Subject: RE: ENRON Request for Further Advice
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Mon, 10 Jul 2000 10:34:00 -0700 (PDT)

FYI.
----- Forwarded by Alan Aronowitz/HOU/ECT on 07/10/2000 05:33 PM -----

	John Viverito@ENRON
	06/13/2000 10:23 AM
		 
		 To: David Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
		 cc: Alan Aronowitz/HOU/ECT@ECT
		 Subject: RE: ENRON Request for Further Advice

David-

I am also faxing you a copy of B&M's initial advice regarding the gambling 
issue, which I believe to contain a more concise explanation of the relevant 
issues and a better explanation as to what may be done to minimize our 
risks.  

Please give me a ring after you have had the opportunity to review B&M's 
advice.

Cheers,

John
----- Forwarded by John Viverito/Corp/Enron on 06/13/2000 09:56 AM -----

	[email-masked]
	06/13/2000 06:26 AM
		 
		 To: [email-masked]
		 cc: [email-masked], [email-masked], 
[email-masked], [email-masked], 
[email-masked], [email-masked]
		 Subject: RE: ENRON Request for Further Advice

Dear John,

In relation to your specific questions, our answers are as follows:

1. We confirm that there are no regulatory approvals required to trade 
Japanese
weather derivatives whether or not the Enron counterparty is or is not
incorporated or resident of Japan.

2. No, except that trading weather derivatives online would make it more
difficult for Enron to ascertain the suitability of the counterparty (see
gambling issue below) as online transactions would probably allow very limited
due diligence opportunities. 

3. Enron will need to pay close attention to ensure that weather derivative
products are not considered "gambling" activities.  As discussed in our
memorandum of January 14, 2000, all derivative transactions may potentially
constitute gambling transactions.  If  the transaction does constitute 
gambling,
Enron may be exposed to criminal sanctions (if the activity is conducted in
Japan)  and  the contract may be declared void by a court and thus be
unenforceable.
 
Under Article 35 of the Criminal Code, there is a defense to any possible
criminal action if the transaction is entered into for legitimate purposes.  
To
determine whether the parties have a legitimate business purpose, a court 
would
need to look at all relevant facts and circumstances including the nature of 
the
derivative contract entered into and the underlying business of the
counterparties.  
 
There are four possible combinations of parties to these contracts:
        Case 1: Enron Non Japan/Japanese Resident
        Case 2: Enron Japan/Japanese Resident
        Case 3: Enron Japan/Non Japanese Resident
        Case 4: Enron Non Japan/Non Japanese Resident

In both cases 1 and 2, Enron needs to ensure that the Japanese counterparty 
has
a legitimate business purpose to confirm that the transaction does not fall
within Article 185 and 186 of the Criminal Code which would render the 
contract
unenforceable.

In cases 2 and 3, the need to comply with the law is also to ensure that Enron
Japan (and its officers) do not unwittingly commit criminal offences under the
Criminal Code. 

In cases 3 and 4, Enron would need to ensure that the counterparty is 
permitted
to enter into the transaction with Enron or Enron Japan without breaching the
law or regulation that might apply to derivatives in that country. 

Although we are not able to state conclusively that Enron will have no risk in
entering into weather derivatives in Japan, we consider that this risk will be
reduced if 
a. Enron entered into these transactions from offshore ;
b. Enron Japan is not involved in the marketing of these  transactions in any
way;
c. Enron obtains the representations below where the counterparties are 
Japanese
residents.   

Please answer the following questions if you are a Japanese entity:

To ensure that this transaction does not fall within Article 185 or 186 of the
Japanese Criminal Code, please confirm that:

a. you have read and fully understand the terms of the proposed transaction;

b. you are entering into this transaction to hedge weather related risk that
arises in the ordinary course of your business. 

If your answers are affirmative for both a and b above, Enron will rely on 
these
representations and regard your company as having a "legitimate business
purpose" to enter into this transaction as permitted under Article 35 of the
Criminal Code. 

As we mentioned above, while obtaining these representations could reduce the
risk of Enron from contracting with inappropriate parties, it obviously would
not catch inappropriate counterparties that knowingly answer the questions
falsely.  Therefore, to the extent possible, Enron should also conduct its own
due diligence with respect to the counterparty to confirm the suitability of 
the
transaction and to confirm that the counterparty has a legitimate business
purpose in entering into the transaction.  

