Sucheta Dalal :Enron saga: the real battle begins now (12 August 2001)
Sucheta Dalal

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Enron saga: the real battle begins now (12 August 2001)  

A brand new team allows it to gloss over past promises. And it’s being helped by the state govt’s bleating that if it is squeezed, FDI will suffer


THE Maharashtra government has finally set up a review committee to go into the contract with Dabhol Power Company (DPC); but its mandate, far from being ‘sweeping’ is restricted to finding a way out of the present payment crisis, reviewing the Power Purchase Agreement (PPA) or finding a way to foist the entire mess on to the central government. The review committee’s truncated mandate and the two-month wrangling over its composition indicates the pressure under which it will have to work. The committee is now a combination of independent and upright members, whose nomination was strongly opposed by the Sharad Pawar faction and opportunists who were supported by it.

If that were that not bad enough, there is the also pressure to try and push the expensive project on to the Power Trading Corporation so that the high tariffs charged by Enron would be distributed across the country. This move would have plenty of political support. After all, Union Power Minister Suresh Prabhu, represents the Shiv Sena, which cancelled the project alleging corruption and re-negotiated it with thrice the capacity. Finally, there is the BJP led government which had controversially re-ratified the counter-guarantee during the dying moments of its 13-day reign, and after it was certain that it would lose the confidence vote.

Enron’s game plan is smart and subtle. Having got the departing US Ambassador Richard Celeste to indulge in some sabre rattling on its behalf, it has now turned on the heat by invoking the sovereign guarantee and pushing the problem on to the Centre. Enron could easily invoke the Rs 135 crore Letter of Credit from the Maharashtra State Electricity Board (MSEB), but that would only have postponed the problem instead of allowing its supporters in Delhi to bail it out.

Secondly, the invocation of the sovereign guarantee intensified the pressure on government by triggering off a two-notch downgrade by credit rating agencies and damaging the state’s ability to borrow funds through other government undertakings.

Thirdly, Enron has rid itself of every person associated with the initial project and its re-negotiation. Instead of the high profile and much photographed Rebecca Mark, there are faceless, low profile executives speaking for the company. Sanjay Bhatnagar, who headed the Indian operations, has been strategically shunted out and even its public relations staff has changed. This again is a typical multinational maneouver to take the pressure off itself. The team which will deal with the review thus starts afresh with no embarrassing reminders about claims and promises made in the past. Finally, it has declared that there will be no one-way concessions. Any re-negotiation of the PPA will have to be accompanied by reforms at the bankrupt MSEB, say DPC officials. If the payment crisis indeed forces the government to press ahead with MSEB reforms, it may be the single positive by-product of a bad deal.

While Enron is working to an obvious plan, the Maharashtra Chief Minister Vilas Rao Deshmukh has been raising the age-old bogey about how the controversy would affect foreign investment. That is a load of hogwash. The situation in 2001 is a far cry from 1994 when Enron managed to get the world to heap opprobrium on India for cancelling the project. Today, multinational companies in India are operating in every area of business from cosmetics to computer hardware, to liquor, clothes, consumer durables, food and bottled water. They have, without exception, gained a smooth entry to the large Indian market, are competing for their business without gold-plated contracts and guarantees, face no persecution, and are loved by consumers. If Enron remains the most controversial MNC in India for the last eight years it is because there is substantial basis for the charges made against it.

The review committee, may find it worthwhile to examine the legal aspects to the deal before tackling the commercial terms. Leading legal experts have already opined that the contract violates several statutory provisions of the Electricity Supply Act 1948. Since Enron has invoked a constitutional guarantee, it is important to examine the validity of such a comprehensive guarantee which eliminates all risk inherent to business.The government is constitutionally bound to act in accordance with the law and cannot indemnify any contractor against all illegality.

Enron supporters seem worried that the review would unearth embarrassing details such as the precise calculation of the capital cost, heat rates, energy cost and the services provided under the fuel management agreement contracts. All this is in Phase I alone. Phase II is far more untenable and more easily repudiated. Spinning off the regassification plant, calculation of rupee-dollar parity and the division of rights and responsibilities between Enron, Metgas and MSEB are among the issues which may cause discomfort to the US company.

It is up to the review committee to ensure that political lobbyists do not prevent vitiate the situation and prevent the committee from doing its job.

-- Sucheta Dalal