~ Kashif Chaudry
~ Jon Cram
~ Ellena Andoniou
1988
• Opened its first overseas offices in England to
take advantage of the country's privatized
power industry
1989
• Jeffrey Skilling joined the company and
Enron launches its Gas Bank
1999
• Enron formed its broadband services unit
• The first phase of the Dabhol project began operating
• After an early rise, shares fell sharply as the year
went on and the problems facing the company
became apparent
• Enron Online, the company's commodity trading
Internet site, was formed. It quickly became the
largest e-business site in the world
Brief History
1985
• Houston Natural Gas merges with InterNorth
based in Omaha, Nebraska
1987
• Oil traders in New York overextended the
company's accounts by almost $1 billion. This
lead to the development of a myriad of
services
1992
• Enron acquired Transportadora de Gas del
Sur, Enron's first pipeline presence in South
America and the start of a push to expand on
the continent
1997
• Enron Energy Services was formed to provide
energy management services to commercial
and industrial customers
2000
Energy Financial Group ranked Enron the sixth-largest energy
company in the world
• Enron and strategic investors, IBM and America Online,
launched The New Power Co. to provide electric service in a
deregulated market
2001
• In October, Enron released third-quarter earnings, with $1.01
billion in charges, including $35 million related to investment
partnerships
• The Securities and Exchange Commission launched a formal
investigation into the partnerships
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Core Business Units
Enron divides its business into three main
areas:
• Enron Wholesale Services
• Enron Energy Services
• Enron's Global Assets
Energy Services
Enron Energy Services - the retail arm of
Enron, offers companies a way to develop and
execute their energy strategies.
Central America and the Caribbean
Dominican Republic
• Puerto Plata Power Project
Guatemala
• Puerto Quetzal Power Project
Nicaragua
• Margarita II
Panama
• Bahia Las Minas (BLM)
Puerto Rico
• EcoElectrica
Whole Sale Services
Enron Wholesale Services- encompasses
Enron's global wholesale businesses, and is
divided into four business units.
• Enron Americas
• Enron Europe
• Enron Global Markets
• Enron Net Works
Global Assets
Enron Transportation Services
• oversees Enron's regulated, interstate natural
gas pipelines
Portland General
International
South America
Argentina
• Transportadora de Gas del Sur (TGS)
• Modesto Maranzana Power Plant
Bolivia
• The Bolivia-to-Brazil pipeline
• TRANSREDES
Brazil
• Cuiaba Integrated Project ("Cuiaba Project")
• CEG/CEGRio:
• Elektro Electricidade e Servicos S.A. - Brazil's sixth-largest
electricity distributor.
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Europe
Colombia
• Centragas pipeline
• Promigas
Venezuela
• Vengas
• Compania Anonima Luz y Fuerza Electricas de
Puerto Cabello (CALIFE)
• Interruptores Especializados Lara (INESLA)
• Accroven
Asia Pacific:
People's Republic of China
• Chengdu Cogen Project
Guam
• Northern Marianas Power Project
India
• The Dabhol Power Project
Philippines
• Batangas Power Project
South Korea
• Gas Distribution and Liquefied Petroleum Gas (LPG)
Marketing
Enron in 2000
22nd
• By 2000, Enron was ranked the
largest
company in the world & 7th in the USA (Forbes)
• Stock worth $90.56/share
• Enron had gone global with assets across the globe
• Expansion globally lead to Enron accumulating
more debt than they could service
• What would be done to service such a debt?
• Answer: create partnerships using complex
accounting practices
Italy
• Sarlux Power Project
Poland
• Nowa Sarzyna power plant
Turkey
• Trakya Power Project
What Went Wrong?
Enron’s Downfall
Partnerships
• An Enron asset, which had potential, lost money and
mounting debt cut into the companies bottom line and
hindered their credit rating
• Lower credit ratings would cost more for Enron to
borrow and minimize expansion
• Enron would then would look for an investor who
would be able to buy at least 3% of that asset
• The investor received a bank loan to buy the rest
using Enron stock as collateral which are falsely
valued at the time
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Partnerships (cont’d)
Partnerships (cont’d)
• Limited Partnership was then formed between
Enron and the investor (legal)
• “Partnerships” were also formed between
Enron’s board of directors and Enron itself
• However, these directors did not invest 3%
(which they had claimed) rendering an
illegally formed limited partnership
• October 16, 2001: Enron’s stock crashed due to a slip
in the economy which caused a limited partner to
default on their bank loan
• Bank threatened to seize Enron’s stock as collateral $560 million worth
• Investors began to lose faith in the company leading
to the stock falling even more
• Partners were in need of the stock to pay off debts but
stock diluted (minimal worth)
• Partnerships collapsed as they are unable to pay loans
Corruption?
Oh oh!!
$60 billion debt for Enron!!