4. We confirm that there should be no transaction tax applicable to weather
derivatives. 

5.  We confirmed with MITI that they are setting up a committee to draw up new
regulations for derivative transactions for industrial commodities (not for
weather) but they envisage that such regulations will not be ready for another
year. 

Regards,

PAD/AH
in consultation with JDP/ST/TS

-----Original Message-----
From: [email-masked] [ mailto:[email-masked]
<mailto:[email-masked]> ]
Sent: Tuesday, June 06, 2000 7:28 AM
To: [email-masked]; [email-masked]
Cc: [email-masked]; [email-masked]
Subject: ENRON Request for Further Advice

Paul/Anne-

The scheduled date for the launch of EOL weather trading in Australia is
June 23rd.  We plan to trade Tokyo and Osaka in addition to Australian
cities. Therefore, we need to have resolved all legal issues prior to this
date.  Below, we provide some background information and a basic
operational description of Enron Online, for your review.

We have also raised questions relating to this matter and look forward to
your prompt response.  As similar questions have been asked and answered
previously, we would hope to receive your responses by the end of this
week.

Background

1.   As you know, Enron Corp. has developed an online trading system using
the internet for a number of physical products and financial derivatives
which it or its subsidiaries trade.  This system is called Enron Online.  A
preview of the system is available on the internet at www.enrononline.com

2.   One category of product traded through EnronOnline is weather
derivatives.  Although there are differing types of weather derivatives
they all have a floating price linked to meteorological readings (e.g.
temperature, precipitation).

3.   Enron proposes to offer weather derivatives linked to meteorological
readings for Tokyo and Osaka (and potentially for other Japanese and
foreign cities) to counterparties resident in Japan.  Initially the Enron
contracting entity will be a wholly owned subsidiary of Enron Corp. that is
incorporated in a country other than Japan and that has no presence in
Japan.  Later, the Enron contracting entity may be a Japanese resident
corporation (e.g. Enron Japan Corp.).

4.   In your advice dated January 14, 2000 you generally indicated that
there would be no legal impediment to Enron trading OTC weather derivatives
in Japan.  We would ask that you expand on that advice.

Operation of EnronOnline

1.   EnronOnline allows counterparties to may make on line offers to Enron
in respect of one of the products listed on the screen. Enron may accept
this offer through an on line response thereby forming a contract.

2.   A potential counterparty wishing to trade through EnronOnline contacts
Enron and fills out a registration form. Enron will make its credit
assessment on the counterparty. If accepted the counterparty is required to
sign a password agreement and is issued a password.

3.   The first time a counterparty logs onto the system with its approved
password it will be required to agree to an electronic trading Agreement
(ETA) by clicking the "I Agree" Box after scrolling thought the ETA.

4.   For each traded product there will be available online a set of
contract terms known as "General Terms and Conditions" (GTC).  The GTC is
supplemented by a product description.  A draft product description for a
weather derivative for a Japanese city is enclosed.  A sample GTC for an
Australian weather derivative is also provided.  The GTCs for a Japanese
city weather derivative would be similar but would reference Japanese
weather stations.

5.   A counterparty transacts through EnronOnline by "clicking" and
submitting an online offer to Enron.  The offer may or may not be accepted
by Enron. The counterparty will receive notification that either the trade
was successful or that their offer was not accepted. The ETA specifies that
acceptance occurs when the Enron message hits the server.

Would you please advise on the following points.

1.   Please reconfirm your previous advice that there are no regulatory
approvals required  to trade Japanese weather derivatives where the Enron
counterparty is resident in   Japan. Would you please consider both the
circumstance (i) where the Enron         contracting party to the weather
derivative is neither incorporated nor resident in           Japan and (ii)
where the Enron contracting party to the weather derivative is
incorporated or resident in Japan.

2.    Do  any  of your conclusions in your previous advice that OTC weather
   derivatives  can   be offered legally in Japan, whether based on weather
   readings  for  Japanese locations       or foreign locations, need to be
   modified if the OTC weather derivatives can be traded          via Enron
   Online?

3.    Any  impact  the  legislation  regulating  gambling may have on these
   products.

4.    Please  reconfirm  that  there  would  not  be  any transaction taxes
   applying to weather   derivatives.

5.    Any  other  material  legal  issues that you advise are applicable to
   these types of        products.

We are also providing below, for your review, a sample swap product
description and our General Terms and Conditions for Australia heating
degree day swaps.

Best regards,

John

(See attached file: HDD Swap Osaka 000529.doc)(See attached file: GTC HDD
Aust 000530.doc)