- Enron's sudden fall from grace has made
it a dirty word in American business, associated with cooking its books
and spreading money around to friendly politicians.
-
- But in India, the Houston-based energy-trading
company has long been viewed in much that way, as a heavy-handed U.S. corporation,
expert at manipulating local politicians and callous in overriding the
interests of everyday citizens.
-
- For many on the Asian subcontinent, Enron
epitomized the downside of the modern global economic system where powerful
corporations from the West often bully their way into development projects
that fail to live up to shiny promises.
-
- A case in point was Enron's investment
in a $3 billion, 10-year liquefied natural gas power plant development
project, the largest development project and the single largest direct
foreign investment in India's history.
-
- Begun in 1992, the Dabhol power plant
near India's financial capital of Bombay in Maharashtra state was to have
gone online by 1997. It was supposed to supply energy-hungry India with
more than 2,000 megawatts of electricity, about one-fifth the new energy
needed by India each year.
-
- But endless disputes over prices and
terms of the deal turned the venture into a symbol of what can go wrong
in large-scale development projects when cultures collide. As Enron files
for bankruptcy and looks for ways to divest itself of its Dabhol interests,
the project is still unfinished and has produced no electricity.
-
- The Beginning
-
- Enron's Dabhol project took shape after
the fall of the Soviet Union. India, a longtime Soviet ally and a socialist
country in its own right, faced tough questions about how it would adapt
to the post-Cold War world. With the Soviet Union gone, India began looking
to the West to develop new international partners.
-
- An exploding population also was putting
pressure on the nation's natural resources. One of the top needs was energy.
-
- In 1991, a government led by Prime Minister
P.V. Narasimha Rao of India's longtime majority Congress Party introduced
two major structural policy changes to spur economic growth. Narasimha
decentralized government control over industrial licensing and opened the
country more to foreign investment.
-
- In Comes Enron On the surface, India's
deal with Enron to build a power plant seemed to offer big advantages to
both sides. The 2,184-megawatt Dabhol plant would help India meet its national
energy needs while expanding India's trade relations with the U.S. [BusinessWeek,
Dec. 3, 2001]
-
- For Enron, the upside was equally clear.
Entering the Indian market, which offered vast growth potential, would
position Enron well in the global marketplace.
-
- The U.S. government also saw benefits
from U.S. companies gaining access to business in India, the world's largest
democracy. The Enron deal was the jewel of America's economic engagement
with India.
-
- International observers and many in the
energy trade press considered the deal a match made in heaven. "The
power plant will provide desperately needed electricity for the growing
Indian economy," wrote the Energy Daily.
-
- "As an integrated gas and power
project, the facilities will contribute significantly to the development
and expansion of both the natural gas and power sector in India,"
declared Enron's Chairman and CEO Kenneth Lay. [Energy Daily, Dec. 9, 1993]
-
- In a joint venture with U.S. companies
General Electric and Bechtel, Enron created an Indian subsidiary, Dabhol
Power Co. DPC, which was 65 percent owned by Enron, was to build the power
plant. Enron was to develop and operate the plant. Bechtel was to design
and construct it, with GE supplying the equipment.
-
- To secure supplies of liquefied natural
gas for the project, Enron lobbied New Delhi to change its tariff system,
which had been designed to discourage energy imports. Enron got India to
slash its duty on imports of liquefied natural gas from 105 percent to
15 percent.
-
- With those changes approved, Enron brokered
a deal with Qatar to provide the Dabhol plant 2.5 million tons of liquefied
natural gas per year for 25 years, starting in 1997.
-
- Early Skepticism
-
- While many observers hailed the project
and its promised benefits, some economists doubted its feasibility and
some Indian citizens bridled at Enron's highhanded behavior.
-
- In April 1993, a World Bank analysis
questioned the project's economic viability, citing the high cost of importing
and using liquefied natural gas relative to other domestic sources of fuels.
Because of those findings, the World Bank refused to provide funds for
the project. [http://www.altindia.net/enron/Home_files/WBreport.htm]
-
- Other critics charged that the project
had not been open to competitive bids and that the deal was too costly.
Some expressed concern over the terms of India's agreement to underwrite
the project. With the World Bank declining to provide loans, India was
forced to take on even greater risk.