Corruption
• As Enron’s stock fell during the recession,
several company executives began selling
shares
• Kenneth Lay (founder) sold 627,000 shares in
8 months
• Skilling unexpectedly resigned as CEO
• Investors: “Something’s wrong…”, lose
confidence in Enron
Corruption
• During late October, Enron’s worth drops $1.7 billion in a
matter of days
• On October 17, Enron freezes their employee’s stock
heavy 401k plans: a savings/retirement plan in which
employees were encouraged to invest in and buy Enron
stock
• Result: workers lost up to hundreds of thousands of dollars
and basically all of their savings
• The day before Enron declared bankruptcy, bonus checks
over $55 million were written to company executives on
top of another $50 million bonuses written a few weeks
earlier
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Dabhol, India- Business
Case Study
• Largest development project, and foreign direct investment in
India’s history
• Project begun in 1992, in Maharashtra state, and was scheduled
to open in 1997, supplying one fifth of new energy needed by
India
• The plant was to be the largest electricity generating plant in the
world, and was estimated to cost $3 billion
• The plant was a joint venture of three U.S. companies: Enron
Corporation, General Electric, and the Bechtel Corporation
• Enron was responsible for developing and operating the plant,
Bechtel was to design and construct it; GE was to supply the
equipment
• From the outset the project was criticized for lacking
transparency, lacking economic feasibility due to high
costs, potential environmental impacts and human rights
violations
•
The project, from the outset, was also mired amidst great
controversy as Enron and corrupt Indian officials rush the
project through
• Enron filed for Chapter 11: Bankruptcy on December 2,
2001
• The Indian government, GE and Bechtel are scrambling to
find buyers to rescue the project and limit the millions in
losses they have already incurred
• Phase I of the two part project started operating May 1999
despite international, national and local concerns, tensions
flare
• In June of 2001, the project about 90 percent complete
came to a grinding halt, because of poor business practices
and environmental as well as human rights concerns.
Dabhol has turned into a rusting ghost town
Why Did the Project Fail?
The project failed in part due to Enron’s bankruptcy but also because of:
• unsavory business practices-Enron secured an agreement with
the government of the Indian state of Maharashtra to build the
plant with no competitive bidding and on terms that were
completely one-sided.
• the MSEB was obligated to buy power from the Dabhol power
plant at full capacity charges, which were triple the amount a
locally owned power plant charged, the MSEB and the
government were going broke just by purchasing power from
Enron
• by the end of June 2000, MSEB owed DPC $50 mn, and
debt was increasing as the price for a unit of electricity
soared to 7.80 Rs
• by January 2001, less than a year after the plant first
supplied energy, MSEB was in arrears and Enron
invoked a central government guarantee to clear
outstanding bills for $17 mn and then threatened to cash
another guarantee for $33 mn (this was the first time
ever that a foreign power had invoked a guarantee)
• eventually the MSEB terminated its contract to buy
power from DPC
Enron succeeded in bankrupting the state electricity board,
from whom consumers directly bought power
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Does Enron Still Exist?
• Restructuring
• The future of Enron
• Preventative Measures
Restructuring Enron
• Enron is still located in Houston Texas
• Stephen Cooper has been brought in to rescue Enron, and
reorganize the companies holdings, making it a smaller, but
much stronger company
• Cooper plans to bring the company out of bankruptcy by selling
$ 11 bn in pipelines, returning to old fashion business principles,
and focusing on supplying energy to the public
• Cooper also plans to pay most creditors about one-fifth of about
$66.4 billion they are owed in cash and stock
• Chapter 11 Bankruptcy has permitted Enron to restructure itself
while it is enjoys protection from creditors
• Part of their new strategy involves selling off its global
assets
• The company intends to focus on energy infrastructure,
transportation, distribution, generation and production of
natural gas as well as electricity in North and South
America
• Enron will emerge as two independent companies with
different names. The domestic company-CrossCountry
Energy Corporation will be comprised of three North
American natural gas pipelines. The second-Prisma
Energy International Incorporated will be comprised of
international pipelines and power operations in South
America
The Future of Enron
• Uncertainty surrounding Enron and its future still looms
• However, Enron’s stock will be cancelled and the two emerging
companies will have independent entities and their stock will be sold
on the New York Stock Exchange
• The future of CrossCountry Energy Corporation appears to be the
more stable and robust of the two new companies. Prisma Energy
International Incorporated is a much weaker entity and much
uncertainty surrounding its performance exists
• Enron sold its trading arm to Swiss
investment bank UBS Warburg, which
bought Enron’s trading desk for $1 and a
share of potential profits for the next 10
years and depending on Warburg’s success
Enron may potentially gain between $40
million and $3 billion
Preventative Measures
• Many policy makers fear that increased restrictions may be
counterproductive, however they agree that the system needs to
be repaired and have made several very general proposals:
• Accounting rules need to be tightened especially for
‘special purpose entities’
• Greater auditor independence, and strengthening
company audits to ensure integrity
• Barring chief executives from holding chairmanships
simultaneously
• Buyer/investor beware
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• Bar auditor conflicts
• auditors should not be permitted to act as
internal and external auditors
• Increase disclosure
• the public should be entitled to information
regarding financial relationships of executives
and board members particularly of publicly
traded companies
• Tighten Ethics Rules
• companies should tighten ethics rules by
keeping some information confidential
• Set New Standards
• methods to protect independent and small
investors
• create a fund which reimburses shareholders
who fall victim to corporate dishonesty
• increased regulation of the energy futures
trading business
Conclusion
• Enron was a corporation that had much
potential. It was a truly global company,
extending beyond national boundaries, but due
to unethical business practices and a
shortsighted management team, Enron quickly
became one of the largest bankruptcy cases in
the world.
• Enron attempted to become too much too fast
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