Document:

<PAGE>   1
                                                                   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

                                       1

<PAGE>   2

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.

                                       2

<PAGE>   3

         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

                                       3

<PAGE>   4

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

                                       4

<PAGE>   5

                  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

                                       5

<PAGE>   6

                  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
                                                  -----------------------------

                                       6<PAGE>   1
                                                                   EXHIBIT 10.23

                           MEMORANDUM OF UNDERSTANDING

In the city of La Plata on the 15th day of February, 2001, it is agreed to sign
this memorandum of basic understanding between the Ministry of Public Works and
Utilities of the Province of Buenos Aires, represented by the Hon. Minister
Julian Dominguez, the water and sewer service concessionaire for the province,
AZURIX Buenos Aires S.A., represented by its General Manager Mr. Juan Martin
Lutteral, with the presence of the Hon. Secretary General of FENTOS, Ruben
Pereira, the Hon. Secretary General of SOSBA, Eduardo Giosue, and Mayors who
were present, who acknowledged, with their signature, that they were familiar
with the Exhibit containing the 2001 Work and Action Plan, and, in the next few
days, the rest of the districts involved will also acknowledge their
familiarity, and also present were Provincial Legislators from both Chambers.

BACKGROUND:

The principal objective of the transformation of the water and sewer sector
implemented in the province of Buenos Aires by Law 11,820 was to guarantee the
maintenance and expansion of water and sewer service to any persons or legal
entities residing or having places of business within the province and to
establish regulations aimed at ensuring quality, continuity and regularity in
the provision of the service, protecting the rights of customers and
safeguarding water resources and the environment.

The need to have support in the form of private investment for achieving the
objectives established by legislation was the reason for granting a concession
for such service, and basic guarantees were imposed on investors through
international competitive bidding which guaranteed participation by qualified
operators.

One year after the privatization, it has been impossible to reconcile the
objectives with the regulatory framework and the concession agreement, so it has
become necessary to establish objective criteria in the priority investments
that will guarantee minimum conditions for current customers and the expansion
of the service to sectors that are most vulnerable to sanitation risks.

It must be kept in mind that only with a plan for priority work will the quality
and continuity of the service be guaranteed, through work and action that will
make it possible to improve the condition of the systems and facilities and
improve the efficiency of operations.

The responsibility of the concessionaire with regard to the provision of the
service is clear under the terms of the concession, but the development of the
concession requires the presence of the Provincial Government, as the Concession
Grantor, and participation by the municipalities, by their familiarizing
themselves with the actions that will be taken to resolve localized problems in
the service.

In addition to guaranteeing the residents' right to be provided the service, the
Provincial Government must provide societal input from economically
underdeveloped and needy sectors, which will be the subject of analysis as
provided in this agreement.

The predictability of the service becomes relevant when the economic-financial
environment in which it is being provided (the national and international
economic situation), there are not enough incentives to support the investment
that it requires.

It is felt that it will be necessary to create a working mechanism for the
purpose of generating viable alternatives that that will make it possible to
overcome disputed matters and to refer the solutions to the appropriate
constitutional and administrative entities for their consideration.

Therefore, the undersigned agree:

<PAGE>   2

Article 1. To form an interactive working committee, which shall be composed of
three (3) representatives from each of the parties (MPWU and AZURIX S.A.), who
shall be designated within five calendar days from the signature hereof.

Article 2. The objectives and missions of the Working Committee will be to
jointly analyze the matters referred to in this article and to submit proposals
to the Ministry of Public Works and Utilities of the Province of Buenos Aires
for its consideration and referral to the appropriate agencies.

         2.1. REGULATORY MODEL

         In view of the provisions of Article 5.3, 3rd paragraph, of the
         Concession Agreement, it has become essential to develop an
         economic-financial model that will make it possible to oversee and
         regulate the service, with which it will be possible to establish a
         priori the equilibrium position of the concession and the effects
         thereof in the light of changes in the variables of which it is
         composed.

         This model is to be submitted by the Concessionaire, prepared by a
         qualified consultant, audited by a qualified international consultant
         and approved by the regulatory agency (ORAB).

         The regulatory model must be based on the requirements of goals for
         expansion and quality provided in the Concession Agreement and the
         Concessionaire's income, as established in the Rate Structure, in
         accordance with the principles established in Article 28-II, Section d
         of Law 11,820.

