----- Forwarded by Steven J Kean/NA/Enron on 12/08/2000 08:18 AM -----

<Suzanne_Nimocks@mckinsey.com<
12/07/2000 02:09 PM

To: <skean@enron.com<
cc:
Subject:

I thought that you (or some of your colleagues) might find the attached
update on country by country restructuring to be helpful.
----- Forwarded by Suzanne Nimocks/HOU/NorthAmerica/MCKINSEY on 12/07/2000
01:30 PM -----
Memorandum

TO: Adam Lewis
Alberto Marchi
Andrew Hertneky
Andy Steinhubl
Angela Kuster
Anjan Asthana
Antonio Puron
Antonio Volpin
Arne Germeyer
Arturo Vernon
Ashutosh Shastri
B. Venki Venkateshwara
Barbara Fletcher
Barbara House
Ben Joyce
Bernard Minkow
Bob Edwards
Bob Felton
Boris Galonske
Brian Schofield
Brian Tulloh
Buford Alexander
Carlo Yu
Carlos Torres
Carol B White
Carolyn Loos
Cecilia Bergman
Charlie Taylor
Christoph Brombacher
Christoph Grobbel
Claude Genereux
Corinne Aigroz
Csilla Ilkei
Dalila Villar
Daniel Poller
Eileen Burnett-Kant
Enrique de Leyva
Eric Bartels
Eric Hanlon
Eric Lamarre
Francis Hodsoll
Franco Magnani
Francois Lepicard
Frank-Detlef Drake
Frank Weigand
Gerald Klenner
German Dominguez
Gerrit van Geyn
GIANCARLO GHISLANZONI
Gjermund _ydvin
Glenn Payne
Helen Warwick
Hugo Baquerizo
Humayun Tai
Ignacio Quesada
Intam Rinawati Dewi
Ivo Bozon
Jaap Kalkman
Jan Christer Tryggestad
Jason Hicks
Jason Rabbino
Javier San Felix
Jeff Walker
Jessica Ciccone
Jessica O'Connor-Petts
Jim Ayala
Jim Bowen
Jim Humrichouse
Jim O'Reilly
Jim Robb
Joan Westmoreland
Joelle Gatineau
Jon Zagrodzky
Jonathan Woetzel
Jorge Fergie
Jose Federico Castillo
Jose Maria del Aguila
Jourik Migom
Jud Morrison
Judith Lezaun
Judy Wade
Karel Tutein Nolthenius
Keith . Leslie
Kelly Kienzle
Ken Ostrowski
Kristina Kalinova
Jyoti Suri
Lar Bradshaw
Leonardo Senni
Leonhard Birnbaum
Les Silverman
Linda Mansfield
Lisa Schwallie
Luca D'Agnese
Luis Troyano
Marcelino Susas
Marina Ospina
Mark Ellis
Marko Schulz
Marla Aizenshtat
Matt Rogers
Menno van Dijk
Michael Linders
Michael Morcos
Mike Juden
Mike Terry
Miriam Alvarez
Nicolas Borges
Olga Perkovic
Pablo Toja
Pankaj Jain
Pascale Michaud
Patricia Miller
Paul Jansen
Paul Kolter
Paul LeBrun
Paul Parfomak
Pawel Konieczniak
Per Lekander
Peter Bisson
Peter Sidebottom
Pierre-Yves Ouillet
Pierre-Yves Roussel
Pru Sheppard
Rob Latoff
Robert Palter
Robert Samek
Rodrigo Rubio
Rogene McCoy
Roger Abravanel
Ron Bloemers
Ruggero Jenna
Rui De Sousa
Sally Lindsay
Scott Andre
Scott Graham
Sesha Narayan
Simon Lowth
Suzanne Nimocks
Tera Allas
Thomas-Olivier Leautier
Thomas Read
Thomas R"thel
Thomas Seitz
Thomas Vahlenkamp
Tim Bleakley
Tommy Inglesby
Tony Perkins
Trudy Scott
Tsun-yan Hsieh
Valentina Grifo
Vitaly Negulayev
Walter Wintersteller
Yann Duchesne
Zander Arkin
CC:
BCC:

FROM: Carol B White
Pru Sheppard
EU - EPNG R&I
DATE: December 6, 2000

Power sector restructuring: international activity, June - November
2000

This mailing is a periodic update of the status of international
electric power sector privatization and restructuring.

Privatizations and restructuring activity continue apace.
Governments faced with burgeoning power demands, but lacking the
funds to meet them, are nearly universally opening their generation
markets to foreign investors, even where privatization is not on the
agenda. More and more, state-owned utilities are unbundling.
Competition is being introduced into national markets at both the
wholesale and retail levels. A few international players have scaled
back their international investments and shifted substantial portions
of their portfolio to less risky markets, such as the U.S. or Europe.
Competition in Europe has been spurred by the EU Directive. As Asian
economies recover, most governments are starting to move forward
again with unbundling / restructuring plans. After a year in which
currency devaluations caused a number of early investors to exit
Latin America, a healthier economy has allowed privatizations to
restart, but at a slower pace.

This mailing summarizes recent developments in Europe, Asia-Pacific,
Latin America, and the Middle East / Africa. Maps that summarize the
status of restructuring in Europe, Asia, Latin America, and Africa
and the Middle East are attached as Exhibits 1-4. A slippery slope
is Exhibit 5. Timelines showing the opening of markets in various
countries, by region, are in Exhibits 6-8.

(See attached file: Intlmail 3 exhibits.ppt)

February '99 marked the opening of the market to choice for most
large EU customers who use over 40 GWh a year. This accounts for
about a fourth of demand. As of "E-Day", neither France nor Italy
had passed their proposed enabling legislation. While the EU
intended for the transmission operator to be independent, EDF intends
to retain control over the grid, as will ENEL. A phased deregulation
of the gas industry began to unfold in similar fashion beginning in
August 2000.

