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Enron India Problem



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Please help make the Manifesto better, or accept it, and propagate it!
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For your interest, I forward to you the following comment by a friend who
also 
sent me the material which is below that comment.
prabhu guptara

: Enron and India have got a real disaster coming to a boil -- not that a 
number of us didn't expect it. Anyhow, just in case you missed this, attached 
is the whole NYT piece. The article doesn't say so, but the mess is
compounded 
by the total disarray in the Delhi establishment -- the defense payoffs
scandal 
has taken a big toll. In addition, I note that Powergen has just opted to
dump 
its India projects and get out altogether. 

Warm regards, g

****

NYTimes on Enron India, 3/20/01

BOMBAY -- K. Wade Cline, a folksy lawyer from Houston with a round face and 
strawberry blond hair, is fit to be tied. As the top executive here for the 
Enron Corporation, the American energy multinational, Mr. Cline knows that
the 
largest foreign investment ever made in India  a majority of it owned by
Enron 
 is in trouble again.

The state of Maharashtra has stopped paying its bills for the huge $3 billion 
power plant that sprawls along the Arabian Sea 100 miles south of here. After 
the nine tumultuous years it took to bring the project to fruition, the state 
now says it does not need and cannot afford most of the power. The resulting 
conflict is fast turning into a messy contractual dispute.

"Gosh dang it," Mr. Cline [actually!!!!] said. "I'm mad because they've
waited 
so late, and we're running up against June when the bills will double." 

And that is just for starters. Next year, the amount the state's electricity 
board owes will more than quadruple to over $1 billion a year as the huge 
turbines for the second phase of the project come on line. Under the 20-year 
contract, the state and central governments have guaranteed they will pay the 
money if the electricity board defaults.

"Free us from Enron." That is the cry of Chief Minister Vilasrao Deshmukh,
the 
top politician in Maharashtra, one of India's most industrialized states and 
home to Bombay, the nation's financial capital.

But so far, no one has come to his rescue. On March 8, the Dabhol Power 
Company, largely owned by Enron, invoked the central government's guarantee
to 
pay up since the state had not, a commitment the central government says it 
will honor.

The stakes in this showdown are very high. The Dabhol project is fast
becoming 
one of the fiercest battlegrounds in the debate about who wins and who loses 
from globalization. And it has the potential to sour foreign investors on 
India, a market of a billion people, and to sour Indians on foreign investors.

The worry that Dabhol could chill foreign investment is serious for India.
More 
than 250 million people here live in abject poverty. The country needs to 
participate in the global economy in a way that broadly benefits society, 
economists say.

But investments by foreign companies in plants, factories and other
projects in 
India fell sharply to $2 billion in 1999 from $3.6 billion two years earlier. 
China, the world's other highly populous developing country, attracted 20
times 
as much money.

The Dabhol project alone makes up more than 10 percent of the total direct 
foreign investment in India since 1992. 

Its woes have again raised questions about the financial wisdom of a strategy 
pursued not just in India, but in Pakistan, Indonesia and other developing 
countries. In an effort to attract private capital for electricity and
economic 
growth, governments negotiated long-term deals, often in secret, with private 
companies for new power plants.

In the early 1990's, after India slowly began dismantling its centrally 
controlled economy and opening up to foreign investors, Dabhol became one of 
the first foreign-owned power projects approved by the central government in 
New Delhi.

The 2,184-megawatt project  which Enron says is the largest gas- fired plant 
in the world  has produced a raucous collection of anti- Enron crusaders. 
Among them are leftist political parties, consumer advocates and dogged 
individuals like Pradyumna Kaul, whose small management consulting office is 
piled with teetering stacks of documents, many printed from the Web.

Dabhol's opponents contend that the deal was meant to generate not just
power, 
but bribes for politicians  a charge that has never been proved and that
Enron 
adamantly denies. The novelist Arundhati Roy, who has emerged as India's most 
impassioned critic of globalization and American influence, argues that such 
deals have benefited corrupt officials and foreign power companies, not the 
public.

"Once the agreements are signed," she wrote in a recent essay in Outlook 
magazine, "they are free to produce power at exorbitant rates that no one can 
afford."

But it is not just the foes of privatization who have questioned the deal
with 
Dabhol, a joint venture of Enron (which owns a 65 percent share), Bechtel 
Enterprises and General Electric (10 percent each) and Maharashtra's 
electricity board (15 percent).

Back in 1993, when the project was just a twinkle in an executive's eye, the 
World Bank concluded that it was "not economically viable." The bank said
that 
the type of plant proposed would produce too much power at too costly a price 
for the state.

A high ranking state official, who declined to be named, said that senior
civil 
servants gave the same warning. "We knew what would happen, and they did it 
anyway for reasons they thought best," he said. "You're bankrupting yourself 
knowingly, willingly, deliberately."

There is also a growing consensus here that the problem with the Dabhol deal 
goes beyond its particulars. India's power sector  inefficient, corrupt and 
heavily subsidized  is hemorrhaging almost $5 billion in losses each year.

In Maharashtra, a third of the power is stolen or lost. More than $1
billion in 
delinquent bills are uncollected. And 9 of 10 customers pay subsidized rates.

The World Bank, said Edwin Lim, its country director for India, now strongly 
advises governments against guaranteeing contracts for new plants unless they 
also turn over distribution to private companies, which are more likely to 
reduce theft and collect bills.