         2.2. GOALS OF THE POES

         Since in this document the critical condition of the service cannot be
         resolved with the criterion of goals by objective, a plan for "PRIORITY
         WORK" to be performed by the concessionaire this year is being
         established, which work is incorporated into this agreement (Exhibit
         1).

         Likewise, taking into consideration the criteria of accessibility, risk
         and sanitary vulnerability established in Order 179/00 of the Ministry
         of Public Works and Utilities and Order 59/00 of the ORAB, the need has
         arisen to revise the goals established in the service optimization and
         expansion program (POES). The purpose of the revision is to prioritize
         the most urgent based on those objective parameters, taking the
         aforementioned regulatory model into account.

         The ORAB will oversee and regulate the Service by monitoring the
         execution of the Priority Work Plan.

         2.3. EXPANSION OF THE SERVICE

         Since the expansion of the service projected as goals in the concession
         agreement are insufficient to achieve universal service within a period
         of time that is in accordance with the basic needs demanded by the
         concession customers, alternative mechanisms will be studied that will
         make it possible to increase the pace of the work involved in the
         expansion of the service and the method by which it will be financed.

         2.4. SOCIAL CHARGE

         The criteria and terms and conditions shall be established for applying
         a "social charge" that will benefit economically needy sectors. In
         addition, the roles of the various parties involved, including the
         Municipalities, customer Associations, etc., will be determined.

         2.5. SERVICE TO LOW-INCOME CUSTOMERS

         Regulations currently in effect need to be more precise in order to
         determine the method in which the quotas of drinking water to be
         delivered without charge to low-income customers are to be satisfied.

<PAGE>   3

         2.6. ENVIRONMENTAL ASPECTS

         It is necessary to specify the terms and conditions that will make
         possible to regulate (from an economic and environmental standpoint)
         discharges from vacuum trucks and to establish the criteria for the
         application of the industrial surcharge rates. In addition, it is
         necessary to specify the scope of the various parties'
         responsibilities.

         2.7. RULES GOVERNING THE CONCESSION AND OTHER REGULATORY EXPERIENCES

         The rules that significantly impact on operations under the concession
         will be analyzed in order to propose, if necessary, any adjustments
         that will make it possible to achieve, in a harmonious fashion, the
         objectives established in Law 11,820 (Regulatory Framework) and in the
         Concession Agreement.

         In addition, other Argentine and international regulatory experiences
         will be taken into account in order to enrich the analysis and to give
         the proposals a more comprehensive conceptual framework.

Article 3. The working committee created hereby shall submit to the PARTIES its
first report related to this agreement within thirty (30) calendar days from the
signing of this memorandum and the final report within thirty (30) days
thereafter.

Article 4. The parties shall give workers the right to be heard with regard to
any matters that might affect working conditions and the workers' rights, in
order to get their opinion.

/s/
   --------------------------
<PAGE>   4
                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
             LOCATION                              OBJECTIVE                                  ACTION PLANNED
             --------                              ---------                                  --------------
<S>                                           <C>                               <C>
           BAHIA BLANCA

           BAHIA BLANCA

                                              Continuity of the service          Ensure the supply of water by drilling and
                                              and water quality.                 equipping new wells in the Bajo San Jose area.

                                                                                 Construction of the connecting system between
                                                                                 wells in the Bajo San Jose and existing water
                                                                                 lines.

                                                                                 Ensure the supply to Bahia Blanca by overhauling
                                                                                 the electrical and mechanical system at the
                                                                                 elevation station at the Paso de las Piedras Dike.

                                                                                 Outlet pipe from the filter unit at the Patagonia
                                                                                 Plant (in progress)

                                                                                 Reduction of water not accounted for by repairing
                                                                                 networks and detecting and correcting leaks.

                                                                                 Feasibility study on alternative sources of water
                                                                                 for Bahia Blanca (the study will include matters
                                                                                 related to supplying PROFERTIL [presumably meaning
                                                                                 the PROFERTIL fertilizer plant in Bahia
                                                                                 Blanca-Trans.])