Mergers, alliances, and consolidation are a dominant theme as
companies jockey for position in the new European power market.
There is a tremendous opportunity for international players to cross
borders: as suppliers of new generation, as purchasers of assets
being spun off by liberalization decrees (Italy) or because of market
concentration rulings in mergers (Germany, Spain). Several
international companies have opened trading offices in Europe, or (
Enron, Reliant, Southern, TXU). HoustonStreet.com launched a
European online wholesale energy-trading platform.

? Austria: Austria's liberalizing market is facing problems
from within and without. The EU is dissatisfied with its
lack of G-T-D unbundling, although accounts were formally
separated in 1999. There is no ISO. Internally, there is
intense discussion about an accelerated market opening
(customers over 20 GWh now have choice). Regional utilities
are angry over the Verbund's proposal to open 100% of the
market in late 2001. The Verbund, a 51% SOU, is the largest
generator and owns the transmission grid. However, it has no
retail customers and hence is strongly exposed to already
deregulated wholesale customers. (C.B. White, Judith Lezaun)

? Denmark: The 1999 liberalization law exceeds the EU
directive's goals and establishes full retail access by 2003.
Choice was phased in for large industrials using more than
100 GWh in 1997; the threshold dropped in April '00 more
than 10 GWh; the next threshold drops to 1GWh at the end of
2000. The new law includes unbundling of distribution
activity and regulated TPA. Denmark has recently experienced
a consolidation wave in generation that leaves the sector
with 2 large incumbents. The trend is moving downstream into
distribution and supply. Western Denmark is already part of
the Nordic power exchange NordPool and East Denmark is due to
join by the end of 2000. Energy policy aims at twenty percent
of electricity sales would come from renewables by the end of
2003, up from a current 10%. (Cecilia Bergman)

? Finland: Finland has been fully open to choice since
September 1998, when a metering requirement was dropped.
Prices immediately dropped, but only about 2-3% of households
have switched supplier. Finland forms part of the Nordic
power exchange NordPool. The regulator monitors distribution
tariffs and a rTPA regime is in place. In November '98, the
Finnish government launched an IPO for 20% of Fortum, the
holding company for the merger of utility Imatran Voima Oy
and oil and gas company Neste Oy. The Finnish government
expects to lower its ownership further. The largest new
entrant in the market is Swedish Vattenfall, with its
acquisitions of distributors and some generation capacity.
Further M&A in the distribution and supply sector is
expected. (Cecilia Bergman)

? France: There was irony in France's push for liberalization
as it assumed its six-month EU presidency. France passed
its electricity law last February, a year after required by
EU directive, but had 30-odd implementation decrees stalled
in the National Assembly. However, EDF, which still controls
more than 95% of French generation, realized Brussels would
hinder its foreign ambitions if its domestic market remained
closed. It recently convinced French authorities to open up
34% of the market by the end of 2000 instead of 2003,
lowering the eligibility threshold to 9 GWh/year (from 16
GWh). EDF is also aware that its monopoly prevents it from
easily entering the energy services market -- leading EDF to
promote a "relatively rapid" total opening of the French
market. (Corinne Aigroz, White)

? Germany: While the Electricity Law was officially effective
in April '98, real competition is still impeded by
complicated TPA grid access conditions, especially on the
retail market. A group of new entrants has organized to call
for a governmental regulator. Some recent studies have shown
the cost of electricity so low on some bills as to indicate a
"massive cross-subsidization between network operations and
marketing." Recent charges have been made of obstacles to
competition by a mulitiplicity of fees, including customer
switching charges and supplier entrants registration levies.
In the last 12 months, M&A among big national and
international utilities has redrawn the German utility
landscape: EDF bought a share in EnBW, Veba / Viag merged to
form EON and RWE/VEW merged into RWE. Furthermore, RWE and
EON must sell their stakes in VEAG due to antitrust
authority. Currently, several utilities are and battling for
control of East German VEAG, whose transmission connections
make it a portal to Eastern Europe. (Judith Lezaun, White)

? Greece: According to the FT, Greece has "hired a consultant"
(us) to produce a 5-year plan for state utility PPC. PPC is
preparing an IPO for 15-20% of the company, theoretically set
for 2001, but likely later. Greece has been given until 2001
by the EU to conform to the Directive. An IEA report
suggested two major swift changes to the energy sector
structure. First, the government should create a clearer
separation between itself and the state-owned PPC, including
a separate regulatory agency. Second, the government should
consider splitting the PPC into competing generators to
maximize competition, as well as improving market access
conditions for IPPs and cogenerators. As the country's
largest employer, PPC is not likely to effect these changes
quickly. (White, Thomas Read)

? Ireland: Supply competition was introduced in February '00
for customers over 4 GWh (28% of the market). Opening is
scheduled to increase to 32% in 2003, with further
liberalisation in 2006. No date for mid-market and full
retail opening has been set. Incumbent ESB plans to split
off its transmission business, which will remain state-owned.
Competition in generation will be introduced in 2002 with the
auctioning of ESB capacity, which is intended to create at
least two new players. Independent power production has been
allowed for two years now. (Ben Joyce)

? Italy: Italy approved its market deregulation decree in
March '99; in some measures, it goes beyond the EU Directive.
ENEL had dominated 80% of generation; by 2003, no entity can
control more than 50%, or 30% by 2005. This requires that
ENEL sell between 15GW and 22GW of its 57GW by 2003. It has
separated G-T-D into separate legal entities and been 34.5%
privatized. A second tranche should take place in 2001. A
pool mechanism should be operating by 2001. Consortia of
industrials using more 30GWh/year can contract directly with
IPPs; by 2002, the threshold will be 9GWh/ year. The
potential free market currently amounts to 80 TWh a year, or
30% of total demand. This will increase to 40% in 2002.
ENEL, who has a de facto monopoly on T&D, will retain
ownership of the national grid assets; a separate state-run
ISO, GRTN, will run transmission and dispatching. A pool
mechanism, operated by a GRTN subsidiary, should be operating
by 2001; in the meantime, the market uses bilateral
contracts. (Valentina Grifo, White)