-
- In 1993, Prime Minister Narasimha Rao
overruled objections from his own Finance Minister to give state guarantees
for both foreign and domestic investors in energy projects. The guarantees
could be counted by lending institutions as additional state debt. [Independent
Power Report, 3/12/93]
-
- Local Objections
-
- While demonstrating its political pull
in New Delhi, Enron brushed aside local questions and concerns.
-
- The law required Enron to solicit public
comments in the two months after agreement was reached on the land and
water acquisitions. Instead of seriously addressing concerns raised by
local residents, Enron sent out "a form letter stating that the villagers'
inquiries would be looked into and that there would be no negative impacts
on the area," Human Rights Watch reported.
-
- At the end of the two months, Enron told
the local government that the company had complied with the public-comment
law and had received no objections. In reality, Enron had "received
34 complaints and queries," Human Rights Watch said. [http://www.hrw.org/reports/1999/enron3-0.htm]
-
- With the Indian government onboard and
the local population relegated to the caboose, the Dabhol project had moved
onto a fast track. Construction was set to begin in early 1994.
-
- Stumbling Blocks
-
- By March 1994, however, momentum was
slowing as financial questions reemerged.
-
- "Price is becoming a sticky issue,"
the Financial Times reported. "Indian officials see the price as very
high compared to domestic gas and imported and indigenous alternative fuels."
[FT - International Gas Report, March 18, 1994]
-
- In July 1994, the U.S. government extended
a helping hand. The Overseas Private Investment Corporation (OPIC), an
independent agency established by the U.S. government to promote American
business interests overseas, provided loan insurance and granted a $100
million loan guarantee to support the Dabhol project.
-
- The national government of India, the
state government of Maharashtra and Enron also went to work on rescuing
the project. For the first time ever, the Indian government agreed to underwrite
the liabilities of a private company. [Independent Power Report, Sept.
23, 1994]
-
- The guarantees firmed up the financing,
but other problems emerged. Critics charged that the power plant threatened
the local environment and didn't adhere to government environmental standards.
-
- One concern was the safety of importing
and storing liquefied natural gas, which is cleaner burning than coal or
oil, but can emit volatile vapors that can ignite and explode. Other critics
said Dabhol could harm local farms and fisheries.
-
- Protesters took to the streets to support
demands for changes in the plant's design and -- more broadly -- to oppose
the Indian government's economic liberalization policies. Social activists,
lawyers, villagers and farmers banded together in groups opposed to the
Enron project.
-
- One of the protesters was Medha Patkar,
a 1992 recipient of the Goldman Environmental Prize, which is often referred
to as the Nobel Prize for the environment. Well known in the world community
for her non-violent work in the Ghandi tradition, Patkar joined the protests,
charging that the project was approved without adequate study of economic,
environmental or social consequences.
-
- "We -- national organizations, especially
the National Alliance of People's Movements -- felt that we must not allow
the local organizations to lose this battle. It is symbolic and important,"
Patkar said. [Multinational Monitor, Nov. 1997]
-
- Another opponent was Professor Sadanand
Pawar, an economics professor from Bombay who analyzed the impact that
the devaluation of India's rupee would have on the electricity from the
Dabhol plant. The devaluation meant that Dabhol's energy prices would soar
to between two and five times the average price in the area, Pawar said.
-
- The Rise of Nationalism
-
- Equally significant to the battle over
Dabhol was the interest of two conservative Hindu nationalist parties.
-
- The Bharatiya Janata Party (BJP) and
the Shiv Sena accused the ruling Congress Party of selling out the people
of Maharashtra. Local BJP leader Gopinath Munde threatened to "throw
Enron into the sea."
-
- Opposition to the project spread throughout
India in early 1995. On April 27, 1995, The Times of India ran an editorial
by columnist Praful Bidwai calling the project "irredeemably flawed."
-
- Bidwai accused Enron of reaping "unearned,
windfall super-profits" and concluded that "India's stature will
be enhanced, not lowered, if it tells the world that it is no pushover,
no banana republic ready to accept an outrageous deal."
-
- The name Enron soon was synonymous with
waste and abuse across India.