                                                                                 Commencement of the facilities ["Obras", which can
                                                                                 also mean "work". It is not always clear what is
                                                                                 intended in the use of this term-Trans] involved
                                                                                 in the alternative water line financed through the
                                                                                 provincial Trust - Law No. 12,511. The facilities
                                                                                 must be in complete accordance with the results
                                                                                 obtained in the feasibility study.

                                              Continuity of sewer service.       Overhaul and reconditioning of the principal
                                              Sewer overflows.                   gathering lines in Bahia Blanca. This includes
                                                                                 gathering lines larger than 300 mm in Punta Alta.

                                              Coverage of the service.           Director Plan and Sewer Projects - of Bahia
                                              Expansion of the service.          Blanca. Commencement of facility/work for 2000
                                              Treatment of sewage effluents      connections.

                                                                                 Commencement of facilities for the treatment of
                                                                                 sewage that reaches Ing. White and Gral Cerri, up
                                                                                 to the amount of $4,000,000 during 2001, financed
                                                                                 through the Provincial Trust - Law N(0) 12,511

          CORONEL ROSALES

                                              Continuity of sewer service.       Overhaul and reconditioning of the principal
                                              Sewer overflows.                   gathering lines in Bahia Blanca. This includes
                                                                                 gathering lines larger than 300 mm in Punta Alta.

                                              Treatment of sewage effluents.     Improvements to the sewage Treatment Plant
                                              Quality of sewage effluents.
</TABLE>

PROTOCOLO DE ENTENDIMIENTO      /s/                                Pagina 1 de 3
                                   -----------------------------
                                         Southern Region
<PAGE>   5
                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
             LOCATION                              OBJECTIVE                                  ACTION PLANNED
             --------                              ---------                                  --------------
<S>                                           <C>                               <C>
          GRAL. LAMADRID

                                              Continuity of the service and      Drilling and equipping of 5 Production Wells
                                              water quality.                     and interconnection piping.

        A. GONZALEZ CHAVEZ

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

                                              Treatment of sewage effluents.     Improvements to the sewage Treatment Plant
                                              Quality of sewage effluents.
              GUAMINI
                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

                                              Treatment of effluents. Quality    Improvements to the sewage Treatment Plant
                                              of sewage effluents.
             PATAGONES

 C. DE [CITY OF?-TRANS.] PATAGONES

                                              Continuity of the service and      Reconditioning of the facilities involved in the
                                              water quality.                     intake and flow to the drinking water treatment
                                                                                 plant

                                              Coverage of the service.           Making water connections.

                                              Treatment of effluents. Quality    Improvements to the sewage Treatment Plant
                                              of sewage effluents.

              PRADERE

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

             STROEDER

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

            VILLALONGA

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

            SALLIQUELO

                                              Continuity of the service and      Drilling and equipping of 2 Production Wells and
                                              water quality.                     interconnection piping.

                                              Treatment of effluents. Quality    Improvements to the sewage Treatment Plant (flow
                                              of sewage effluents.               pipe from the pumping station to the receptacle)
</TABLE>

PROTOCOLO DE ENTENDIMIENTO      /s/                                Pagina 2 de 3
                                   -----------------------------
                                         Southern Region

<PAGE>   6
                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
             LOCATION                              OBJECTIVE                                  ACTION PLANNED
             --------                              ---------                                  --------------
<S>                                           <C>                               <C>
           SAN CAYETANO

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

                                              Treatment of effluents. Quality    Improvements to the sewage Treatment Plant
                                              of sewage effluents.

             TORNQUIST

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

           TRES ARROYOS

             COPETONAS

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

             VILLARINO

              MEDANOS

                                              Continuity of the service and      Drilling and equipping of 4 Production Wells
                                              water quality.

                                                                                 Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

            PEDRO LURO

                                              Continuity of the service and      Reconditioning of the facilities involved in the
                                              water quality.                     intake and flow to the drinking water treatment
                                                                                 plant

                                              Treatment of effluents. Quality    Improvements to the sewage Treatment Plant
                                              of sewage effluents.

         MAYOR BURATOVICH

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.