? Netherlands: By June '00 three of the four large generation
companies had been sold to foreign energy groups.
Competition for large industrial users began in August '98.
Large industrials (33% of the market) can currently choose
their supplier. By 2002, 58% of the market will be
competitive, and in 2004, there will be full customer choice.
The Amsterdam Power Exchange, modeled along Scandinavian
lines, was launched in May '99. The APX allows players to
trade power over the Internet on an hourly basis for the next
day. In April '00, it added day-ahead prices at border
points for Germany, although it is not yet much used; if
successful, Belgium would follow. In October '00, the
government agreed to buy the entire high voltage network,
TenneT, from the four generation companies for $99.1 million.
Their goal was to improve the supply market and to increase
real competition. (White, Karel Tutein Nolthenius)

? Norway: Norway opened up to retail access in one fell swoop
in 1991. "Real" retail access got started in 1995 when the
meter requirement was abolished; switching got started in
1997 when a switching fee was canceled. The current
accumulated switching rate lies at 14%. Distribution tariffs
are regulated and transparent according to rTPA. Norway forms
part of NordPool. (Cecilia Bergman)

? Portugal: Portugal brought new regulations into force in
January '99. They include a price-cap system for determining
tariffs and the creation of two coexisting supply systems:
public and independent. Each is locked into supplying the
national grid (REN), a regulated and EdP-owned monopoly.
Producers within the independent system can currently supply
eligible customers who consume more than 9GWh/year at a
single site. The country's four discos may purchase up to 8%
of consumption outside the public system. Portugal's
regulator, ERSE, needs either to extend the eligible
customers or raise the allowed percent for discos in order to
reach the percents required by the Directive. The government
sold another stake of 20% of state-owned Electricidade de
Portugal in October '00, following two successful offerings
in '97 and '98. This offering raised $1.34 billion. The
state retains 32.6% and "golden share" voting rights. (Rui de
Sousa)

? Spain: After several major Latin American purchases, Endesa
moved to restructure and consolidate at home, announcing in
October '00 the merger with Iberdrola. The resulting company
would have 80% of the market, so it would be forced to shed
generation and distribution assets. It would also create the
world's 4th largest utility, by market cap. There is also
movement with the smaller two players.

The Spanish regulator is applying an eligibility schedule
faster than the minimum requirements of the EU Directive
providing for full market opening by January 2003. Several
foreign players are already authorized to supply eligible
consumers and there are new generation capacity additions
announced by some of the large international. Nearly 60% of
the market can now choose its supplier. A mandatory pool
with a bidding system started in Jan '98. (White, Dominguez)

? Sweden: Deregulation was introduced in January '96 with full
retail access to all customer groups, rTPA and unbundling of
distribution activities. However, switching was impeded by a
meter requirement that was abolished in November '99.
Switching is currently at 10% but with renegotiated contracts
the figure is more like 25%. Sweden forms part of NordPool, a
"common electricity market", a forum for physical and
financial exchanges. Alongside NordPool is a bilateral market
and an OTC market for financial trading. Consolidation has
occurred in the distribution sector mainly and the generation
market is concentrated in the hands of 3 large actors.
(Cecilia Bergman)

? Switzerland: In October '00, Parliament passed an electricity
market law. The first phase of the liberalization should
start in 2001 granting choice to large industrials (< 20
GWh); the mid-size market will open in 2004 (< 10 GWh). In
2007, the law envisions a fully open market. Some aspects of
the new law, such as the transmission tariff model, are still
being discussed. (Chris Brombacher, White)

? UK: With market deregulation complete (full choice since May
1999), the UK market is now settling into a phase of supply
consolidation. Seven of the 12 RECs in England & Wales are
now in joint ownership. In the generation market, the
incumbent's share continues to decline: National Power and
PowerGen have divested further capacity, and now stand at
8.5% and 6.7%.

The New Electricity Trading Arrangements for wholesaling have
been postponed to early 2001. They will allow for a futures
and forwards market to trade alongside the established spot
market. Markets will be run by independent members, although
the balancing and settlement mechanism will be run by a
system operator as before. A bilateral power exchange will
also be put in, and is expected to handle a much larger
demand than the spot market. (Ben Joyce)

In Central and Eastern Europe, privatization initiatives are
continuing to attract badly needed capital, while the IMF urges
reforms as a condition for funding. Countries that are looking to EU
membership have moved forward with power sector restructuring and
gradual opening of their markets to choice.

? Bulgaria: In January, the Energy Agency announced its intent
to unbundle the state monopoly, NEK, into separate G-T-D
companies. NEK will remain a single buyer; 28 distribution
entities have been merged into seven new companies. The
unions are opposing rapid reform, claiming the necessary
regulations have not yet been written. The government is
working with the IMF to set up financial controls and
eliminate cross-subsidies. Between 2001 and 2005, all
generation will be upgraded or privatized. Transmission will
remain state-owned. (Csilla Ilkei, White)

? The Czech Republic: In October '00, the Czech government
announced it would sell a strategic stake in generator CEZ
and in six of the eight regional distributors to a single
buyer. Privatization is expected to begin in 2001. Many
Western companies, such as Vattenfall and E.On have already
been quietly buying up stakes in small municipal distributors
who need the cash to balance their budgets. A new energy law
should be also approved by the end of 2000, which would open
power markets to competition between 2002 and 2006; prices
should reflect costs by 2002. Gas liberalization will follow
in 2005. CEZ is testing its controversial nuclear plant,
Temelin, which should begin operating by spring 2001. CEZ
plans to cut wholesale electricity prices by 20% after the
commercial launch of Temelin. (Kristina Kalinova, White)

