February 27, 2000

Enron takes the nation for a ride
Scrap it or suffer it

Since the money to be paid to Enron is a charge on the central exchequer, it is appropriate for Parliament to go into what looks like another scam

For weeks, the Maharashtra government told both the Press and the public that it was in no position to clear the dues of Enron. It was unequivocal in its argument that it could neither afford the price nor could it pick up all the power its Dabhol plant generated. Some serious doubts were expressed and loud voices were raised to revise the terms and conditions of the agreement with Enron because of the onerous burden they impose.

Enron wasn’t unnecessarily worried. Its agreement was with the Maharashtra State Electricity Board, underwritten by the state and counter-guaranteed by the Centre. Still, when the noise became loud and the period of non-payment lengthened, the US Ambassador to India stepped in. His statement that the matter would be sorted out before long sounded enigmatic in the face of demands to scrap the agreement.

The matter, indeed, looked tangled. Then, out of the blue, came the announcement by central Power Minister Suresh Prabhu that the government would clear Enron’s ‘‘all outstandings’’ against the MSEB. He said that there would be no default on ‘‘the contractual obligations with Enron.’’ Within 24 hours of the statement, the MSEB paid Rs. 74 crore.

It is difficult to understand why the state caved in so suddenly after brandishing the sword for several weeks? And why did the Centre intervene when Maharashtra had threatened to renege on the agreement? It could not be Enron’s ultimatum to take the state to the court. Could it be America’s pressure or, to be more apt, the first ticking off by the Bush administration that brought New Delhi to its knees? Enron was No. 2 in financing Bush’s campaign. Is this what our foreign office describes as ‘‘a welcome deepening of ties and broadening of engagement between the US and India?’’

Since the money to be paid to Enron is a charge on the Central exchequer, it is appropriate for Parliament to go into what looks like another scam. A parliamentary committee comprising members of both Houses should scrutinise the entire agreement and what transpired from day one. Maybe, the committee would want to revise the agreement.

Enron’s agreement with the MSEB was one-sided. When one goes into the details of how it came to be signed, one feels that it is a long story of pressure and perfidy. Who twisted the arms of the Central and Maharashtra governments may never be known. There is only a statement by Rebecca Mark of Enron that she had to spend Rs. 33 crore in ‘‘educating’’ people on the project. The amount is too low when one finds the Memorandum of Understanding was signed within five days of Enron’s arrival in Mumbai.

The initial sin was committed by the Sharad Pawar government. He bypassed the objection by the Central Electricity Authority (CEA). The CEA’s opinion was that the MoU was a ‘‘departure from the existing norms’’ and that the price agreed upon (Rs. 2.19 at the then rate of exchange, Rs. 3.14 at current rates of exchange) was considered ‘high.’

At a meeting in August 1993, Pawar said that the total ‘‘foreign exchange outgo’’ and tariff ‘‘were minor issues to be clarified’’ and that ‘‘Foreign Investment Promotion Board (FIPB) would take a decision on them at the time of final review.’’ The Central power minister said ‘‘the project be cleared by CEA’’ but changed his mind later. Apparently, something had happened. Rebecca Mark wrote to Pawar on August 26, 1993, to suggest that every objection had been met and that ‘‘the remaining concern seemed to reside with Member (Planning), for Thermal Projects (the CEA).’’

The attitude of Enron from the beginning smacked of arrogance. After signing the MoU, it wanted to go ahead with the power purchase agreement. Its lawyer prepared a note on the provisions of different laws prevailing in India. He captioned it with contempt: ‘‘The problems concerning the application of the India Electricity Act.’’ Still the company got away with it.

On November 11, 1993, the day before the CEA was to meet to consider granting or refusing clearance to the project, it received a letter from the Ministry of Power. It said nothing except to communicate the finance secretary’s observations: ‘‘The question of cost of power had been looked into and it had been found that it was more or less in line with other projects being put up in Maharashtra.’’ How did the finance secretary come into the picture? He was neither competent to comment on the cost of power, nor authorised to do so.

By then (November 2), the FIPB too had examined the ‘‘reasonableness of the tariff formula’’ and had said that the ‘‘CEA would go into the question of reasonability of tariff.’’ The World Bank, whose opinion was sought, too said, that ‘‘the project is not viable.’’ It examined the cost in detail and came to the conclusion that consumers would not be willing, nor able, to pay such a price. It warned the government that ‘‘the implementation of the project would place a significant long-term claim on India’s foreign exchange resources.’’

Still the Pawar administration went ahead with it. The Shiv Sena-led government, which succeeded the Pawar government, reopened the agreement. The BJP was the coalition partner. The committee, appointed by the new government, said that the previous government had ‘‘committed a grave impropriety.’’ It went on to say that ‘‘several unseen factors and faces seem to have worked to get Enron what it wanted.’’ The price was found ‘‘clearly not reasonable.’’ The chief minister announced his government’s decision to scrap the project.

Frank Wisner was then the US Ambassador to India. Incidentally, he joined Enron as a director within 24 hours of completing his tenure in Delhi. Mark returned to India and she knew who counted. She missed a scheduled appointment with the then chief minister of Maharashtra and met Bal Thackeray. What transpired between the two is not difficult to guess.

After the meeting, the government conducted ‘re-negotiations.’ Not only was the same old contract retained, the Shiv Sena-BJP government went ahead with the second phase which was optional earlier. L.K. Advani, who had hailed the decision to scrap the Enron deal as ‘‘the first step against the prevailing culture of corruption in high places,’’ was now conspicuous by his silence. The new negotiated contract was the largest in the country’s history, with contractually binding payments exceeding $ 30 million (Rs 120,000 crore).

The counter-guarantee to the Enron project was the only step taken by the 13-day Vajpayee government. That the Centre, led by the BJP, has once again intervened to clear Enron’s dues is not surprising. What is surprising is that there is no thinking on renegotiating the one-sided deal. This will be cheaper in the long run.

 

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