         HILARIO ASCASUBI

                                              Continuity of the service.         Electromechanical repairs, including the provision
                                                                                 of electric pumps, control panels, etc.
</TABLE>

PROTOCOLO DE ENTENDIMIENTO      /s/                                Pagina 3 de 3
                                   -----------------------------
                                         Southern Region

<PAGE>   7
                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
          LOCATION                    OBJECTIVE                                      ACTION PLANNED
          --------                    ---------                                      --------------
<S>                                   <C>                                           <C>
         AYACUCHO

                            Continuity of the service and water quality.        Interconnection of Wells

                                                                                Studies of water resources and optimization of wells

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

          DOLORES

                            Continuity of the service and water quality.        Interconnection of Wells

                            Continuity and pressure of the service.             Reduction of water not accounted for by repairing
                            Water not accounted for.                            networks and detecting and correcting leaks.
                                                                                Optimization of distribution networks.

                                                                                Studies of water resources and optimization of wells

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

       GRAL. ALVEAR

                            Continuity of the service.                          Electromechanical repairs, including the provision
                                                                                of electric pumps, control panels, etc.

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

      GRAL. BELGRANO

                            Continuity of the service and water quality.        Drilling and Equipping of 3 Production Wells and
                                                                                interconnection piping.

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

        GRAL. GUIDO

        GRAL. GUIDO

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                                                                                Repairs to infrastructure facilities

         LABARDEN

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                                                                                Repair of infrastructure facilities.
</TABLE>

PROTOCOLO DE ENTENDIMIENTO       /s/                              Pagina 1 de 3
                                    --------------------------
                                          Eastern Region
<PAGE>   8

                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
          LOCATION                    OBJECTIVE                                      ACTION PLANNED
          --------                    ---------                                      --------------
<S>                                   <C>                                           <C>
       GRAL. LAVALLE

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

      GRAL. MADARIAGA

                            Continuity of the service and water quality.        Studies of water resources and optimization of wells

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.
         GRAL. PAZ

                            Continuity of the service and water quality.        Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.                                          (in progress)

       MAR CHIQUITA

        GRAL. PIRAN

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                                                                                Repairs to infrastructure facilities

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

        CNEL. VIDAL

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

        LAS FLORES

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                                                                                Repairs to infrastructure facilities
</TABLE>

PROTOCOLO DE ENTENDIMIENTO       /s/                              Pagina 2 de 3
                                    --------------------------
                                          Eastern Region
<PAGE>   9

                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
          LOCATION                    OBJECTIVE                                      ACTION PLANNED
          --------                    ---------                                      --------------
<S>                                   <C>                                           <C>
           MAIPU
                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                                                                                Repairs to infrastructure facilities

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

           MONTE

                            Continuity of the service and water quality.        Drilling and equipping of three Production Wells
                                                                                and interconnection piping.

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.

           PILA

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                                                                                Repairs to infrastructure facilities

        ROQUE PEREZ

                            Continuity of the service.                          Electromechanical Repairs. Provision of dosing
                                                                                pumps, impellers, repair of control panels, etc.

                            Coverage of the service. Expansion of the service.  Construction of networks for the extension of
                                                                                sewer service in the community (in progress).

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant
                            effluents.
         TAPALQUE

                            Treatment of effluents. Quality of sewage           Improvements to the sewage Treatment Plant.
                            effluents.                                          Utilization of the sludge.

       VILLA GESELL

                            Continuity of sewer service. Sewer overflows.       Reconditioning of the sewer network..

                            Treatment of effluents. Quality of sewage           Design, adaptation and startup of the purification
                            effluents.                                          plant.

</TABLE>

PROTOCOLO DE ENTENDIMIENTO       /s/                              Pagina 3 de 3
                                    --------------------------
                                          Eastern Region
<PAGE>   10
                          MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
            LOCATION                        OBJECTIVE                                       PLANNED ACTION
            --------                        ---------                                       --------------
<S>                              <C>                                            <C>
             BRAGADO

                                  Continuity of the service and water quality    Study of water resources and optimization of wells

                                                                                 Interconnection of wells, Phase 1.

                                  Treatment of effluents. Quality of sewage      Improvements to the sewage Treatment Plant.
                                  effluents.

         CARLOS CASARES

                                  Water quality                                  Action aimed at improving water quality, for the
                                                                                 purpose of solving the arsenic problem. Includes
                                                                                 pilot studies for determining the most
                                                                                 ["mas", should be "mas-Trans.] appropriate
                                                                                 alternative. Commencement of arsenic treatment
                                                                                 Facilities/Work.

         CARLOS TEJEDOR

                                  Continuity of the service.                     Electromechanical repairs.

