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                                                                   EXHIBIT 10.18

                               SEVERANCE AGREEMENT

         THIS SEVERANCE AGREEMENT ("Agreement"), made and entered into January
12, 2001, is between AZURIX CORP., a Delaware corporation having its principal
offices at 333 Clay Street, Suite 1000, Houston, Texas, 77002 ("Azurix"), and
REBECCA P. MARK ("Ms. Mark"), an individual, residing at 4016 Inverness Drive,
Houston, Texas 77019.

                                   WITNESSETH:

         WHEREAS, Enron Corp., an Oregon corporation ("Enron"), and Ms. Mark
entered into that certain Executive Employment Agreement effective May 4, 1998;
and

         WHEREAS, Enron, Azurix and Ms. Mark entered into that certain First
Amendment to Executive Employment Agreement effective as of February 1, 1999,
under which, among other things, Enron assigned to Enron and Azurix, and Enron
and Azurix assumed, the original Executive Employment Agreement and various
terms of the original Executive Employment Agreement were changed (the Executive
Employment Agreement, as so amended, being called the "Employment Agreement");
and

         WHEREAS, Ms. Mark's employment with Azurix has terminated in accordance
with Section 3.1(ii) of the Employment Agreement; and

         WHEREAS, the parties have agreed upon certain other terms relating to
the termination of Ms. Mark's employment with Azurix and as a director of
Azurix:

         NOW, THEREFORE, for and in consideration of the recitals and covenants
herein set forth, the parties agree as follows:

         1. Employment. Ms. Mark's termination of employment with Azurix became
effective on August 25, 2000 ("Termination Date"). Effective the Termination
Date, Ms. Mark shall resign as a director and an officer of Azurix and its
subsidiaries and affiliated companies that she holds as of the Termination Date.

         2. Consideration. As consideration for this Agreement, and in full
satisfaction of all obligations of Azurix under Section 3.5 of the Employment
Agreement with respect to compensation and bonus, on or before January 31, 2001,
Azurix shall pay Ms. Mark the sum of $441,601. In accordance with Azurix's
policies on corporate credit cards and other accounts, Ms. Mark agrees to
reimburse Azurix for personal amounts (if any) that have been charged to or paid
by

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Azurix or its subsidiaries or affiliated companies, which amounts (if any) may
be offset against the amount payable under this Section 2.

         3. Severance Pay. Ms. Mark waives, and Azurix shall not be required to
pay, any severance pay or severance benefits, except as provided for in this
Agreement, in connection with Ms. Mark's termination of employment or as a
director of Azurix, whether from a severance plan sponsored by Azurix or Enron
or the general assets of Azurix. The consideration and remuneration provided for
under this Agreement are in lieu of and take the place of any other severance
pay or severance benefit, which Ms. Mark forfeits.

         4. Employee Benefit, Compensation and Incentive Plans. Ms. Mark shall
be entitled to receive benefits earned by and payable to her under all employee
benefit, compensation and incentive plans in which she participated or was
covered by during her employment with Azurix or Enron according to the terms and
provisions thereof, as if she were involuntarily terminated on the Termination
Date as provided by the applicable plan documents. Specifically, and without
limiting the generality of the foregoing, Ms. Mark shall continue her rights
under any stock option or restricted stock grant agreements with Azurix as if
she were involuntarily terminated on the Termination Date as provided by the
applicable plan and grant documents, and the rights shall be governed by the
terms of those documents.

         5. Post-Employment Obligations. Subject to the remaining provisions of
this Section 5, Ms. Mark acknowledges and agrees that her obligations to Azurix
under the Employment Agreement that by their terms continue following
termination of her employment, including, without limitation, Section 1.5,
Article 5, Article 6, Article 7 and Section 8.2 of the Employment Agreement,
remain in full force and effect, limited where applicable to the periods stated
in those provisions, and are hereby ratified and confirmed. The parties
acknowledge and agree that, for purposes of these provisions, all references to
Employer mean Azurix and its subsidiaries and affiliated companies, and all
references to Azurix include its subsidiaries and affiliated companies.
Notwithstanding the foregoing, Ms. Mark's continuing obligations in respect of
Azurix and its subsidiaries and affiliated companies under Section 7.1 of the
Employment Agreement are modified as follows:

         A.       Ms. Mark may engage in the business of investing in, owning,
                  operating, managing or operating water resource and storage
                  assets and projects and providing water resource and storage
                  services.