The State of Maharashtra is desperately trying to figure out how to pay for 
Dabhol. Clearly the preferred solution for the state, the central government 
and Enron is that another state or company buys the electricity, but so far 
none have come forward.

In an interview, Mr. Deshmukh, the chief minister, called the power
shockingly 
expensive. This fiscal year, electricity from Dabhol costs more than three 
times as much as other power in the system, state officials say.

A number of factors have driven up the price. The first phase of the
project is 20
fueled by naphtha, which has become much costlier because of rising oil
prices. 
The bills are calculated in rupees, but tied to the dollar, so as the rupee
has 
lost value the price here has risen.

Also, the state's electricity regulatory commission requires the electricity 
board to buy the cheapest power first, leaving Dabhol at the end of the line. 
Demand is much lower than the state had forecast. In recent months, the state 
has been buying only 10 to 20 percent of the power that Dabhol is capable of 
generating, while paying the plant's full fixed costs, Enron says. In Phase
2, 
twice as big as Phase 1 and fueled by natural gas imported in liquefied form, 
the state will also have to pay 75 percent of the fuel costs even if it
buys no 
power.

Mr. Deshmukh, whose Congress Party narrowly holds office in a fractious 
coalition government, faces unpopular choices. In a country where many 
consumers are used to cheap or free power, the state can raise tariffs; go 
after big power thieves, many of them politically connected; collect
delinquent 
bills; or slash spending on schools, hospitals and police.

For the state, the payments due for Dabhol will be huge  more than 
Maharashtra's entire budget for primary and secondary education. 

The chief minister's hope that the central government will save the state is 
dimmed by the fact that two of the parties in power at the national level,
the 
Bharatiya Janata Party and the Shiv Sena, are his chief political rivals in
the 
state.

The Congress Party itself made the deal for the first phase of the Dabhol 
project, but it was the Bharatiya Janata Party and the Shiv Sena that
agreed on 
the second phase  after having beaten the Congress Party in 1995 state 
elections on a platform of throwing Enron into the Arabian Sea.

Suresh Prabhu, the power minister in New Delhi who is a Shiv Sena member from 
Maharashtra, said that if the state defaults, the central government would
pay 
the bills, but the money would come out of the budgetary allocation to 
Maharashtra.

"We'll honor our guarantee without excuse," he said.

Mr. Prabhu's position, while reassuring Enron, should give state officials 
sleepless nights.

The latest crisis officially began in early February, when Dabhol Power first 
invoked the central government's guarantee to pay the state's $17 million 
November bill. The state itself subsequently paid up.

But the December payment for $22 million is now more than a month overdue,
not 
to mention the January bill. The state electricity board argues that Dabhol 
owes it more than $85 million as a penalty for taking a couple of hours too 
long to fire up the plant. Dabhol Power calls this a frivolous excuse to
avoid 
paying its bills and has again invoked the government guarantee. If the
dispute 
cannot be settled, Dabhol will seek international arbitration, Enron says.

The payments crisis has given a lift to the project's opponents. A
coalition of 
leftist parties and other groups held anti-Enron protests across
Maharashtra on 
March 1. They want what they regard as a sweetheart deal to be canceled.

The Enron imbroglio, in turn, has alarmed American diplomats, who have
pressed 
their concerns with officials in what they see as the interest of closer 
economic ties for the United States and India. Opponents of the project, like 
Girish Sant of Prayas, a nonprofit energy research group in Pune, say
American 
government lobbying for corporate interests is unseemly.

Richard Celeste, the American ambassador, warned a gathering of political and 
business leaders in Bombay in late January that the perception that a legal 
contract like the one for Dabhol was "fair game for renegotiation" would feed 
uncertainty about investing in India.

Mr. Celeste, a Clinton appointee who will soon be leaving, said he had 
delivered the same message in a meeting with Mr. Deshmukh.

"I did tell the chief minister of Maharashtra when we sat down that I had no 
intention of going on the board of Enron," Mr. Celeste said in an interview.

Mr. Celeste's predecessor, Frank Wisner, joined the board of an oil and gas 
exploration company after he retired as ambasssador in 1997 that was then 
majority-owned by Enron; he has been criticized here for the move. But Mr. 
Wisner, now vice chairman of the American International Group, an insurance 
company, said that though Enron then owned a majority of the exploration 
company, their boards were separate.

He labeled as "foolishness" the argument that his membership on the board
was a 
reward for the help he gave Enron in his three years as ambassador.

Earlier this month, Mr. Wisner and a group of corporate representatives
from a 
United States-Indian business group met with N. K. Singh, one of Prime
Minister 
Atal Behari Vajpayee's most influential advisers, to discuss a number of 
issues, including Dabhol. Among those present were a representative from
Enron 
and Enron's former top executive here.

"Dabhol sends a signal to investors in general and power investors notably
that 
there's trouble ahead for investors in India," Mr. Wisner said. "It's in 
everyone's interest to see this settled quickly."

If anything, American lobbying on behalf of Enron may become more aggressive 
under President Bush. Kenneth L. Lay, chairman of Enron, has for years been
an 
informal adviser and close friend to Mr. Bush and an important campaign 
fund-raiser.

Mr. Cline, Enron India's managing director, said Enron itself had no plans to 
invest in any more power projects in India for now and that companies in the 
sector were thinking hard before choosing India.

"When the markets of the world beckon with quicker returns," he said, "most 
companies are choosing to go elsewhere."



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