July 09, 2006

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.



barbarindian said...

No kidding! Several politicians from your favorite party were on the take. Of course almost everyone else joined in later.

wise donkey said...

wonderful logic

barbarindian said...

Ms. Tejal,

Congratulations. You have managed to insert every socialist cliche in a single comment starting from globalization to racism.

A word of advice to you: Dilip would be a great friend of yours and even perhaps invite you to the Other India blog if you were a little more careful with your comments. Hint: steer clear from references to a certain political party. Learn from Dilip, see how he does it.

Senthil said...

You know when people reject the capitalism, because our politicians are too corrupt to be the keepers of the good of people, they get labeled as socialists or communists. I do not have anything against capitalism, but when these staunch supporters of capitalism say that the rule of law is supreme, I wonder whose rule of law it is. After reading this, I know that it is the rule of law of the swindlers.

Anonymous said...

LOL... Key Lay!! Of all people? What about the CEO who's still alive in Long Island with blood of Bhopal on his hands? It's been what only 22 years since 84?

Anyway, Ken Lay legacy lives on and he'll continue to haunt us from his grave. Why? Hint: Check the Federal Telecommunications Deregulation Act passed in US senate last week.

Anonymous said...

Very good article dilip....i dont normally read articles fully, urs made me read till the end! and i had seen a documentary recently on Enron n was interested when i saw ur article!

Unknown Indian said...

Sorry folks - but I am gonna be the lone standout here. For a completely different take on this saga, please see my blog