Enron Corp. - University of California | Office of The President

holdings for $700 million. It is now clear that Enron will only be able to sell its Elektro holdings
if it offers a substantial discount to even that price.
(8) PromiGas
607. PromiGas was a public Columbian company that held interests in a pipeline Enron
had a 42% interest in, which the Company purchased in 98. Enron carried the investment on its
books at $80 million. Then, each quarter Enron would purchase additional stock to drive up the
share price until it was worth $123 million. Enron recorded income from the increase in value of
PromiGas. Enron did not record the impairment in this investment when it declined in value and
eventually had to transfer it to Whitewing when it could not unload it.
(9) Enron's Phony Sales to EOTT
608. In order to report favorable 2ndQ 01 results, Enron entered into a phony transaction
with Enron Oil Transportation and Trade ("EOTT"), an entity in which Enron was the one-third
owner and general partner. Enron had an interest in Project Timber, a methanol and MTBE (gasoline
additive) refinery south of Houston. Unfortunately, the refinery had a huge environmental liability.
MTBE is water soluable and is a potential carcinogen.
609. Enron had been trying to sell Project Timber for six years by 6/01, but the best price
it had been offered was $50 million. Nevertheless, on 6/29/01, Enron sold it to EOTT for $200
million. EOTT agreed to the terms because Enron guaranteed it would purchase all the MTBE the
plant produced and would cover any liability. Enron improperly recognized $117 million on the sale,
more than a third of 2ndQ 01 earnings. This was improper because the revenue was not realizable
and did not result from an arm's-length transaction. It was essentially a total return swap and should
not have been recognized as revenue. Enron did not disclose that it recognized earnings from this
transaction, nor its liabilities under the contract.
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