PRIVILEGED AND CONFIDENTIAL:  ATTORNEY-CLIENT COMMUNICATION, ATTORNEY WORK 
PRODUCT

Dear David,

 This will confirm that  you have been retained on behalf of Enron Capital & 
Trade Singapore Pte Ltd. ("ECT") in the above-referenced alleged cargo 
contamination matter as its London solicitor.  Again, you will be liaising 
with Neale Gregson of Watson, Farley's office in Singapore, who will continue 
to perform the factual development on this case for ECT, subject to your 
direction and supervision.  Matt Lee, ECT's in-house attorney in Singapore, 
will set up a telephone conference with you and Neale for some time tomorrow, 
prior to opening of business in Houston.  In case you need to get in touch 
with him, the telephone number I use for Matt is 65-838-9103   I believe 
Neal's number is 65-532-5335.  I will call you tomorrow at 3:00 p.m. London 
time, 9:00 a.m. Houston time, to touch base with you.

FACTS
   
 The following is a thumbnail of the facts that have been reported to me.  I 
have not had a chance to run this summary past Matt, and would be grateful 
for any corrections he might like to make.  

 ECT purchased a quantity of "Elang Crude, suitable for export" from Phillips 
Petroleum Company ("Phillips"), and voyage-chartered the M/V PACIFIC VIRGO 
from Mitsubishi Corporation ("Mitsubishi"),the time-charterer, to carry it 
from Phillips' offshore loading facility in Indonesia to Thailand and the 
Phillipines for use by the buyer, First Gas Power Corporation ("FGPC"), as 
compressor fuel.  There exists a long-term compressor fuel agreement between 
ECT and FGPC that contains several specifications that the product needed to 
pass.  The agreement between ECT and Phillips does not mention any of these 
specifications.    

 One of the specifications at issue from the ECT/FGPC agreement is  ASTM D 
3605, which is used to test for the presence of certain metals.  According to 
ECT's surveyors, ASTM D 3605 apparently does not produce test results that 
are sufficiently reproducible to be useful.  ECT has apparently been trying 
for some months to convince FGPC of this, but without success.  FGPC 
reportedly advises that Seimens, from whom it purchased the compressors at 
issue, might void its warranty to FGPC if fuel is used that does not meet 
ASTM D 3605.  
 
 A separate specification from the ECT/FGPC agreement, for sediments, may 
also become at issue.  Months before the product at issue was loaded, ECT had 
Elang Crude from this same facility tested to determine whether it would meet 
the FGPC specifications, and found that the Elang Crude was on-spec for ASTM 
D 3605, but off-spec for sedimentation (again, a test separate and apart from 
ASTM D 3605) by almost double the allowed amount.  It is not clear why ECT 
decided to purchase  product from Phillips despite this test.  It is unknown 
at this time whether this test included any of the product later loaded.   
 
 At some point prior to loading, ECT did put the ship on notice that the 
cargo had to meet specifications for use as compressor fuel.  The ship 
responded by recommending that the tanks be Butterworthed, at an extra cost 
(per the C/P) to ECT of $30,000.  ECT declined, apparently opting for a less 
expensive fresh water rinse. Reportedly, the ship then advised that it did 
not have sufficient fresh water to perform a fresh water (as opposed to 
seawater) rinse.  I am not sure what tank cleaning ultimately took place, or 
who paid for it.  SGS, ECT's surveyors, did deliver a dry certificate to us 
before loading. 
 
 The ship loaded 659,133 bbls. (per B/L) at the MODEC Venture 1, Phillips' 
floating offshore facility in Indonesia, from June 20-21.  Testing of the 
shore tanks  at loading revealed that the Elang Crude did meet the 
specifications in the FGPC contract.  ECT paid Phillips an FOB price of $20, 
706,663.20 for the cargo.  

 After loading in Indonesia, the ship then proceeded to Thailand, where from 
June 28-30 it  off-loaded 410,697 bbls for storage, for the eventual use of 
FGPC.  No quality testing of the product was apparently done aboard or ashore 
at that time.  The ship thereafter sailed to the Phillipines for off-loading 
the remainder of the cargo.

 Upon off-loading in the Phillipines, the cargo was found off-spec for the 
presence of metals and sediment.  FGPC rejected the cargo; Wilson, Farley 
opined that FGPC was squarely within its contractual rights to do so.  ECT 
placed all potentially liable parties on notice and resold the cargo 
remaining on board to LG Caltex ("Caltex"), reportedly a Korean refinery, on 
a CIF outturn basis, for what I understand to be only a small (approximately 
$300,00) reduction in the value of the cargo.  

 ECT will not know exactly what it will be paid by the Korean refinery until 
the end of August, as the purchase was based on an August price index.  That 
cargo discharged in Korea and received by Caltex directly into its crude oil 
storage facility on July 26.  It appears that Caltex did not do any quality 
inspection before this occurred.  No protest or objection to the quality of 
the cargo has been received from Caltex.

 ECT is attempting to find another buyer for the Elang Crude currently in 
storage in Thailand, as it is apparently unsuitable for FGPC's use there as 
well.  Matt will know whether that product has been tendered to and rejected 
by FGPC.