         B.       Ms. Mark's non-competition obligations in respect of Azurix
                  and its subsidiaries and affiliated companies shall extend
                  through December 31, 2002.

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         6. Miscellaneous.

         6.1 Notices. For purposes of this Agreement, notices and all other
communications shall be in writing and shall have been duly given when
personally delivered or when mailed by United States certified or registered
mail, addressed as follows:

         If to Azurix:

                  Azurix Corp.
                  333 Clay Street, Suite 1000
                  Houston, Texas 77002
                  Attention: Corporate Secretary

         If to Ms. Mark:

                  Ms. Rebecca P. Mark
                  4016 Inverness Drive
                  Houston, Texas 77019

or to any other address which either party may furnish to the other in writing,
except that notices of changes of address shall be effective only upon receipt.

         6.2 Applicable Law. THIS CONTRACT IS ENTERED INTO UNDER, AND SHALL BE
GOVERNED FOR ALL PURPOSES BY, THE LAWS OF THE STATE OF TEXAS.

         6.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.

         6.4 Remedy for Breach of Contract. The parties agree that in the event
there is any breach or asserted breach of the terms, covenants or conditions of
this Agreement, the remedy of the parties hereto shall be in both law and in
equity, including injunctive relief for the enforcement of or relief from any
provisions of this Agreement.

         6.5 Severability. It is a desire and intent of the parties that the
terms, provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted

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by law. In any case, the remaining provisions of this Agreement or the
application thereof to any person or circumstances other than those to which
they have been held invalid or unenforceable, shall remain in full force and
effect. It is further the desire and intent of the parties that in the event of
any breach of any portion of this Agreement, the remainder of this Agreement
shall remain in effect as written and enforceable to the fullest extent
permitted by law.

         6.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.

         6.7 Withholding of Taxes. Azurix may withhold from any benefits or
remuneration payable under this Agreement all federal, state, city or other
taxes as may be required pursuant to any law or governmental regulation or
ruling.

         6.8 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.

         6.9 Assignability.

         A.       By Azurix:

                           Azurix's obligations under this Agreement are not
                  transferable or assignable by Azurix and shall be considered a
                  liability of Azurix in any sale or transfer of substantially
                  all of its business or assets by any means whether direct or
                  indirect, by purchase, merger, consolidation or otherwise.

         B.       By Ms. Mark:

                           With respect to Ms. Mark's rights and obligations,
                  her rights and obligations hereunder are personal and neither
                  this Agreement, nor any right, benefit or obligation of Ms.
                  Mark, shall be subject to voluntary or involuntary assignment,
                  alienation or transfer, whether by operation of law or
                  otherwise, without the prior written consent of Azurix. This
                  Agreement and all payments hereunder shall inure to the
                  benefit of and be enforceable by and against Ms. Mark's
                  personal or legal representatives, executors, administrators,
                  heirs, distributees, devisees and legatees.

         6.10     Release and Indemnity.

         A.       By execution of this Agreement, Ms. Mark for herself, her
                  legal and other representatives, claimants, heirs and
                  beneficiaries, forever waives and releases Azurix

