From: mark.schroeder@enron.com
To: steven.kean@enron.com
Date: 2000-11-14 14:57:00+00:00
Subject: Regulatory Issues in For SK-Enron

Maybe now that Joe Sutton is gone, you will not be asked this anymore, but 
here is an update (two e-mails) on the two key issues regarding SK JV in 
Korea, being Return on Equity and Stranded Cash.  Let me know if you need 
more.   mcs
---------------------- Forwarded by Mark Schroeder/LON/ECT on 14/11/2000 
14:59 ---------------------------
From: Mike Dahlke@ENRON_DEVELOPMENT on 14/11/2000 08:40 CST
To: Mark Schroeder@ECT
cc:  

Subject: Regulatory Issues in For SK-Enron

Mark,

This write up will give you a quick update on the status of the two key 
issues related to Enron's gas distribution business in Korea.  Darrell's 
current strategy is to maximize dividends in order to generate cash for Enron 
to pay its obligation under the "SK Securities" provisions of the purchase 
agreement.  It is expected that SK will direct the sale of those securities 
during the coming year and the resulting obligation will be between US$ 15 - 
20 million. 

One tax issue has emerged that is related to the form of corporation used in 
Korea (there are two alternatives).  After considerable negotiation with SK, 
it was determined in 1998 that the Joint Venture was limited to one 
particular form.  To use the alternative, which positions Enron better for US 
taxes, would have required de-listing three of the operating companies.  
Hence, if Enron directs dividends to be paid from the JV, or otherwise 
distributes cash out of the business (deamed dividend), the amount paid will 
be subject to US tax.  This result will occur, according to the Tax 
Department, even if Korean withholding tax can be eliminated by taking 
advantage of a "tax treaty" country such as Labuon.  Some additional advise 
will be sought on the matter but considerable work was done prior to the 
formation of the JV and few degrees of freedom were found.

See you in San Antonio

----- Forwarded by Mike Dahlke/ENRON_DEVELOPMENT on 11/14/2000 08:31 AM -----

	Mike Dahlke
	11/14/2000 08:26 AM
		 
		 To: Michael Gantt/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
		 cc: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Bonnie 
Nelson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Anne S 
Yao/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
		 Subject: Regulatory Issues in Project Gecko

As Enron considers how to substantially increase the dividends to be paid by 
SK-Enron's operating companies, the following Regulatory issues should be 
considered:  

Change in the Dividend Limit for CGCs.  MOCIE has proposed that the 
limitation of the payment of dividends by a City Gas Company be eliminated if 
the firm has a debt-to-equity ratio below 200% (debt-to-total-capital ration 
of less that 67%).  Hence, the ability of SK-Enron's gas distribution 
subsidiaries to pay "unrestricted" dividends will depend on the level of debt 
of each company and not the consolidated debt of the joint venture.  The 
language of the limitation amendment does not specify any "effective time".  
Reports from MOCIE's "working group" which has been considering this and 
other changes to CGC regulations indicate the new standard will take effect 
on January 1, 2001.   Presumably at that point, a CGC with a qualifying debt 
ratio could pay any amount of dividend allowed under applicable law or 
securities regulations.  In considering an "interim" dividend, the impact on 
each CGC's debt ratio of the "regular" dividend needs to be considered.  If 
retained earnings are reduced to the extent that the debt test is not met 
after the "regular" dividend, then the payment of an "interim" dividend would 
be a violation of the new limitation rule.

Change in the "allowed ROE".  Another rule change that MOCIE will reportedly 
implement shortly will be one that establishes the ROE used in computing 
distribution rates (supply cost).  The best information is that CGCs serving 
"high penetration" areas (expected to be 70% or more) will have to use the 
"one-year bank deposit rate", which is currently about 8%.  Other CGCs will 
continue to use the current "fixed rate" of 10%.  For SK-Enron, this appears 
to mean that Daehan, which serves Seoul, will be subject to the new standard 
while the remaining 8 CGCs would continue to use 10% when computing their 
rates.  The Seoul City Government has an annual rate filing process; 
therefore, Daehan will be impacted almost immediately by this change.  
Several other CGCs (Kumi City, Chonju, and Choognam) have rate cases or rate 
case requests pending.  Processing these changes has been held up pending the 
issuance of MOCIE's new rules and are likely to proceed promptly once the 
rule are issued (presumed to be December 1st at this point).  The final 
"order" from MOCIE is not expected to contain any change in the standard time 
allowed for a given set of rates - one to three years at the discretion of 
the local government.  Hence, no change is expected to the "scheduled" time 
for other CGCs to file.