? Hungary: Since December '95, majority shares have been sold
in the six regional discos and five gencos to Western
investors. Eastern Europe's earliest and most ambitious
privatization program has fallen victim to a host of
problems, especially central government price control. AES
and IVO-Tomen tendered new capacity tendered in 1999, but AES
is now bringing MVM to arbitration over its failure to sign
its agreed-on PPA. Hungary will partially deregulate its
market after 2002 but before it joins the EU. Further
privatization opportunities include a coal-fired power plant
as well as the monopoly transco, MVM. (Cs. Ilkei, White)

? Moldova: The European Bank for Reconstruction and Development
has expressed an interest in stakes in privatized assets of
Modova, giving privatization scheduled for this year a boost.
Majority shares will be sold in first in five distribution
companies, then in three generators. The first attempt to
privatize distribution failed to receive timely bids. All
companies will require substantial investment for upgrades.
(White)

? Romania: In September '00, the national electric company,
Conel, was split into four independent units. These encompass
fossil generation, hydro generation, transmission, and
distribution and metering. Restructuring precedes eventual
privatization, which will begin with distribution, followed
by generation. Current law requires foreign owners to have a
local partner. As Romania is one of the countries invited to
join accession talks with the EU, it is opening its market in
stages. Currently, 10% (<100GWh) has choice; this will rise
to 45% (<40GWh) next year. Evenually, elegibility thresholds
will be lowered to 20GWh, then 9GWh. (Cs. Ilkei,White)

? Russia: In the mid-1990s, the Unified Energy Systems of
Russia Joint Stock Company (UES; also known as RAO), was
organized into 72 regional joint stock companies; UES still
holds 49% shares in most of these regional utilities. In May
'00, President Putin fired the non-reformist energy minister
who had blocked earlier attempts at privatization and
liberalization. The new minister is an unknown quantity.
The head of UES has wanted to privatize significant portions
of UES and to lift foreign ownership controls, currently at
25%. (White)

? Slovak Republic: In October 2000 the government approved a
plan to restructure and partially privatize its energy
sector; implementation legislation needs to be passed. The
plan would see state-owned Slovenske Elektrarne (the G-T-D
monopoly) transformed into a 100% state-owned joint stock
company. Regional distributors will be separated from SE
and merged in the first half of 2001 into three joint-stock
companies, with a 49% block of shares to be sold. Generation
will also be separated and transformed into joint stock
companies. Municipalities will acquire majority stakes in the
heating plants. The government will select a privatization
adviser for SE and for the distribution companies in early
2001. (Kristina Kalinova)

? Turkey: The controversy over BOO (build-own-operate) vs. BOT
(build-operate-transfer) arrangements for IPPs was resolved
in January 2000. Turkey passed a retroactive constitutional
amendment allowing international arbitration for energy
contracts. Twenty-three BOT projects are affected. Turkish
economic growth is fueling a need to triple its capacity to
64 GW by 2010. In September, Turkey proposed an energy law
that would separate state-owned TEAS into separate G-T-D
entities. Generation plants would eventually be available
for privatization, while new plants would no longer be
transferred to the government, but remain with the IPP
builder. The impetus for this proposed law is Turkey's
interest in EU membership; only 1/8th of its 120 energy
regulations meets EU standards. (White)

? Ukraine: Authorities have announced the sale of seven of the
country's 27 regional discos, in a transparent tender. Such
a sale has been unsuccessfully tried before. Each sale will
be for 25% plus one share. The distribution sector is beset
with a host of problems including high non-payment, unpaid
employees, and corruption. The EBRD is pushing for progress
on privatization before it provides funds to build an
alternative to Chernobyl, which the authorities have agreed
to close.

Asian economies are recovering from the economic crisis and in some
countries electricity demand is returning to pre-crisis levels. Most
governments are starting to move forward again with unbundling /
restructuring plans in the power sector; although IPPs are facing
ongoing problems relating to PPAs and lack of government guarantees.

? Australia: All customers in Australia should have choice by
2003. Victoria will to phase in full competition during
2001. New South Wales (NSW) has delayed full competition for
residential users and small businesses to January '02. The
five other states plan to phase in full choice by 2003.
Victoria's five distributors are facing revenue reductions of
between 12% and 22% starting in 2001, whey they say will hurt
their service capability. Recent M&A activity has seen
already- privatized Victorian distribution, retail, and
transmission change hands, with new owners coming from Asia.
ElectraNet, South Australia's (SA) transco, was sold as a
200-year lease in September. The National Electricity
Market, comprising Victoria and NSW, started operating in
December '99. Queensland, SA and ACT will join in the next
few years.

? China: China is aiming for nationwide interconnection,
including Hong Kong, by 2010. Power pooling and increased
interconnection is being tested in Zhejiang and Shanghai
provinces. As there is no process or body in place to
oversee reforms, some believe that sector reform is a mere
slogan. Investors are backing off of a number of planned IPPs
following a government decision to cap the ROR for new
projects at 10%. Another issue is lack of government
guarantees. China plans to build hundreds of small rural
hydro projects and to spend Yn55bn to upgrade rural power
grids in 2000 as part of a project to bring electricity to 75
million people who currently have no access.

