Controls Over Inventory Enron Metals Integration See also Off Balance Sheet Financing SAP Conclusion review serves as a floor to control concerns over inventory see also program of initiatives to be managed by Paul Wallace

Objective Work has been performed to ensure that: controls imbedded within the inventory management process are adequate control weaknesses inherent to the existing process have been addressed to prevent the risk of stock (and related financial) loss arising a workplan exists to enhance controls and efficiencies around inventory management

Four Fold Approach Review of Controls Status of Co-ordination Function Review of Henry Bath Warehouse Stocks Systems “Feasibility Study”

Review of Controls +ative experienced staff good internal communication manual compensating controls -ative independent stock takes not routinely performed formal stock circularisations on ad-hoc basis secondary cost accruals not accounted for correctly system enhancements required dependency on key logistics staff Good Internal Communication on business processes on market environment Manual Compensating Controls focus on “contract files” accountability focused on metal/counterparty/contract rather than “task based” multiple review/authorisations required to approve payments

Status of Co-ordination Function “Roles and Responsibilities” model defined and implemented Segregation of Commercial/Non-Commercial “logistics”, accountabilities agreed and implemented Resource requirements defined including; additional heads systems development

Review of Henry Bath Warehouse Stocks formal agreements with the LME and LIFFE obligations to HM Customs and Excise and ISO Standards “Chinese Walls” between Henry Bath and trading businesses are in place, as required extensive independent reviews regularly performed - no significant issues noted Remote Offices group have established a program of continuous review/ownership Therefore, overall assessment of operational risk for Henry Bath Warehousing activities is deemed to be lower than for other proprietary stock balances...

System Feasibility Study Recommendation that Global Markets Inventory Management System (“Q”) is not appropriate for Enron Metals, as: system over-specified for metals significant resource and planning required for full scale implementation Tactical development of existing system/ processes will deliver required functionality within a more acceptable timeframe

Conclusion Risk of stock (and related financial) loss arising from operational errors appears adequately mitigated Business process and systems enhancements are required to further mitigate operational risk Assessment of operational risk for Henry Bath Warehouse stocks is considered lower than for other inventory balances

Next Steps Off-Balance Sheet Financing “operational” plan defined and being implemented to ensure 31/12 delivery - top priority for Middle Office A medium term “workplan” has been defined capturing all the issues identified in the course of this review - and accountability established