Hi.

You probably thought that I feel off the end of the world.  Please take a 
look at this and give me a call.

Thanks,

Kay
---------------------- Forwarded by Kay Mann/Corp/Enron on 12/06/2000 06:34 
PM ---------------------------


Scott Laidlaw@ENRON_DEVELOPMENT
12/06/2000 03:41 PM
To: John Schwartzenburg/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Ben Jacoby/HOU/ECT@ECT, Kay Mann/Corp/Enron@Enron, Chris 
Booth/NA/Enron@Enron, Dan Shultz/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Matthew 
Tezyk/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Frank R 
Cervenka/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject: Westinghouse 501D5A damaged generator

john - thanx for your time on phone this afternoon.

a) just received cc of letter from westinghouse.  in it, they assert that:

"title to the existing generator passed to enron upon delivery into the 
united states.  delivery occurred at houston on or about 23jul00.  as 
required by the contract and incoterms 1990, risk of loss to the generator 
passed to enron when the generator arrived (ddp) at houston while the 
generator remained on board the common carrier.  the generator was delivered 
in an undamaged condition.  title and risk of loss passed to enron before the 
water damage to the generator occurred."

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b) per the contract between enron and westinghouse:

section 15.1.2 title to Equipment - Title to the Equipment will pass to 
Purchaser immediately upon entry into the united states.
section 15.2 risk of loss - Seller shall bear the risk of loss and damage 
with respect to the Equipment until delivery of the Equipment to the Delivery 
Point in accordance with Section 3.2.1.  Seller shall be required to inspect 
the Equipment for damage at the Delivery Point.
section 3.2.1 - Seller shall cause the Equipment to be delivered to the 
Delivery Point on a DDP basis in accordance with Sections 10.2.1 by the date 
set forth therein.
section 3.2.2 - Seller shall be responsible for delivering the CT-Unit DDP to 
the: (iii) u.s. port of export by any means of transport.
section 3.2.3 - Seller shall perform customs clearance for the Equipment 
through u.s. customs and pay any import duties.
section 10.2.1 Guaranteed Unit Delivery Date - Seller will cause the CT-Unit 
(author's note - includes the generator) to be delivered in an undamaged 
condition in accordance with the Specification-CT to the Delivery Point (DDP) 
in accordance with Schedule I below (the Guaranteed Unit Delivery Date).  
(author's note - the date specified in the contract was later slipped per 
agreement with enron).
section 10.2.3 Completion of Delivery - delivery of the CT-Unit to the 
Delivery Point shall be considered complete for the purposes of Delivery 
Liquidated Damages as it pertains to the delivery of Major Components 
(author's note - includes the GT and generator) when the last Major Component 
of such CT-Unit is delivered DDP to the Delivery Point in complete and 
undamaged condition.  ...  Purchaser shall have the right to inspect the 
Equipment for condition of the Equipment upon actual delivery.  Purchaser 
reserves the right to reject damaged Equipment at any location; however, in 
the event a portion of the Equipment is damaged or defective upon delivery to 
the Delivery Point, Purchaser after making an initial assessment of the 
damage or defect and consulting with Seller as to how such damage will affect 
the installation , operation, performance, reliability, efficiency, and 
warranty of the damaged Equipment may either:
(i) reasonable determine that such damage or defect is such that the 
preceding criteria is so adversely affected that Purchaser cannot accept 
delivery of the damaged Equipment and declare that delivery has not occurred, 
or
(ii) after taking into account such criteria and Seller's proposed plan for 
correcting such damage or defect in accordance with Section 9.5, declare that 
delivery has occurred: in the event Purchaser discovers such a damage or 
defect, it shall notify Seller of such as soon as practical.

c) facts of the case, as we know them:

common carrier ship carrying the generator supposedly arrived in port of 
houston approx. 14jul00.  i.e., that was the ship's estimated time of arrival 
(eta).
westinghouse is claiming that delivery occurred on or about 23jul00.
enron representative (frank cervenka) went to CTSS (i.e., the westinghouse 
facility here in houston) on friday, 21jul00 to inspect the combustion 
turbine.  during that inspection, westinghouse employees informed him that 
the generator had salt water damage at the port.  as a result, the following 
monday, 24jul00, he visited the port of houston with the siemens-westinghouse 
insurance adjustor and saw the damaged generator.  note - this was just a 
cursory visit to verify that in fact the unit had been damaged.  the full 
extent of the damage and impact on the project was not known at that time - 
e.g., repair or replace were still viable options.
enron received formal notification (faxed letter) of the damaged generator on 
approx. 18aug00.
enron has already made progress payments to siemens-westinghouse in the 
amount of 95% of the contract value of the gas turbine and generator.
DDP, per incoterms 1990, means delivered duty paid.
Westinghouse, despite 2 prior requests from enron, has not provided copies of 
the customs clearance documentation.  i.e., we don't know the exact date that 
the generator cleared customs, or if it cleared customs.
title means ownership, but does not imply either risk of loss or care, 
custody, and control.  with title comes both ownership and the responsibility 
for payment of taxes.

d) info not known by enron:

when did ship come into port?
when did damage to generator occur?
when, or if, u.s. customs duties were paid?

f) info known by enron:

generator is a total loss, as determined by westinghouse.
per section 10.2.3 of contract, enron was not given the formal opportunity to 
inspect the damaged generator until a month after it arrived in port.  as 
recalled by matt tezyk, westinghouse was then advised by enron in writing 
that the generator was rejected and that delivery had not occurred.  
(author's note - matt to find cc of that letter).

g) enron's assertions are that:

DDP was not satisfied.  i.e., delivery of the generator did not occur in 
accordance with the terms of the contract.
title (i.e., ownership) remains with siemens-westinghouse.
risk of loss remains with siemens-westinghouse.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

john - plz assess the copy of the contract provided to you this afternoon 
under separate cover.  we request a legal opinion as to whether delivery, in 
accordance with the contract, of the CT-Unit occurred or not.  plz call with 
any questions.  regards.  scott.