? India: Five of India's 19 states have undertaken significant
reforms: Orissa, Haryana, Andhra Pradesh, Karnataka, and
Uttar Pradesh. And, only four of the State Electricity
Boards (SEBs), the principal buyers for independent power,
are profitable. IPP builders have been frustrated by a host
of regulations, lack of guarantees, and SEB insolvencies.
The growing Indian power deficit was dramatically highlighted
this year by the withdrawal of two major investors, EdF and
Cogentrix.
A draft "Electricity Bill 2000" will be introduced in
Parliament this winter. It would create and empower
autonomous State Electricity Regulation Commissions. SEBs
would be unbundled into G-T-D and corporatized within four
months of passage. Initially, states would initially retain
G&D assets; they would later be privatized. Transmission
assets would be put under an independent authority, and TPA
would be allowed. Significantly, IPP licensing requirements
would be clarified and reduced, and largely eliminated for
the growing segment of captive producers. A key problem of
theft ? as high as 30% of T&D losses in some areas ? would be
addressed by strict metering and high penalties. The
likelihood, however, of the Bill being passed as proposed is
not strong, as it faces significant opposition both by unions
and regional parties in Parliament.

? Indonesia: Indonesia's IPP program has faced problems over
power purchase costs and project rates of return, with
bankrupt state-owned PLN claiming it is unable to pay IPP
operators for power. Of 27 planned IPP projects, only three
now supply power; six others are ready to generate. PLN
reached an interim agreement with Paiton Energy under which
Paiton will supply energy for 10 months, at a rate said to be
much lower than the original agreed-upon price. Other PPA
renegotiations will likely force IPPs to operate at a loss
until the Indonesian economy revives and PLN's financial
situation improves. Unbundling is underway on Java/Bali,
where PLN has created two generation subsidiaries. Outside
Java/Bali, unbundling of PLN will be along geographic lines.
The Indonesian government recently selected KEMA Consulting
to develop rules for a competitive market.

? Japan: On March 21, 8000 large customers (30% of the market)
were allowed to choose a supplier. This broke the monopolies
of the ten regional IOUs for the first time, but high
transmission access fees set by the incumbents are inhibiting
true competition. Newer liberalization measures in the
electricity and gas sectors have since been written -- an
agreement was signed at the July G8 Summit which provides for
fair and transparent non-discriminatory access to
distribution networks in both sectors. A number of new
companies are entering (or planning to enter) the market,
largely set up as JVs with local non-incumbents, often
offering new products and services.
In August the government awarded a tender to a non-utility,
Diamond Power, a Mitsubishi unit, to supply electricity to
the Ministry of Trade and Industry at a rate 4% lower than
incumbent TEPCO's. TEPCO plans to build a new nuclear plant
to cut generation costs and plans to streamline operations in
the face of increased competition.

? Malaysia: Jamaludin Jarjis was appointed as the new chairman
of Tenaga Nasional Berhad (TNB) in July. He assured
investors that restructuring begun three years ago by his
predecessor would remain intact. TNB will be transformed
into two separate T&D companies by 2003, with an equity
interest in generation. Generation assets have already been
separated into TNB Generation; thermal generation will be
sold. The government has approved the construction of more
IPPs to meet the demand for electricity, which has grown 12%
compared to the period before the economic crisis. Work on
the Bakun Hydro Project in East Malaysia has resumed, but it
remains to be seen whether the project will go ahead as
originally planned or on a smaller scale.

? New Zealand: 1999 saw ECNZ split into three gencos to create
further competition -- Genesis Power, Meridian Energy, and
Mighty River Power. They have been corporatized but will
remain under government ownership. Legislation passed in
1999 forbade ownership of wires (non-competitive) and
generation and retailing (competitive) by the same company.
Companies have until 2004 either to sell one business type or
to set up a separate trust to own and run the businesses they
do not wish to keep. By February '00, most had implemented
full separation. The newly merged (75.8%) NGC/TransAlta will
be the largest energy retailer in New Zealand, with a market
cap of NZ$2.1billion and more than 650,000 customers.

? Pakistan: Pakistan is trying to attract IPPs with negotiated
PPAs which allow fixed ROR of 12%, but IPPs face continued
lack of guarantees and other political uncertainties.
Problems continue over Hub Power Company (Hubco), the largest
IPP project in Pakistan. Hubco is receiving significantly
lower payments from WAPDA than originally contracted. The
government has alleged that corruption occurred when the PPA
was amended in the 1990's, making the wholesale power tariff
untenable for WAPDA and excessively lucrative for Hubco.
More than 20% of plants have already been sold in a phased
sell-off of WAPDA's generation. Eight parties have been
short-listed for the pending privatization of 51% of Karachi
Electric Supply Commission, but the sale has been often
delayed.

? Philippines: An Omnibus Electricity Bill, which will set
the framework for the breakup and privatization of Napocor,
is stalled in a House-Senate reconciliation committee. The
Asian Development Bank has threatened to withhold all
financial assistance, including $100million in loans for
power related projects, until the legislation is passed.
Napocor is on the verge of bankruptcy and energy department
officials are looking at several alternate options for
selling the utility in the absence of a restructuring bill.
Government-appointed advisers have also recommended that
Napocor renegotiate some of its take-or-pay contracts with
IPPs, asking some IPPs to reduce power off-take on an interim
basis. Napocor has offered the IPPs that accede to these
conditions a longer life span for their projects, but
developers are reluctant to accept because of their own
financial commitments.

? Singapore: Since initial restructuring and corporatization
in 1995 and the establishment of a pool in 1998, Singapore
has lagged in power sector deregulation. Investors complain
that the market lacks clarity and that retail competition has
yet to develop even though the rules allow competition for
large consumers. A thorough review in 1999 by the Ministry
of Trade and Industry recommended that: generation be
privatized, but with restrictions on generation
cross-ownership; transmission and market operation functions
be separated and an ISO established; and that most retail
services be privatized. The government has granted two
public retail licenses, meaning that the two IPPs can sell
electricity directly to large users. Retail licenses are
expected to be issued to the three power generators. This
will allow full competition for large industrial and
commercial customers, but retail competition for smaller
customers is unlikely to be in place before 2002.

