Once considered the most complex solution, we are now driven by increasing environmental constraints and a lack of skilled labour. In addition to optimizing our current manufacturing facilities, we must continue to focus our efforts on developing sustainable new technologies to create more efficient and less wasteful processes. As new technology provides the key to increasing profitability, our strategy drives us towards high growth markets. Environmental, Health & Safety (EH&S) In the first half of 2002, we recorded a loss of $13.4 million on expenses associated with environmental, health and safety expenses and an additional $2.5 million charge in the second quarter primarily associated with consulting expenses associated with the restructuring of our global mining operation. Operational Improvement Initiatives Our objective for 2002 remains our 2000 performance of profitable, sustaining growth with total returns to shareholders in line with our performance during the 1990s and before. While we continue to meet this objective, we did incur some loss in recent quarters due to some unusual, non-recurring charges that were partly offset by foreign exchange gains. In the second quarter of this year, we expect to continue to incur a loss on the sale of land and real estate in South America due to continued under-performance and an increase in the costs of these assets. We continue to implement new cost management initiatives, and anticipate further improvements in the rest of 2002. Venezuelan LNG Project In November 2001 we reached an agreement with Petroleos de Venezuela, SA and BHP Petroleum Company, LNG Australia Pty Ltd (BP LNG) to move forward with the development of a major liquefied natural gas project, in which Enron will be the operator and a minority shareholder. As at September 30, 2001, our equity investment in the project was $US33 million. We expect this figure to rise substantially based on a recently announced equity contribution from Petronet (the Indian owned subsidiary of BP), taking our investment to $US123 million. Following Petronet's equity contribution, Enron's ownership will rise to 55% and BHP's to 45%. The project is in the pre-FEED stage and involves the construction of a new two train liquefaction facility, the severed export pipeline and the ocean terminal at Jose at the Venezuelan coast. Construction of the new liquefaction facility and the export pipeline has commenced, with the first export expected in the first quarter of 2004. The FEED stage is expected to commence in the third quarter of 2003 with production targeted to commence in the first quarter of 2006. This is an important project for Enron as it will be our first project in Venezuela having sold the major share in Tractebel in 1999. We currently have two front office staff in Caracas managing the sale process for the project's major equity component, a 20 year LNG sale gas supply contract. We also continue with due diligence and site selection on two other frontier market projects, including a potential power project in Egypt and a gas and liquids project in Turkmenistan. We continue to have an asset management group in place assisting with the development of the BP LNG asset in Venezuela. In addition, our merchant assets group continues to actively manage and expand our merchant portfolio. IN THE NEWS We are keepers of the flame in this market downturn, saying that the state of the economy is not as bad as most of the press makes out. We should not be so humble and should not be undermining our own arguments by saying that perhaps we have ridden a market bubble and the state of the market is not so bleak after all. One thing we have proved is that the market returns to long term fundamentals. All the naysayers talked about ten years ago have been proven wrong: growth is returning to earnings, inflation is falling, market expectations are realigned towards the fundamentals. We believe that good times will return in 2002. Our recent analysis of the US long-term growth story explains why we think all the scepticism about next year is misplaced. There are at least five catalysts for a sustainable earnings recovery: an improving economy, low capacity and inventory utilisation rates, increased economic wealth, increased business and personal confidence and a willingness to invest. The key question, we say, is whether the current trends in the fundamentals will remain constant or whether they will deteriorate, causing a recovery to become a recession. At present the US outlook is positive. We see further events on a global scale which may well bring stability to the market and good times for those who are well positioned at the moment. The political situation in South America continues to stabilise as new elections are held in the following countries: Brazil and Argentina, both expected to be pro-business. If the new pro-market government in Brazil does its job properly, we believe that this may help the South American countries as a whole and enable them to return to sustained economic growth. We also believe that Argentina may be able to return to international capital markets, and this could bring stability to South America. The most important change in North America is the anticipated positive effect of an oil-focused economy on the world outlook, combined with a move to cut interest rates by the FED. Lower energy prices should bring some relief to the USA and a slower economy should be less of a problem as world confidence returns. Finally, we said recently that the stock markets were not making big fundamental mistakes. Now we have done something that we don't normally do: we are talking about our own company. However, we want to emphasise the point that the fact that a company makes its own earnings mistakes does not prevent it from making successful changes to its portfolio. Indeed, Enron is proposing to reduce its debt, and to do this successfully Enron will have to generate more cash flow to pay back the debt. We would argue that the company's success will be determined by the returns on investments it makes from this cash flow. COMPANY NEWS The New Power Company Enron's solution for the rapidly changing market for retail energy supplies was to develop a new business called NewPower Company. The company was capitalised through a self-underwritten public offering and will trade as stock. There are several unique aspects to the business model including the ability to profitably trade weather derivatives, giving Enron a new tool for enhancing its unregulated business and creating exciting investment opportunities for shareholders. The NewPower Company has a 33 per cent share of the US retail energy market, and a total of over 160,000 customers. The company has very real growth plans and expects to make an annualised return of 30 per cent net of operating costs. CommodityLogic
v Jeff McMahon, the President and CEO of Enron Net Works, announced that his company will launch a brand new, high margin, structured trade product: CommodityLogic
v. With this product, Enron Net Works is aiming to become the preferred marketplace and exchange for the trading of structured products. As the brand new Exchange for Enron
,s online customers, CommodityLogic
v will serve as the benchmark for industry benchmarks and enable trades to be made through a single, easily accessible and well understood product. DynegyDirect All new accounts receivable for Enron's gas and power business can now be traded online through the company's online solution. In addition, the company's European customers can now use the DynegyDirect website for physical online transactions in Europe. The company
,s new website can be used by customers to do the following: Log-in to the EnronOnline and DynegyDirect website and trade their Enron receivables Process their normal daily trading volume through EnronOnline and DynegyDirect (Approx. 3.3 million transactions per day on EnronOnline and 3.6 million transactions per day on DynegyDirect) Processes third party payments for both buyers and sellers Purchase and sell power, natural gas, crude and refined products Track their Enron and third party gas and power trades through DynegyDirect For more information visit www.dynegydirect.com . CONFERENCE CALL As a business unit, we are committed to conference call as a means of supporting our on-going public relations efforts. This call may be used to brief you on recent developments and to answer your questions. We will be making calls to a number of your business units and other external organisations. The following is a list of conference call numbers. Please note that the conference call numbers may change as