Not coming up in India

In not-quite-loving memory of Kenneth Lay, here's a little more about Enron, again paraphrased from Abhay Mehta's Power Play.

From the time Enron first tested Indian waters in the early '90s, they had a major concern that they expressed again and again. So it was that on September 30 1992, the then chairman of the Maharashtra State Electricity Board (MSEB) wrote to the Government of India to apprise them of this concern:

[P]ublic and judicial scrutiny of business policy and decisions as per the [Companies] Act will not be acceptable by a company like DPC.

You see, Enron wanted to work in India. But Enron did not want to follow Indian law in India. Enron told MSEB so.

And MSEB's chairman was obliging enough to pass the message on to Government.

In March 1993, the finance ministry approached the World Bank for funding for the plant. The Bank replied in April, seriously underwhelmed. It observed that DPC power would "displace lower cost [power] in the off-peak periods." Also, the "Bank's standard project economic analysis" led it to conclude "that the project is not viable."

Bad news! But the Government of Maharashtra decided to ask the Central Government to persuade the Bank to review its decision. UK Mukhopadhyay, Secretary of Industries, Energy and Labour in Maharashtra, wrote a letter to the Centre and observed:

[The Bank] does not support the project. It, however, points out very clearly that this project would be a very good project if it was not coming up in India.

An excellent reason to build the plant in India, right there.

Mukhopadhyay also wrote:

Conserving [coal] during the off-peak hours will actually enable MSEB to meet the peak demand [a] little more efficiently.

The befuddlement Abhay Mehta himself feels is clear. He writes: The GoM was seriously advocating conserving coal-based power whose variable cost was 30-40 paise a unit, to justify LNG power [from DPC] whose minimum variable cost would be Rs 1.50.

Reasoning like this notwithstanding, the Bank remained unimpressed. Asked to review its March funding decision, it answered in July 1993:

[W]e reconfirm our earlier conclusion that the Dabhol project ... is not economically justified and thus could not be financed by the Bank.

Naturally, six months later DPC and MSEB had agreed on the Power Purchase Agreement.

Naturally.