? South Korea: South Korea is proceeding with a major
restructuring program, following government approval in July
1999 for state-owned KEPCO to be broken up into six gencos.
KEPCO will retain the nuclear assets as one genco. Each of
the five other gencos will be listed in stages on the Korea
Stock Exchange; up to 30% foreign ownership will be
permitted. The privatized gencos will sell to KEPCO, which
will initially retain its T&D services. Later, a UK-type
pool will be established where all generators will sell into
the pool. Competition in distribution and retailing is a
long-term target. IPP projects totaling 2,515MW are already
in operation. Impending restructuring has not deterred
foreign interest in several ongoing IPPs.

? Taiwan: Two phases of IPP development have been approved, but
only one IPP scheme has started up. Developers have faced
land acquisition problems, causing IPP schedules to slip. In
1999, the government announced plans to launch Phase Three,
limited to gas-fired plants. An Electricity Act is before
Parliament. Its main provisions include: privatizing
Taipower without unbundling G-T-D; allowing other companies
to enter the market as either vertically integrated,
generation, transmission or distribution companies and to pay
Taipower a fee for using its facilities; and the creation of
an independent regulator, especially for tariffs. IPPs will
be able to supply customers at 161kV and above, and IPP
prices will not be regulated.

? Thailand: The 1999 State Enterprise Corporatization Act laid
out a three-stage process for all state-owned enterprises,
including power, to create fully competitive, restructured
and privatized sectors. A draft Energy Act is under
discussion, while preparation and implementation of various
technical frameworks are underway. Under the Act, a
competitive wholesale pool would be introduced in 2003,
although some sources doubt that it could be ready by then.
It is also unclear how soon Thailand will have a transparent
and independent regulatory body. EGAT transferred two thermal
units to Ratchaburi following its IPO in October; EGAT also
plans to corporatize and partially privatize its non-hydro
plants by 2003. Before the economic crisis, the government
had an ambitious IPP program; EGAT now has excess capacity,
so has delayed many projects. Its long-term plans include
the construction of a series of Small Producer Plants (SPPs)
using renewable energy. PPAs have been signed with 50 SSPs.

? Vietnam: Vietnam is in the nascent stages of reforming its
power system. Electricity of Vietnam (EVN) is an unbundled
state monopoly, which does not even service rural customers.
Local villages provide services to small farmers and small
commercial businesses using thin wires and low standards. The
World Bank has approved a $150million credit to Vietnam to
extend grid electricity to about 450,000 households scattered
throughout the country. A few IPPs are trying to win
generation projects. An Electricity Law due to be enacted
in 2001 would establish a National Electricity Office for
regulation. This would replace the existing haphazard
village-level regulatory system.

Profoundly affected by inflation and currency fluctuations, many
Latin American countries have postponed further privatizations. At
the same time, ownership limits imposed by several governments limit
further investments by companies who have already entered the market.
According to the Inter-American Development Bank, privatization of
electricity distribution and generation has been accomplished in all
of the major Latin American economies with the exceptions of
Venezuela and Mexico. It estimates that 75 million Latin Americans
are still not connected to the grid in rural areas of poorer
countries such as Peru, Bolivia, and some Central American countries.
Many of the countries that have not already implemented reforms are
beginning to propose regulatory structures that would open markets to
investments. And for those who were already open, a new development
is the increasing number of transmission systems being offered either
as concessions to build or as full privatizations. A big factor
impacting generation this year has been the region's heavy reliance
on hydro-power. Serious region-wide droughts during the last few
years have caused power shortages and scared away some investors.

? Argentina: The big news is in Argentina transmission sector.
This fall, Argentina auctioned off 25% of Transener in an
IPO, while also offering six lines to the private sector on a
B-O-M (build-operate-maintain) basis. Endesa (Spain) must
divest one of its two Buenos Aires distributors due to
antitrust concerns (Endesa's two companies are now serving
40% of the countries 36 million people). The regulator
believes that the two holding inhibit its ability to evaluate
efficiency and to set prices.

? Brazil: Brazil's wholesale energy market (WEM) began
operating in October; initially, only 5-10% of power bought
or sold will go through WEM. As other contracts expire it
will eventually supervise $15 billion worth of power. The
WEM intends also to create an internet-based trading system.
The Brazilian system, 95% hydro-run, is dependent on
plentiful rains to avoid shortages. Demand growth has far
outstripped GDP, while new generation is not keeping pace.
Analysts predict a 15% shortage in 2001, with intermittent
brownouts, while neighbors are building generation with an
eye to exporting power to Brazil.
Sao Paulo state will sell 38.6% of CESP Parana, one of the
last large generation privatizations, in December. The
state is incenting buyers by offering financing for any
premium paid over the minimum price of R1.74 billion (US$
901mil). Brazil also conducted a successful action of three
transmission lines in August on a build-operate basis.

? Bolivia: Ende, Bolivia's utility, was unbundled in '94 and
has been successively sold off through capitalization (a 50%
stake and management control). To meet demand rising at 7.5%
annually, the government has ordered these buyers to invest
$296 million in the next three years or face losing their
concessions; they have not fulfilled previous obligations in
upgrades. Generators recently defeated an attempt to allow
distributors to generate up to 30% of demand instead of 15%.

? Chile: Privatization in Chile is largely complete. Endesa's
(Spain) controversial takeover of Enersis (Chile) will be the
basis for its diversification into telecom, via its
subsidiaries Enersis and Chilectra. Partially in response to
Endesa's vertical dominance, partially in response to supply
conditions engendered by prolonged drought, and partially to
increase competition, Chile has proposed new regulation plans
which will open the distribution market and reduce node
(unregulated) prices from 2MW to 0.2 MW. Until now,
transmission charges have been based on existing operating
costs. Under the proposed reform, they would be calculated on
the operational costs of an optimum network. The reforms also
intended to remove control of the grid operation from the
generators. The proposed changes likely account for Hydro
Quebec's being the sole bidder among those pre-qualified for
the 100% sale of Transelec in September.
1999 marked a serious recession and drought, seriously
affecting hydro generators, which represent nearly 80% of
Chile's generation. Under the existing system, generators
had no incentive to plan for long-term supply. Chile hopes
the new regulations will break down the entry barriers to
generation and to introduce competition into distribution,
heretofore a monopoly.

