Re: Mark-to-Market

---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 01/28/2000
05:00 PM ---------------------------
From: Wade Cline@ENRON_DEVELOPMENT on 01/28/2000 07:17 AM ZE5B
To: Pinnamaneni Krishnarao/HOU/ECT@ECT
cc: Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Vince J
Kaminski/HOU/ECT@ECT
Subject: Re: Mark-to-Market

Sandeep,

Can DPC sell to MSEB and have EIPL buy an equivalent amount of power from
MSEB at another spot on their grid, and then EIPL sell to the 3rd party state?

Pinnamaneni Krishnarao@ECT
01/27/2000 04:00 PM
To: Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Vince J Kaminski/HOU/ECT@ECT, Wade
Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT

Subject: Re: Mark-to-Market

Sandeep:
I met with Bob today and discussed the deal structure we put together. On
the mark-to-market issue, Bob and his colleague Wess told me that as long as
payments are tied to one particular plant, we cannot m-t-m them. They had
same problem with plants here in the US (like the peaking plants) and they
had to separate the plant from power sales to be able to m-t-m the assocated
cashflows. What they did is: they sold power from the plant to an outside
party and bought it back from them at completely different (multiple)
locations. The buyback is not tied to any specific plant and is marked to
maket. Even if Enron can somehow mark-to-market a deal with DPC, it can do so
for only 50% of the cashflows because only 50% of DPC is owned by outsiders.
And a simple loan to an affiliate cannot also be marked to market.

Bob was suggesting that if EIPL buys options from DPC and from some other
plants and in turn sells power to AP or Karnataka then we could have a case
for m-t-m. Politically DPC selling power to EIPL may not be the best
solution, to put it rather mildly!

Our alternatives, as I see them, are
1. Do the deal as we structured it. The only difference is that Enron doesn't
mark it to market and income is earned only in 2002-03.
2. Do the deal as we structured it. EIPL/Enron then sells the contract to
another party at a profit. The problem, of course, is finding this party and
forking part of the profit to them.
3. Same deal, except revenue securitization is done through an outside party
in India (not EIPL).

Bob said he will think about the issues some more this week. Let me know when
you will be here next week so we can meet with Bob together. I will be going
to Boston for Tuesday and/or Wednesday (Feb.1-2). I can book an appt. with
Bob for us.

Sandeep Kohli@ENRON_DEVELOPMENT
01/23/2000 09:45 PM
To: Robert Butts, Pinnamaneni Krishnarao@ECT
cc: Vince Kaminski, Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Ananda
Mukerji, Jaiprakash Desai/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
Subject: Mark-to-Market

Bob,

I wanted to continue the analysis on mark-to-market that I had spoken to you
about on the phone.

I thought that it was getting very difficult explaining the whole transaction
by phone, so I am having Krishnarao who is in Vince's group explain the
transaction to you.

Krishna has been helping us structure the deal here in India, and he has just
returned to Houston from India after working with the team here.

He will seek an appointment with you to explain the transaction. I would
like you to please spend some time with him, and then based on the discussion
please send us a note detailing how sucha a transaction would be marked to
market.

Please cosider the fact that currently there are no such transactions from
the Indian side. This is a very important transaction for us, and we may
need to repeat this in coming months, hence setting up the system to account
for these maybe well worth it. Also, what I am concerned about is that there
will be an Enron India (EIPL) account in India based on Indian GAAP, and upon
consolidation there will be a US GAAP accounting in the US. It is here that
we would like to have mark-to-market accounting. EIPL is structured through
Mauritius, and then Caymen Islands.

Another key question to consider is that when we m-t-m the transaction in the
US there will be a tax accruing in the year of m-t-m (say 2000). However, in
India, as a result of the accrual accounting, there will not be any income
showing till the year 2002 or 2003. We will need to know how that would get
treated, and whether there is a way to get credit for the tax payable in the
US. I am also confused about whether US tax would be levied, since none of
the income is being brought back into the US (remains overseas - subpart-F
and other concerns).

Finally, we have been working hard in structuring a fixed price contract and
getting a fixed for floating swap in the US (this is still not allowed to
Indian Corporates). I need you to think about this too, and see if some type
of accounting will solve this issue. Krishna knows what I am talking about,
and will brief you on the same.

Krishna - Please walk Bob through the three structures we had worked here.

Look forward to your help and comments. This is going to be an exciting
project for us all.

Regards,
Sandeep.