Sucheta Dalal :Are politicians plotting to lose the battle against Enron?
Sucheta Dalal

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Are politicians plotting to lose the battle against Enron?  

October 24, 2001

On Monday, the Maharashtra government at long last appointed Justice Sadashiv Kurdukar, a retired judge, to head a judicial commission to investigate the large-scale irregularities sanctified by a variety of institutions and political formations, which had paved the way for India's most controversial power project -- Enron's Dabhol Power Company.

Although the decision to appoint a judicial commission was announced over a month ago, there has been an intense political tussle within the ruling coalition government in Maharashtra to scuttle the inquiry.

As I have written earlier, the findings of the Madhav Godbole Committee appointed by the State had unearthed huge over-billing and padding of costs by the DPC - facts that have not been challenged by DPC.

It was also the Godbole committee which had recommended setting up a judicial inquiry on the basis of the manifold irregularities that it had detected. The Nationalist Congress Party leader Sharad Pawar who has the dubious distinction of bringing Enron into India is understood to be bitterly opposed to such a broad-based investigation into the many concessions, guarantees and immunities that DPC walked away with.

However, Enron's recent winning of ex-parte injunction from the London High Court forced the government to act. Not only did the London injunction cause a serious loss of face, it also brought several other skeletons tumbling out of the closet.

Sample this: On October 10, Enron obtained an ex-parte injunction from the London High Court prohibiting the Maharashtra government from starting any legal proceedings in India with respect to the Enron dispute.

If the MNC's action surprised the Maharashtra government, then anti-Enron groups were more surprised by the contents of the DPC's subsequent letter to the Maharashtra government demanding a written undertaking that it will not file a suit against the company.

A Press Trust of India report quoting the DPC letter reveals that in 1996, when power project was cancelled and later revived, the Maharashtra government had agreed not to sue the company if the power purchase agreement was breached; or if disputes arose over the three other agreements signed with it.

It may be recalled that among the outrageous terms of the Enron deal was an indemnity granted to the MNC against any violation of Indian law. The 1996 consent terms helped put Enron in the happy position of being untouchable by the locals laws no matter how smelly the deal may be or how extortionate the capital cost and tariffs.

Legal experts claim that such an agreement is bad in law and against public interest; but this is relevant only if our politicians and bureaucrats, who have been generously 'educated' by Enron at a cost of $20 million, intend to make a fight out of it and work in national interest.

The irony is that even today, nobody has a clear idea about all the numerous agreements and commitments handed over to Enron and their impact on the legal battle against it.

So far, Enron has been using the best legal advice and all the ammunition in its possession to protect its interests. This includes Kenneth Lay's threat of US government sanctions against India, which obviously stemmed from his close friendship with President George W Bush.

If the company is still in exit mode, it is only because of the realisation that its high-cost adventure is clearly unworkable and unsustainable in India.

Following the ad interim stay, or what is known as an anti-suit injunction granted by the London High Court, attention is now focussed on the exact nature of the 1996 consent terms.

What else has the Maharashtra government bound itself to with regard to Enron? Informed sources say that the terms of the 1996 negotiation may have ratified all of Enron's earlier actions and can probably prevent the government from suing Enron for fraud.

That is probably why the arbitration proceedings already filed by the Maharashtra State Electricity Board have only accused Enron of misrepresentation, although legal opinion suggests that a charge of fraud would be appropriate.

The question is, what next?

The logical step is for Maharashtra to move the London court to vacate the ad interim stay. Closer examination of the London order suggests that this is not as irrational as it appears and Maharashtra has a fair chance of having it vacated.

Sources say that such injunctions are usually granted against private parties and legal opinion in India holds that the London court may not have been correctly appraised of the fact that Enron's application was against a sovereign entity. The London court has, in fact, asked Enron to deposit $250,000 to back its claims against the Maharashtra government.

The other possibility is that we cannot rely on our politicians to make the best possible case against the US multinational and we may be unable to get the London stay vacated. In which case the government will end up paying over $1 billion to Enron and this would make it almost impossible to find a buyer for the project.

This in turn jeopardises an investment of over $3.5 billion and endangers the ill-conceived lending to the project by several Indian financial institutions. One way or the other these costs will have to be borne by the people of Maharashtra. The question then is, should the people of Maharashtra just sit back and watch if the government deliberately messing up the case to let Enron off?

Many activists believe that this is the right time to intervene in the litigation to ensure that the government makes all efforts to protect public interest.

For starters, there is a need to demand full disclosure of all the contracts, agreements and arrangements with Enron and their full financial ramification. It is only then that the citizens can evaluate government action.

The dire need, say NGO activists such as Pradyumna Kaul, is to mobilise public opinion immediately to ensure that further government action is not designed to protect Enron's, but the Indian public's interest.

Tailpiece: Incidentally, Enron is not a lily white, squeaky clean MNC. It is facing a slew of charges by the US government and its regulators - the latest being a probe by the Securities and Exchange Ccommission into "related party transactions". Its stock plummeted 20 per cent on Monday after a complex financing arrangement in a partnership called LJM2 was terminated leading to a $1.2-billion equity reduction in the third quarter. Its problems with the California authorities over the extortionate power supply charges are already well known.

-- Sucheta Dalal