... and I want to share just one of those memories with you.
Background: Enron came to India in the early '90s, wanting to set up a power plant in Maharashtra (via their Indian presence, the Dabhol Power Company or DPC). The then Congress Government in the state carried on negotiations with Enron that were, to anyone who paid it all some attention, somewhat dubious on various counts. Putting it kindly. And a lot of people paid a lot of attention, and spoke their minds about these negotiations, this impending deal.
None of which made the slightest difference at the time. Towards the end of 1993, the Maharashtra State Electricity Board (MSEB) and DPC had hammered out their Power Purchase Agreement that was, of course, the foundation of the whole project. It was written in almost deliberately complex and obfuscatory language that few people could fully understand. And in those pre-RTI days, a consumer organization in Pune tried to get a copy of the PPA from DPC.
Their reply, and I quote:
- To a country as yet unused to the phenomenon of privatisation this may be difficult to understand, but in a competitive market a PPA is the one document that affords companies an edge over the other players in the field. ... [Therefore] such a document is zealously guarded by all companies.
Only, "competitive market" and "other players" are not quite accurate phrases to use here. For in this particular agreement, there were no other players, no competitive market, no "edge". DPC bid for no contract. All of its power would be bought by one customer: MSEB.
The "phenomenon of privatisation", Enron style. Thank you for the lesson.
(Paraphrased from Power Play, Abhay Mehta's superb book about the Enron saga. More to come).
8 comments:
Putting the entire blame of DPC fiasco on Enron is ignoring the facts. As it is
public now, Enron was not run by Saints and they had their own share of manipulations. But, what about the incompetent and corrupt politicians from our Government? The govt signed the dotted line of the document which fixed the power price in US dollars. A economy as weak as ours, then and even now, this was doomed to be an expensive affair for MSEB. Another clause mentioned that any disputes will be fought only in international courts. To put it the other way, the deal between Enron and Govts (State and Central) was not subject of India's jurisdiction.
We should thank the fate that Enron collapsed. An dispute in international courts could have been a losing proposition costing the Govt(read the tax payers like you and me) couple of billions of USD.
Incompetence of Govt is one thing. What about the Indian institutional lenders?
They were managed by "professionals." They also didn't raise any red flags over
the issues of potential conflict.
It was a rare incident of corruption, negligence and incomptence by the people on the Indian side of the deal. Why blame the greedy Enron alone?
Shashikant, good point. Which is why I said at the end, "More to come". My belief is that the major share of the blame for the Enron mess in India lies with Indian politicians and officials. In fact, this is Abhay Mehta's conclusion too.
Again, more to come.
Tanuj, the quote is from Abhay's book. The rest is paraphrased by me. Perhaps that wasn't quite clear from my attributory line, I'll clarify when I next get a chance.
Neela, the only thing I'm denouncing here is Enron's patronizing (and effectively untruthful) reply to that request for the PPA. Their use of "competitive market" and "other players" was hypocritical.
Enron was a greedy unethical corporation, but that's just why we have officials and regulations for those officials to enforce. Enron came to India to make a profit, by whatever means. They made no bones about that. It was our establishment that let them get away with all kinds of crooked stuff.
Of course it is a case for better regulations and harsh penalties. Privatization absent those things is senseless. That's one thing that Enron also shows.
Enron did not invest US$ 3 billion in India. The argument that Enron was bringing in badly needed foreign capital into India was completely bogus from the start. Seventy percent, yes, 70%, of the loans for the project were advanced by Indian institutional lenders. At the time these were largely public sector financial institutions (they still have large proportions of their stock held by the government). To summarise Enron borrowed 70% of the costs of the project from Indian citizens to run a power plant with tariffs tied to the dollar at a minimum profit margin of sixteen percent.
Crimes such as these always need willing politicians to participate. They could not succeed otherwise. But for me, the real criminals were our economic mandarins ably supported by our "free press". Find me a single editorial from 1992-1994 in the TOI, Indian Express or one of the other lackeys of corporate India which called for scrapping the Enron deal. On the contrary, most of them cautioned the government that failure to bend over backwards to abet Enron's criminal enterprise would result in a failure to attract foreign capital. All the criminals then in power continue to flourish unchallenged. As finance minister, Manmohan Singh bore final responsibility for the shoddy financial aspects of the deal (sovereign guarantees, guaranteed rate of return, international arbitration). His cohort and henchman Montek (Singh Ahluwalia) was instrumental in pushing the deal through in spite of the failure of Enron to obtain statutory environmental clearances as well as statutory clearances from MERC. All of this was well-known at that time to activists like Abhay Mehta, but the mainstream media would simply not give them any time. And so it was that the MSEB, which until Dhabol started up, was making a profit, promply began making huge losses to the point of insolvency.
Naturally, this proves that "socialism" failed and that "capitalism" works.