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                  and its subsidiaries and affiliated companies (which for
                  purposes of this Section 6.10(A) shall include Enron and its
                  subsidiaries and affiliated companies) from all rights,
                  benefits payments and claims (including but not limited to
                  statutory, tort or contractual claims) of any kind and nature
                  to which Ms. Mark is now or in the future may be entitled, and
                  arising out of or in connection with Ms. Mark's employment
                  with Azurix or any of its subsidiaries or affiliated
                  companies, and termination of Ms. Mark's employment, including
                  but not limited to claims of race, sex, national origin, and
                  religious discrimination, harassment, or retaliation in
                  violation of Title VII of the Civil Rights Act, or any
                  violations of the Americans With Disabilities Act, the Age
                  Discrimination in Employment Act ("ADEA"), and the Texas
                  Commission on Human Rights Act, the Equal Pay Act, and the
                  Employee Retirement Income Security Act of 1974, all as
                  amended, and any other state or federal statute, regulation or
                  the common law (contract, tort or other), except as may be
                  specifically provided for under this Agreement or contained in
                  the plan documents or grants of benefits to which Ms. Mark is
                  entitled according to the provisions hereof. It is
                  specifically agreed that this Agreement and the consideration
                  Ms. Mark will receive hereunder, constitute a complete
                  settlement and release, and an absolute bar to any and all
                  claims Ms. Mark has or may have against Azurix and its
                  subsidiaries or affiliated companies, or its or their
                  respective directors, officers, and employees, whether or not
                  the same be presently known or suspected to be arising out of
                  or in any manner connected with Ms. Mark's employment thereby
                  or termination of employment with Azurix and its subsidiaries
                  and affiliated companies, except as may be specifically
                  provided for under this Agreement or continued in the plan
                  documents or grants of benefits to which Ms. Mark is entitled
                  according to the provisions hereof. THIS SECTION OF THE
                  AGREEMENT APPLIES TO RIGHTS OR CLAIMS PURSUANT TO THE ADEA
                  ONLY IN EXISTENCE ON OR BEFORE THE DATE OF PAYMENT OF
                  CONSIDERATION AND REMUNERATION PROVIDED FOR HEREIN. MS. MARK
                  ACKNOWLEDGES AND AGREES, AND REPRESENTS TO AZURIX THAT (i) SHE
                  UNDERSTANDS THE EFFECT OF THE PROVISIONS OF THIS PARAGRAPH,
                  (ii) SHE HAS HAD AT LEAST 21 DAYS IN WHICH TO CONSIDER THE
                  EFFECT OF THE PROVISIONS OF THIS PARAGRAPH, AND (iii) SHE
                  CONSULTED AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT WITH
                  RESPECT TO THE EFFECT OF THE PROVISIONS OF THIS PARAGRAPH AND
                  HER EXECUTION OF THIS AGREEMENT. MS. MARK MAY REVOKE THIS
                  AGREEMENT DURING THE SEVEN-DAY PERIOD FOLLOWING THE DATE OF
                  THIS AGREEMENT, WHEREUPON THIS AGREEMENT SHALL BE RESCINDED IN
                  ITS ENTIRETY AND BECOME NULL AND VOID.

         B.       Notwithstanding the above provisions of this Section 6.10, if
                  after termination of her employment, Ms. Mark is named a party
                  defendant in a lawsuit involving actions performed by her on
                  behalf of Azurix as an employee, director or officer of Azurix
                  or its subsidiaries or affiliated companies, Ms. Mark shall
                  continue to have the same rights of indemnification from
                  Azurix with respect to such actions performed by her in those

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                  capacities, as the rights of indemnification of employees,
                  officers and directors of Azurix that she had during her
                  employment.

         6.11 Entire Agreement: Modification. This Agreement constitutes the
entire agreement of the parties with regard to the termination of employment of
Ms. Mark, supersedes any and all prior written agreements between the parties
(except as provided in Sections 4 and 5), and contains all of the covenants,
promises, representations and agreements between the parties with respect to the
termination of employment of Ms. Mark with Azurix or Enron. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, which is not embodied herein, or
referred to hereby and that no agreement, statement or promise relating to the
employment or termination of employment of Ms. Mark with Azurix or Enron that is
not contained or provided for, identified or referred to in this Agreement,
shall be valid or binding. The parties acknowledge, however, that there is a
separate agreement between Enron and Ms. Mark regarding the termination of her
employment with Enron and that the obligations of Enron under that agreement and
of Azurix under this agreement are several and not joint. Any modification of
this Agreement will be effective only if it is in writing and signed by both
parties.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.

                                                  AZURIX CORP.


                                                  By: /s/ PHILIP J. BAZELIDES
                                                     --------------------------
                                                  Name: Philip J. Bazelides
                                                       ------------------------
                                                  Title: Managing Director
                                                        -----------------------

                                                  REBECCA P. MARK


                                                  /s/ REBECCA P. MARK
                                                  -----------------------------



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