? Colombia: Continuing labor strikes plus terrorist attacks
against transmission installations have forced the government
to postpone the sale of any further power assets, including
Isagen, the state generator, ISA, the transco, as well as 14
regional distributors. (A March attack, for instance, caused
a blackout in 9 provinces and most of Bogota for six hours or
more.) The government claims to be reassessing the rules,
but the reality is that the assets would not receive any
decent offer now. For now, 100- 300 million new shares
(13.5% of capital) in ISA will be sold to the public at a 15%
discount, to "democratize" the power sector. Since January
'00, 90% of the market has had choice.

? Cuba: The first IPP began delivering power to Cuba's grid in
October '98. In order to curb programmed blackouts, it has
invited foreign investors to help discover and develop new
crude reserves. Cuba hopes that 70% of its power will be
generated from local fuels by year-end.

? Dominican Republic: Blackouts still plague this nation a year
after the government split state-owned CDE into separate
G-T-D units. Investors paid $750 for a 50% stake and
management control of non-hydro generation and of
distribution. The new government is requiring IPPs (who
provide 40% of the republic's power) to renegotiate the terms
of the privatization contracts signed with the prior
government. In the hopes of increasing competition and
lowering prices, the gencos are planning a power
clearinghouse through which they will sell electricity to T&D
companies. It will, however, "only function when there is
adequate electricity to meet demand."

? Ecuador: The government has hired Salomon to oversee the sale
of its power sector. There is a current investment limit of
39%, which may need to be raised to 51%. The government
realizes that reforms will need to come before privatization
in order to attract capital. Its largest utility, EMELEC,
will be sold in international bidding to pay off extensive
debts.

? El Salvador: In October, AES bought Reliant's interest in
three discos (privatized in 1998), which together serve 60%
of the population. CEL, the SOU, does not plan to privatize
its hydro assets or the transmission grid for the moment.

? Guatemala: Guatemala sold two major discos in 1998;
investors have made significant system upgrades. State
utility INDE still owns 45% of the country's generation, all
in hydro. It extensively encouraged IPPs in the early 90s
with take-or-pay PPAs; IPPs are allowed unrestricted grid
access. The power sector, while needing new investment for
the next five years, may soon be in trouble due to currency
devaluation, high fuel costs, and the effect of the PPAs.
Guatemala also needs to finish writing the implementing
regulations to their 1997 law to encourage more investment.

? Jamaica: For the second time in four years, the Jamaican
government has proposed a partial privatization of PSC, which
handles all of T&D and 75% of the island's generation. And,
for the second time, it is Southern who is in the forefront
of privatization negotiations. It is still not clear what
percent will be sold, but it seems likely to be a marginal
minority of 45%, without G-T-D first being spun-off.

? Mexico: The new Fox administration plans to revive
electricity reform, tabled last year, without which energy
cannot keep pace with economic growth. Fox says there will
be no privatizations, but an opening of the market. Private
participation in the distribution sector would require a
constitutional change. Many believe that constitutional
change will be necessary to achieve adequate reforms.
Mexico estimates it needs investments of $25 billion in the
power sector in the next five years to meet growing demand;
reserve margins are at 6%, while consumption is growing at 6%
- 8% annually. Without a clear regulatory bill opening the
market to competition, investment is inhibited. IPPs have
heretofore been built on a B-O-O basis. Recent tenders have
included the option to build either in the U.S. or Mexico,
with power dedicated to Mexico.

? Nicaragua: The privatization of state-owned power company
(ENEL) is underway, following its restructuring. Assets were
first split into G-T-D companies. In September '00, Spain's
Union Fenosa acquired 95% of two discos for $115 million in
an auction in which it was the sole bidder. High oil prices
forced the government to postpone the October sale of the
three gencos; two of the three pre-qualified companies failed
to submit final bids. Also, the political opposition has
challenged the legality of the privatization in the Supreme
Court.

? Panama: Privatization of government-held IRHE is now
complete; 51% of distribution and generation was sold in
1998. The government plans to retain control of transmission.
Foreign investors are involved in building some generation.
The big news is the Central American integrated grid, which
should join Guatemala, El Salvador, Honduras, Nicaragua,
Costa Rica, and Panama into a single market by 2006. The
IADB is running project.

? Peru: The new Energy Minister, Chamot, favors re-starting the
privatization program, stalled since September '99. SOUs
mentioned for privatization were six regional energy
companies, as well as a 850MW Andean hydro complex, Mantaro.
It was not clear what form privatization would take; nor is
it clear what will happen now that Fujimori has resigned and
fled. Peru also announced bids for construction and
operation of two transmission lines. Currently, only large
industrials, representing 10% of the market, have choice.
There are no plans to expand this.

? Trinidad and Tobago: While there has been a partial
unbundling of the generation arm of T&TEC, the government
utility retains control of T&D as well as of all of natural
gas purchases. There been neither much IPP nor privatization
activity since the sale of 49% of T&TEC to Southern and BP
Amoco in 1996 and the financing of one IPP in 1998.