            CHIVILCOY

                                  Continuity of the service and water quality.   Drilling and equipping of 4 Production Wells,
                                                                                 with interconnecting pipe.

             FRENCH

                                  Water quality                                  Action aimed at improving water quality, for the
                                                                                 purpose of solving the arsenic problem. Includes
                                                                                 pilot studies for determining the most ["mas",
                                                                                 should be "mas-Trans.] appropriate alternative.
                                                                                 Commencement of arsenic treatment Facilities/Work.

         GRAL. ARENALES

                                  Continuity of the service.                     Electromechanical repairs.

         GRAL. VIAMONTE

                                  Continuity of the service and water quality.   Drilling and equipping of 2 Production Wells,
                                                                                 with interconnecting pipe.

         GRAL. VILLEGAS

                                  Sewer System.                                  Joint study by the Ministry of Public Works and
                                                                                 Utilities (MOSP) and Azurix on structural
                                                                                 conditions of the system. Commencement of
                                                                                 facilities costing $2 million financed with
                                                                                 contributions from the Province, through the
                                                                                 Provincial Trust.

                                  Treatment of effluents. Quality of sewage      Improvement to sewage Treatment Plant.
                                  effluents.
        L. N. ALEM -VEDIA

                                  Coverage of the service                        Adaptation of a sector of the drinking water
                                                                                 system for release for public use.

                                  Treatment of effluents. Quality of sewage      Improvement to sewage Treatment Plant.
                                  effluents.
</TABLE>

PROTOCOLO DE ENTENDIMIENTO           /s/                          Pagina 1 de 2
                                        -----------------------
                                            Western Region

<PAGE>   11

                          MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
            LOCATION                        OBJECTIVE                                       PLANNED ACTION
            --------                        ---------                                       --------------
<S>                              <C>                                            <C>
             LINCOLN

                                  Continuity of the service.                     Connection of drillings [wells?-Trans.] to the
                                                                                 elevated Tank by Impulsion Pipe

                                  Treatment of effluents. Quality of sewage      Improvement to sewage Treatment Plant.
                                  effluents.

             NAVARRO

                                  Continuity of the service.                     Electromechanical repairs.

                                                                                 Adaptation and automization of the pumping wells

           9 DE JULIO

                                  Continuity of the service                      Drilling and equipping of 5 Production Wells and
                                                                                 interconnection piping

                                  Treatment of effluents. Quality of sewage      Improvement to sewage Treatment Plant.
                                  effluents.

             PEHUAJO

                                  Water quality                                  Action aimed at improving water quality, for the
                                                                                 purpose of solving the arsenic problem. Includes
                                                                                 pilot studies for determining the most ["mas",
                                                                                 should be "mas-Trans.] appropriate alternative.
                                                                                 The Municipality (through the Health and
                                                                                 Preventive Medicine Department) will participate
                                                                                 in conducting the studies. Commencement of arsenic
                                                                                 treatment facilities.

                                  Continuity of the service and pressure.        Reduction of water not accounted for by the
                                  Water not accounted for.                       implementation of network maintenance and leak
                                                                                 detection. Optimization of distribution networks
                                                                                 (Includes reconditioning of sections of the
                                                                                 distribution network).

                                  Continuity of the service and water quality.   Joint study by the Water Authority and Azurix on
                                                                                 the structural conditions of the water supply to
                                                                                 the city, in accordance with MOSP Order
                                                                                 No. 319/00, Art. 5.

             RAMALLO

                                  Continuity of the service.                     Electromechanical repairs.

                                                                                 Adaptation and automization of the pumping wells

            SUIPACHA

                                  Continuity of the service.                     Electromechanical repairs.

                                                                                 Adaptation and automization of the pumping wells
</TABLE>

PROTOCOLO DE ENTENDIMIENTO           /s/                          Pagina 2 de 2
                                        -----------------------
                                            Western Region
<PAGE>   12
                           MEMORANDUM OF UNDERSTANDING

        MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.

                       EXHIBIT WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
            LOCATION                           OBJECTIVE                                PLANNED ACTION
            --------                           ---------                                --------------
<S>                             <C>                                             <C>
            BERISSO
                                 Coverage of the service. Expansion of the      Extension of drinking water service in the city.
                                 service.                                       Main water lines.

