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Money > Columnists > Sucheta Dalal September 20, 2001 |
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Don't just stop at throwing Enron outA few weeks ago, this column wrote about how a combination of circumstances and a few right-thinking people had finally given India a fighting chance to find the right solution to India's most controversial power project. But it is not so easy. I had underestimated the Indian politicians' incredible ability to confuse, confound and damage our own case. After all, the American multinational did not negotiate a sweetheart deal (provision to indemnify it against violations of Indian laws) without the collusion and collaboration of large sections of our political establishment. Parts of the ruling coalition in Maharashtra, a.k.a. Sharad Pawar's Nationalist Congress Party, are working hard to derail investigations. First, they are trying to force Chief Minister Vilasrao Deshmukh to scrap the judicial commission which is to inquire into the Enron deal. Secondly, they are working through the bureaucracy to weaken our case by charging the US multinational with misrepresentation instead of fraud in the arbitration cases filed in connection with repudiating the contract. Finally, in the most brazen display of Enron's powerful connections with George Bush, its CEO Kenneth Lay has written to Prime Minister Atal Bihari Vajpayee saying that if the issue is not resolved urgently (and to Enron's satisfaction) it would be construed as an expropriation of US assets and lead to the imposition of sanctions by the US government against India. But before we analyse how our own government is letting us down, let us do a quick recap.
This breakthrough implies that we now have legitimate grounds to cancel the project. Enron also owes us big money in penalties and the termination demand to the tune of Rs 300 billion that was written into Enron's sweetheart agreement, looks far-fetched. So how does the multinational react to the changed situation? It is clearly working on three fronts: agree to get out of India with only its investment in the project returned to it. Simultaneously, it has abandoned most of its investment plans in India. Having made its decisions, Enron is in a hurry to get its money and go away. Hence, Kenneth Lay's threatening letter to Prime Minister Vajpayee, seeking a quick resolution. Kenneth Lay may be in a hurry, but there are plenty of issues that need to be resolved before deciding how much to pay Enron. Finding a buyer for the Enron-promoted Dabhol Power Company is India's first priority. After all, in this shining example of foreign investment, Rs 25 billion of Indian banks and financial institutions are stuck, including guarantees, and we could do with the additional power generation, provided the price is right. The renegotiations committee headed by Madhav Godbole is expected to provide a financial basis for seeking bids for the project. Several Indian companies are in the race to acquire Dabhol Power Company and their offers would depend on Godbole's recommendations. Business Standard has reported on Monday that the Godbole committee has said that the government would have to take a Rs 56.63-billion hit in order to ensure a significant tariff reduction to around Rs 2.35-2.40 per KW. This includes a Rs 25-billion cash infusion and custom duty and other waivers. Interestingly, the committee, according to Business Standard has also recommended that Enron and its partners -- General Electric and Bechtel -- should forgo 75 per cent of their investment in the project involving a loss of Rs 28.35 billion. In fairness, Godbole has also recommended that MSEB and the Maharashtra government should also take a hit of as much as Rs 10.62 billion. Is it any surprise then that Enron was in such a big hurry that Kenneth Lay was threatening India with sanctions? We wonder whether Superpower US is currently in any position to threaten anybody - especially when it is making dubious compromises with countries in the neighbourhood of Afghanistan. The full details of the Godbole committee are not yet in public domain, but it seems clear that MSEB can invite bids to acquire DPC on the basis of these findings. However, a financial hit should not be the end of the story. Enron's gold-plated project cost and its ability to get Indian policy-makers to bend every rule in the book need to be probed through a judicial inquiry. We also need some clarity on the powers of policy-makers to sign commercial deals, to what extent they can bind us to certain commercial terms or grant others immunity from violation of laws. There were aspects of the Enron deal that were truly preposterous. The sovereign guarantee bound the country to unconscionable terms and safeguarded it from even the most basic business risks. Enron almost got away with it, too, but for the dogged fight put up by a few activists and the fact that the terms were so favourable to Enron that every other independent power project demanded similar terms, throwing the entire power sector development programme into disarray. So lets not stop at throwing Enron out, but let us, for the first time take things to their logical conclusion by fixing accountability for the whopping financial loss caused to the nation and also some ground rules to avoid a repeat performance. YOU MAY ALSO WANT TO READ:
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