  Mitsubishi has tendered an invoice for approximately $500,00 freight for 
the voyage from the Phillipines to Korea, and has submitted an invoice for 
approximately $250,000 for demurrage for the voyage from Indonesia to the 
Phillipines.  ECT has already paid approximately $790,000 freight for the 
voyage from Indonesia to the Phillipines.  Parenthetically, two different 
charter parties were used: one for the voyage from Indonesia to the 
Phillipines, and one for the voyage from the Phillipines to Korea.  

 A number of samples of the cargo were taken at the MODEC Venture 1,  in 
Thailand, and the Phillipines, at surveys that appear to have been jointly 
attended by ECT, ECT's cargo underwriters, and Owners/P&I.  As I understand 
it, the reports of the various analyses done to date are somewhat confusing.  
A joint analysis is being planned to take place in Singapore.  Unfortunately, 
the seals on a number of samples were broken by SGS, our surveyors; however, 
my hope is that there are a number of other samples that can serve the same 
purpose.  

 ECT has also retained a Captain Sawant of PacMarine to act as an independent 
expert for us in this matter.  Captain Sawant has prepared a report and there 
is a Watson, Farley memo containing notes of an interview of him.  As I 
understand his report, Captain Sawant believes that the contamination 
probably took place aboard ship, as a result of (a) inadequate cleaning of 
the tanks and (b) the cleansing properties of this condensate cargo.

 A related issue of great importance to ECT is FGPC's position going forward 
regarding what I understand to be a long-term compressor fuel purchase 
agreement.  Under the agreement, there are reportedly three alternative fuels 
which ECT may, given certain conditions, deliver to FGPC: condensate, 
gas/oil, and naptha.  Condensate is apparently the first choice, but must 
meet ASTM D 3605, which ECT now feels is extremely difficult to do, given the 
unreliability of the test.  Gas/oil can reportedly only be used where ECT has 
been unable, despite the use of due diligence, to locate condensate that 
meets ASTM D 3605.  If FGPC accepts gas/oil as a substitute, however, then 
FGPC is responsible for paying a substantial tax on it that does not apply to 
condensate.  Naptha will reportedly cause ECT to lose money, because of its 
lower Btu content.  

 Because of the problems with the M/V PACIFIC VIRGO product, ECT has 
reportedly contacted FGPC about accepting gas/oil as a substitute.  I have 
heard that this will cause FGPC to become liable for a tax in the range of 
$1,000,000, although this has not been confirmed.  Before agreeing to accept 
gas/oil, FGPC has requested a letter advising what due diligence efforts ECT 
has performed in order to secure product that does meet its specs.

 Parenthetically, I ask that Matt remind me who the ECT trader was who 
actually did this deal.  

URGENT  ISSUES   

1.  Who to use as ECT's experts.  Neale has recommended Captain Richard 
Gregory of Noble, Denton and Dr. Eric Mullen of Burgoynes.  I do not know 
whether Neale intends to use Captain Sawant, who has reportedly never 
testified.  I feel that the quality of ECT's experts will be of great 
significance in this case and want to make sure that whoever we use can, in 
your opinion, command the respect of a London arbitration tribunal in a 
proceeding against the ship or, if necessary, against the cargo underwriters. 
 If that means getting a London-based expert, let's discuss it and get this 
issue resolved before the joint survey that is being scheduled to take place 
in the Phillipines.

2.    Resolving ECT's insurance claim.  As you know, Cliff Bennett of 
Minton's (the same firm that Enron is using as its experts in the M/V HAVMANN 
matter) is following this matter for ECT's cargo underwriters.  I am told 
that Bennett has not been told by us about the pre-sale product sampling.  My 
concern is that once he finds out, he (and the ship) will raise inherent vice 
as a defense.  Please take a look at the cargo policy that I will be sending 
you by courier and (a) advise of any coverage issues you see and (b) give us 
your thoughts as to the best way of resolving ECT's claim quickly. 

3.   Whether ECT should file for arbitration before the ship does so.  You 
mentioned that the ship is likely to file an arbitration demand in the near 
future and seek an interim award of its $510,000 freight claim.  Given that, 
I would like your recommendation in very short order as to whether ECT should 
wait for that to happen and file a counterclaim, or proceed with filing an 
original demand.

4.   Whether ECT can raise the doctrines of impossibility of performance or 
frustration of performance or some other legal theory to challenge the use by 
FGPC of the ASTM D 3605 specification in this matter.

ADDITIONAL DOCUMENTATION

 This afternoon, I will be faxing certain key documents to you, and will send 
the rest by courier.  I am also asking that Matt telefax to you copies of the 
following documents (Matt, I apologize if you have already sent them to me):

1.  ECT's purchase agreement with Phillips

2.  ECT's long-term agreement to supply fuel to FGPC, and purchase orders (or 
the like) that particularly relate to this cargo.

3.  A copy of the first charter party, as soon as it is sent to us.

4.  Anything which reflects the terms of the second charter party.


 David, we appreciate your availability and look forward to working with you.

     Regards,

     Britt Davis