                                 Continuity and pressure of the service.        Reduction of  water not accounted for by the
                                 Water not accounted for.                       implementation of a plan for the detection and
                                                                                correction of leaks

            ENSENADA

                                 Continuity and pressure of the service.        Reduction of water not accounted for by the
                                 Water not accounted for.                       implementation of a plan for the detection and
                                                                                correction of leaks
        FLORENCIO VARELA

                                 Coverage of the service. Expansion of the      Construction of networks for the extension for
                                 service.                                       drinking water service in Bosques Norte

                                                                                Construction of networks for the extension of
                                                                                drinking water service in San Juan and Santo Tomas

                                                                                Drilling and equipping wells for the extension of
                                                                                drinking water service in Bosques Norte, San Juan
                                                                                and Santo Tomas.

                                 Continuity of the service and water quality.   Drilling and equipping of five Production wells

                                                                                Evaluation of alternative supply sources

            LA PLATA

                                 Continuity of the service and water quality.   Improvements to the Donato Gherardi plant. Repair
                                                                                of the former pumping station, improvement of the
                                                                                flow of water into it.

                                                                                Reinforcement of the piping to Villa Elvira

                                                                                Repair of distribution pipelines in old part of
                                                                                the city.

                                 Improvement of sewer service                   Extension of the sewer service in the city by the
                                                                                connection of educational institutions.

                                                                                Phase 1 of the overhaul of the Chlorination System
                                                                                - Punta Lara

                                 Treatment of effluents in Ringuelet.           Improvements to the sewage Treatment Plant
                                 Quality  of sewage effluents.

           CITY BELL

                                 Continuity of the service and water quality.   Drilling and equipping of Production Wells and the
                                                                                appropriate connection.

             GONNET

                                 Continuity of the service and water quality.   Drilling and equipping of Production Well

                                                                                Connection of Production Well to the network

          VILLA ELISA

                                 Continuity of the service and water quality.   Electromechanical Repairs.

                                                                                Repairs to infrastructure facilities
</TABLE>

PROTOCOLO DE ENTENDIMIENTO         /s/                            Pagina 1 de 2
                                      --------------------------
                                            Capital Region
<PAGE>   13
                          MEMORANDUM OF UNDERSTANDING
       MINISTRY OF PUBLIC WORKS AND UTILITIES - AZURIX BUENOS AIRES S.A.
                      EXHIBIT: WORK AND ACTION PLAN - 2001

<TABLE>
<CAPTION>
            LOCATION                           OBJECTIVE                                PLANNED ACTION
            --------                           ---------                                --------------
<S>                             <C>                                             <C>
           MAGDALENA

                                 Continuity of the service and water quality.   Electromechanical Repairs.

                                                                                Repairs to infrastructure facilities

                                 Treatment of effluents. Quality of sewage      Improvements to the sewage Treatment Plant
                                 effluents.

        PRESIDENTE PERON

            GUERNICA

                                 Continuity of the service and water quality.   Electromechanical Repairs.

                                 Coverage of the service. Expansion of the      Commencements of sewer system facilities (networks,
                                 service. Treatment of sewage effluents.        pumping stations, sewage treatment plant). This
                                 Quality of sewage effluents.                   will be up to the amount of $6,000,000 in 2001,
                                                                                financed through the Provincial Trust - Law 12,511

          PUNTA INDIO

          PUNTA INDIO

                                                                                Study of water resources and determination of
                                                                                possible sources for supplying the area
            VERONICA

                                 Continuity of the service and water quality.   Electromechanical Repairs.

                                                                                Repairs to infrastructure facilities

                                 Treatment of effluents. Quality of sewage      Improvements to the sewage Treatment Plant
                                 effluents.

          SAN VICENTE

         ALEJANDRO KORN

                                 Continuity of the service and water quality.   Electromechanical Repairs.

                                                                                Repairs to infrastructure facilities

                                 Treatment of effluents. Quality of sewage      Improvements to the sewage Treatment Plant
                                 effluents.

          SAN VICENTE

                                 Continuity of the service and water quality.   Improvements to the sewage Treatment Plant
</TABLE>

PROTOCOLO DE ENTENDIMIENTO         /s/                            Pagina 2 de 2
                                      --------------------------
                                            Capital Region

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