? Venezuela: The Chavez government imposed an electricity
restructuring law in August 1999. Industrials can choose
their supplier, but there are no plans to open the market
completely. A wholesale market is proposed for 2002.
Venezuela has the lowest tariffs in the Western hemisphere,
due to high subsidization. While the government dithered on
privatization plans, AES jumped in with a surprise bid for
the ADRs of Electricidad de Caracas. The government recently
announced a tentative sale date of early 2001 for 51% of two
regional electric companies, Enelven and Semda.
Privatization has oft been postponed, most recently because
of unknown effects of Venezuela's new electricity law on its
rate policy.

? Virgin Islands: In September '00, this U.S. territory's Senate
quashed a deal in which Southern had privately negotiated for
an 80% purchase of the Water and Power Authority. The Islands
could use the money, but the Senate objected to the lack of
bidding or transparency. It was in principle opposed neither
to privatization nor to Southern.

African and Middle Eastern governments are increasingly opening their
power sectors to foreign investment, although most have not moved
beyond allowing IPPs. Many Gulf-States' IPPs are for water and
power. Increasingly, power sector forecasts include reliance on the
private sector for generation capacity additions. Five Sub-Saharan
countries have privatized their power systems: C"te d'Ivoire, Gabon,
Guinea, Mali, and Senegal. A few countries are beginning to discuss
partial privatization of the entire government-owned entity, rather
than spinning off G-T-D and undergoing separate privatization.

Heavy reliance on hydro power in some areas of Africa have put
pressure on prices, due to sustained droughts, especially in East
Africa. Droughts are usually not conducive to advancing
restructuring agendas in different countries.

A notable regional trend in both Africa and the Middle East are the
schemes for regional transmission links. The Mozambique
Transmission Company links South Africa, Mozambique, and Swaziland;
the West African Power Pool will link 16 countries; there is a
Six-Country link underway between Egypt, Jordan, Iraq, Syria, and
Turkey, and later Lebanon.

? Algeria: Interior minister Khelil, who as a World Bank
official oversaw the restructuring of state oil companies in
several countries, is committed to "a profound restructuring
of Sonatrach (the NOC) and the power sector (Sonelgaz)."
Legislation was introduced this summer that would unbundle
G-T-D, end Sonelgaz' generation monopoly, and allow for IPPs
on a B-O-T basis. Some of the IPPs are intended for domestic
consumption, and some for export. Algeria is keenly
interested in sending power to deregulating European markets
via a new undersea link to Spain.

? Ghana: With a vast hydroelectric station on the Volta River,
98% of Ghana's current power needs are supplied by
hydroelectricity. Ghana's planned privatization of its
distribution company into 4-5 regional companies is possible
in 2001. It is implementing a series of power sector reforms
designed to provide Ghanaians with universal access to
electricity and to transform Ghana into a middle-income
country within one generation. It is moving to reduce its
reliance on hydro-power by allowing IPPs to build deisel,
gas, and light crude plants. Regionally, Ghana is committed
to building a West African Power Pool (WAPP) by expanding
electricity generation and interconnections.

? Morocco: Two distribution concessions are due to be awarded
for Tangiers and Tetouan. The concession covers the
provision of water, sewerage, and electrical services to
these two northern areas. Two earlier power/water concessions
(Casablanca, Rabat) were awarded. Morocco has an active IPP
program; one of the plants was even transferred to the
builders after its completion. No sale of transmission
assets is planned.

? Nigeria: The IMF has provided Nigeria a $1billion facility to
encourage reform and to support civilian President Obasnjo.
In November, the government announced plans to privatize

ailing NEPA, the SOU. While a draft electricity policy has
been prepared, no details have emerged. They intend to send
regulatory legislation to the parliament by the end of
December, which should include a framework for foreign IPP
investors. It is also likely that NEPA will be broken up,
prior to privatization. Enron is supplying 270MW via 9
barge-mounted power facilties off Lagos to ease the power
shortages in this oil-rich country.

? Senegal: Showing how risky foreign investment remains, the
new Senegalese government has asked Hydro Qu,bec and Elyo to
leave, less than two years after they won a 34% interest in
state EU S,n,lec. The current government, while
acknowledging the advances made in rehabilitating old plants,
cited cronyism on the part of its predecssors.

? South Africa: Eskom, South Africa's parastatal, generates 95%
of the country's power, and transmits it over national lines
to municipal distributors. South Africa is moving slowly
towards restructuring and unbundling of G-T-D. The
fragmented distribution system will be merged into six
discos, while plants may be grouped into gencos. Last year,
G-T-D activities were "ring-fenced" to evaluate costs for
each business. A new structure for the electricity supply
industry is being discussed, and the possibility of
privatizing 30% of Eskom's power stations has been raised for
the first time. Electricity regulators announced in November
that they were considering three bids for the first IPP
license, to be offered next year. While South Africa needs
new generation capacity by 2004, it now exports power to its
neighbors, and is very active in the creation of a regional
transmission network. Eskom has ambitions to be a global
player, while continuing to focus on its development agenda
of rural electrification. Eskom Enterprises, the unregulated
business subsidiary, is considering an IPO.

? Egypt: In July, the Egyptian Electricity Authority was
converted into a holding company, although still state-owned.
It intends to offer 49% stakes in seven or eight regional G&D
companies. The sale of Greater Cairo Electricity, valued at
$2.1 billion, will be first, although it has been twice
postponed. All capacity additions will be solicited
competitively as IPPs under the BOOT (build- own- operate-
transfer) model. This allows developers to recover
construction costs by running a plant, while the state
eventually owns the project without affecting its debt
profile. Egypt is part of a planned Six-Country
transmission link.

? Israel: Israel has been discussing restructuring and
privatization for a few years now, but no real progress has
been made. An electricity law passed in March '96 extended
the Israel Electric Company (IEC) license for 10 years in
exchange for its accepting 10% of it power needs (900MW) from
IPPs, and another 10% from foreign developers. So far, only
one IPP has been built. Recent offshore gas discoveries have
been largely in Palestinian waters; further exploration will
be n