalties in Alabama
that the company has allegedly underpaid since 1993.

                      Raymond Undaunted

     Raymond remains undaunted. ``Putting Mobil together
 with Exxon gave us by far the largest asset base, with more
 quality projects to do than anyone in our industry, and you
 can be sure that we're going to take advantage,'' he said.
     Raymond has yet to convince many investors of that.
And he won't get the respect he craves on Wall Street until
he proves that his enormous enterprise is smarter than
its rivals -- not just bigger.

--David Wells in the New York newsroom (212) 893-3377 or
dawells@bloomberg.net/kl

Story illustration: For the most important Exxon Mobil news,
type {XOM US <EQUITY> ICN <GO>}.



		

		
		

		
		SURVEY - ENERGY & UTILITY REVIEW: US demand boosts marketplace: LIQUEFIED 
NATURAL GAS by David Buchan: With prices for natural gas set to stay high, 
LNG seems to be back in fashion Financial Times; Apr 30, 2001
By DAVID BUCHAN

		If the US is a drag on the world oil market, with its enormous imports 
placing strains on prices, its new-found appetite for liquefied natural gas 
(LNG) imports is wholly welcome. 
		In contrast to its effect on the oil market, US demand is not raising the 
world price for gas - because there is as yet no such thing - but rather 
reflecting local north American hunger for gas. 
		At the same time, US readiness to buy short-term LNG cargoes is adding 
flexibility and depth to a world market characterised by long-term contracts 
and an apparently rigid supply line of specialised tanker ships carrying 
frozen gas from one billion-dollar terminal to another. "The US has 
introduced a new dynamic into the market," says Ron Billings, head of 
ExxonMobil's LNG business. 
		But LNG is an expensive business. "You need Dollars 1.5bn to get going," says 
Dick de Jong, Shell's head of LNG, with Dollars 1bn needed to build one 
"train" or unit liquefying 4m tonnes of gas a year, and three tankers costing 
around Dollars 170m each to move the product. 
		And there have been false LNG dawns before. In the mid-1980s, when US 
importers of LNG found the deregulated price of domestic natural gas slipping 
below that of LNG, they fought to wriggle out of their long-term LNG 
contracts and mothballed their LNG import terminals. But with US natural gas 
prices double what they were a year ago and looking set to stay high, the 
industry is scrambling to put the terminals back into operation. 
		The capacity of the largest, at Lake Charles in Louisiana, is being expanded, 
and BP and Shell are buying capacity at Cove Point on the Chesapeake Bay, 
which is due to start receiving LNG next year after a gap of two decades. 
		BP, Chevron, El Paso, Phillips Petroleum and Enron are prospecting for sites 
for new import terminals on both coasts of the US; the west coast has to rely 
on gas from the Asia-Pacific region, and the east coast on Atlantic basin gas 
because most LNG carriers are too big to pass through the Panama canal. 
		"Right now, LNG only amounts to 1 per cent of total US demand," says Skip 
Horvath, president of the US Natural Gas Supply Association. "But it is very 
important to certain areas, and it does not involve building extra pipelines 
which have become increasingly difficult to site in the US." The US is also 
helping something like a spot market to develop in world LNG. Of the 39 spot 
cargoes of LNG traded last year, many went to the US. 
		The upshot is that many companies are beginning to build a bit of spare 
capacity into their LNG plants. Some companies, such as BP, are starting to 
order LNG ships which are not tied to any specific LNG contracts and which 
could therefore be available to carry spot cargoes. 
		Contracts are also becoming more flexible, as shown in BP's recent contract 
to supply LNG to the Dominican Republic. At 20 years, the contract was no 
shorter than the old norm. But instead of pinning down the origin of the gas, 
as is usual in LNG contracts, it allows BP to supply the gas from anywhere 
within its portfolio, though the gas will probably come from BP's plant in 
Trinidad and Tobago. 
		The export push of certain gas-producing countries is also conducive to the 
development of a more flexible market. Nigeria, for example, is very keen to 
abolish the flaring of gas that comes up with oil extraction and sees LNG 
exports as the only feasible way of commercialising this gas. 
		Its current LNG gas is on long-term contract to Europe, but last year, for 
instance, the Nigerian LNG consortium (of Shell, TotalFinaElf and Agip) sold 
six spot cargoes to the US. A consortium of US oil companies is looking at a 
second Nigerian LNG project. 
		Egypt is another enthusiast for LNG. In the past six months, it has signed 
three LNG deals: one with Union Fenosa of Spain and two with Anglo-Italian 
partnerships (of BP and Eni and of BG and Edison). Like Nigeria, Egypt 
appears to see the US, especially with its current high prices, as a useful 
supplement to its core European market. 
		But it is in Asia that LNG first started to overcome that region's long 
distances and lack of pipelines, and it is still in Asia that the big volumes 
of LNG are traded. Whether the Asian market becomes more flexible may depend 
on the balance in supply and demand in the Asian region. 
		On the supply side, large Middle East LNG producers, notably Qatar, are 
making their presence felt alongside producers based in Indonesia, Malaysia, 
Brunei and Australia's North West Shelf. 
		Qatar's Rasgas is rapidly expanding its capacity, in conjunction with 
ExxonMobil, in particular to supply India's Petronet (with which it has the 
world's largest LNG contract of 7.5m tonnes a year). On the demand side, 
India and China are clearly the big potential growth markets in a region 
where demand has been dominated by Japan, South Korea and Taiwan. But they 
may prove difficult and slow to develop, as Enron's persistent payment 
problems in India have shown. 
		So, the Asian market may develop into the sort of buyers' market that would 
allow, for instance, the big Japanese utilities to negotiate the shorter and 
flexible contracts they want. However, there will be no revolution in LNG, 
says Martin Houston, a vice-president of BG, though the share of LNG traded 
short term could rise from 8 to 12 per cent by the end of the decade. 
		Mr Billings of ExxonMobil concurs. "Things are changing, and maybe contracts 
will be shorter than 25 years. But when you look at the enormous investments 
involved, you have to say there are not too many players who are going to let 
the whole LNG value chain go ahead as a speculative venture." 
		Copyright: The Financial Times Limited