To pretend that Enron was a case of "capitalism gone wrong" or "imperfect liberalisation' is to merely dodge the real issue. There will never be such a thing as "proper liberalisation" as long as there are immensely wealthy corporations willing to corrupt governments, politicians, bureaucrats and the press. Some of this corruption is direct - sixteen million to "educate" Indians as Enron delicately put it. Some, indirect - corporate ownership of media ensures that anything the wealthy fat cats don't really want publicised stays in the EPW or at best in Frontline.
The worst part of it was probably the settlement deal the GOI reached with Bechtel and GE who had previously bought out Enron's stake in Dabhol after Enron' collapse. An aggressive government could have easily negotiated a much better deal. But the original bootlickers of international capital were so fearful of upsetting their original employers that they probably ended up throwing away some eight or ten thousand crores in the bargain. The collapse of Enron did not save the GOI any money - they simply bartered any possible savings away to the successor owners.
I am happy to report that we have lately rediscovered the virtues of Indian capitalists. Thus from 2005 onwards, S. Kumars, who were the promoters and wilful defaulters in the Maheshwar project have now pulled an Enron and have got the MP government to waive their loans, reduce the interest rate, guarantee their profit margins and do other interesting things with the Indian taxpayers money (thank you Jayati Ghosh for updating us on this issue in the latest Frontline, thank you Arundhati Roy who brought these facts to my notice some three or four years ago). Of course, you will never read this in our glorious mainstream press, here of it on our ninety-two liberalised cable channels or on a hundred blogs devoted to "proving" that capitalism works best. It turns out that the real role of the media is not adversarial - not to question government economic policy - it is to cheer it on regardless of whether it is in the public interest or not.
Thus it is, that in the second avatar of Manmohan Singh (this time as PM and coincidentally Montek is Deputy Chairman Planning Commission) we have finally attained swaraj. No more do we need foreign capitalists to fleece us, India Inc. has come into its own.
Ravi
All I can say, Ravi, is thanks. I'll have some additional material in subsequent posts, but you've said a lot that needed saying.
just to add... if it is part of the jigsaw..
PC Chidambaram used to be the legal council for enron will he became the FM.
this article in frontline is an interesting comment on the issue:
http://www.hinduonnet.com/fline/fl2216/stories/20050812003202900.htm
Ravi, Madhukar and other commenters brought out some skeletons from the closet which prompted Dilip to write another post on the Enron saga. Perhaps he hopes readers will miss the comments in the old post.
@Ravi:
While the first part of your comment was very objective and factual, you got emotional in the second part. The fact is, the Enron saga has nothing to do with capitalism even in its most perverse sense. Socialism is all about selective license granting, setting prices etc. which do not work. Heck, even the commie government of West Bengal was able to wake up to realities and fix the power situation to a large extent.
See the example of the auto sector. Progress happened only in those places where the Government's role was relegated to the sidelines.
Dilip
You seem to believe that DPC was a great deal for Enron - and that the frauds that Lay and team committed prove corruption in the Dabhol contract. But the fact is that terms similar to DPC (16% USD returns) were offered to 7 other "Fast-track" projects, and noone other than Enron was stupid enough to invest in the Indian power generation sector (then or now for that matter) - the guys who thought the returns were NOT attractive enough were proved right - when the Indian government shamelessly reneged on its contracts. Enron went bust precisely because it entered into too many excessively high risk contracts (for its shareholders) such as the one for DPC, and then tried to hide the fact that these deals were not working out.
The unviability of DPC (and other IPPs)was (and is) because our politicians believe that "no power" is better that power at market rates - and hence the distribution sector in India is unviable. The power cuts that people all over Maharahtra (including in the central suburbs of Bombay) face is precisely because of this stupid policy. Coal based power (with coal at international market rates) is NOT significantly cheaper than LNG based power (At least over a 30 year life of a power plant, which will see highs and lows in oil and gas prices). Domestic coal, sold by Coal India at non market rates is cheaper - but sustainably so only in Eastern India given the freight costs associated with transporting high ash coal. (and only if we don't count the costs of the higher carbon emissions that result - which people like you are so concerned about in other situations)
Perhaps your views would be different if you lived somewhere other than in the BEST/REL zone in Bombay, which is the only island of continuous power supply in this country. BTW, the all-in cost of running a small DG Set (such as that used by most buildings in the rst of India to power lifts etc.) is well over Rs. 10 / unit - without counting costs of the noise and environmental pollution that these sets cost. Further, people pay rates well in excess of Rs. 15 per unit to the portable DG set operators throughout India - to power one fan or light per home given the non availability of power.
The fact is we need more power of all kinds (gas / naphtha/ coal/ nuclear, whatever the cost)- but any power project in India will be viable only if the government gets out of distribution completely, and permits utilities to charge the correct rates for power.
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