Administrators were called into the European operations of Enron, the crisis-stricken US energy giant, yesterday putting thousands of UK jobs at risk and causing panic in power-trading markets.
Staff at Enron's Victoria headquarters in London were told to collect their belongings and have been warned that they might not receive a redundancy because there is no cash left in the business to pay people.
PricewaterhouseCoopers, the administrators, spoke to staff at lunchtime yesterday and are expected to announce heavy job losses today among Enron's 5,400-strong workforce in the UK. Enron's Teesside power station is not included in the administration order.
Kenneth Lay, the chairman of Enron, sent staff a worldwide e-mail reassuring them that while it was a difficult time, it was business as usual until the company's future was resolved. But many staff in London spent yesterday in the pub.
If the American parent company files for Chapter 11 bankruptcy protection, as expected, it will be the biggest collapse of a US corporation, dwarfing even that of Texaco in the late 1980s.
As employees counted the cost of Enron's demise, the markets were scrambling to assess the damage done to banks and other energy companies.
Enron was responsible for 10 to 15 per cent of all energy trading in the UK and an even bigger slice estimated at 20 to 25 per cent in Europe and the US. UK electricity prices slumped yesterday by almost 50 per cent as traders dumped power on to the market after cutting their ties with the failed company.
TXU, the American owner of Eastern Electricity, El Paso and Dynegy, whose decision to abandon a rescue takeover of Enron finally brought it down, is said to be the most heavily exposed. But British Energy, Powergen and Innogy, formerly the domestic arm of National Power are also exposed to long-term contracts.
Centrica, the gas and electricity supplier, said its exposure to Enron was in the region of £30m, while Innogy said its exposure was "relatively small". Brian Senior, head of trading for Innogy, said there were enough players and sufficient liquidity in the UK market to prevent violent price spikes. However, there are fears that Enron's collapse could cause a domino effect and take other smaller players with it.
Some retailers who have agreed to sell power cheaply based on long-term deals at low prices with Enron will now suffer by having to buy more expensive electricity to fufil those contracts. Generators who have booked profits on the strength of selling electricity at higher prices to Enron face losses by having to dump that electricity at lower prices.
Banks are heavily exposed too, since Enron has £9bn in debts. Bear Sterns estimated Barclays had an exposure of £355m and Royal Bank of Scotland £140m. Credit Lyonnais, the French bank, said its exposure was £180m.
"Considering the size of Enron, we would be surprised if all European banks escaped its fallout without taking any hit," Bear Sterns said. Dynegy meanwhile said that fresh disclosures by Enron about its deteriorating financial position finally prompted it to invoke the "material adverse change" clause in its takeover offer and walk away.
A regulatory filing on 19 November showed that Enron faced insurmountable problems in the short and long-term.Reuse content