-
- By mid-1995, after local elections, the
state government of Maharashtra was in the hands of a BJP and Shiv Sena
coalition. Under new political direction, the state electricity board was
bringing the dispute to a head. A three-line letter to Dabhol Power Co.
called for a cessation of construction because the cost for building the
plant and generating the electricity was too high. [Bloomberg Business
News, Aug. 7, 1995]
-
- Friends in Washington
-
- As opposition to Dabhol mounted, Enron
turned to the Clinton administration for help in pressing the Indian government.
U.S. officials -- from Energy Secretary Hazel O'Leary to Treasury Secretary
Robert Rubin -- threw their weight behind the project.
-
- "Failure to honor the agreements
between the project partners and the various Indian governments will jeopardize
not only the Dabhol Project but also the other private power projects being
proposed for international financing," the U.S. Energy Department
said on June 5, 1995.
-
- The Clinton administration was driven
by a belief that India was the best U.S. opportunity to beat Japan in an
emerging market in Asia.
-
- "India has become one of the few
emerging Asian markets where American companies have bounded in ahead of
Japanese competitors, with Clinton administration officials regularly leading
groups of executives there," reported the New York Times. [Nov. 22,
1995]
-
- The project's defenders inside India
also counterattacked. They dismissed anti-Dabhol protests as political
posturing, seeking to exploit public worries about the economic liberalization
policies of Prime Minster Narasimha Rao and the Congress Party.
-
- "Ever since the BJP replaced the
Congress Party early this year in Maharashtra, the BJP has done what it
can to discredit the Congress Party before next year's (national) election,"
wrote Indian political observer Marilyn Raschka. "These are mere opening
samples of the BJP-sponsored attacks. As elections get closer, the attacks
will get worse." [Washington Report on Middle East Affairs, Nov./Dec.
1995]
-
- Also trying to undercut the opposition,
Enron renegotiated parts of the deal. On Jan. 8, 1996, Enron and the state
government of Maharashtra reached a new agreement that would shift some
of the construction costs and lower the electricity tariffs. Enron said
work would resume within three months.
-
- Mounting Protests
-
- While the new terms suited the state
government, other critics felt betrayed. They said the new deal was worse
than the original because it allowed for the construction of a larger power
plant and still failed to address the underlying cost concerns.
-
- Growing opposition to the Congress Party's
policies touched off seismic changes in the world of Indian politics. In
May 1996, the BJP picked up seats in national elections and toppled the
Congress Party's ruling coalition. The Congress Party had ruled India for
almost the entire 50 years since the nation gained independence from Great
Britain in 1947.
-
- By early 1997, Enron officials thought
the project was back on track, however. Rebecca Mark, chairman and CEO
of Enron International, told BusinessWeek that Enron succeeded in winning
over the new government of Maharashtra.
-
- "I think what worked was that we
never stopped talking," Mark said. "Our contract allowed us to
arbitrate through legal international means, so we did, through Indian
and international courts. Everyone realized a solution was necessary. Once
the project got started, there was a layer of people [in government] who
supported it. Our faith was in these decision-makers." [BusinessWeek,
Feb. 24, 1997]
-
- Enron's optimism, however, failed to
take into account a budding social movement in Maharashtra. With political
and legal recourses exhausted, protesters took to the streets -- and were
met with force.
-
- Several non-governmental organizations
were formed to oppose the Dabhol project, including the Guhagar Taluka
Enron Vaa Salagna Prakalp Virodhi Sangharsh Samiti (Guhagar District Peoples'
Forum for Opposing Enron and Other Related Protects) and the Enron Virodhi
Sangharsh Samiti (Organisation to Oppose Enron). These groups were made
up of thousands of affected villagers, farmers, social and environmental
activists and lawyers.
-
- Non-violent protesters were arrested
on the pretense that they might commit acts of violence. In May 1997, in
the town of Mahad near the Dabhol Power Co.'s project, police served Medha
Patkar and other protest leaders from the National Alliance for Peoples'
Movements a prohibitory notice.
-
- According to Human Rights Watch, the
police "then surveilled, arrested, beat, and detained the activists
-- on the eve of her departing for Raigad and Ratnagiri districts with
plans to lead a series of protests against the DPC project and other industrial
projects."
-
- Amnesty International joined Human Rights
Watch in condemning the use of force against the protesters. In a 1997
report, Amnesty took the unusual step of accusing the companies involved
in the project of colluding with local police to stop the protests. Amnesty
International also reported that the police used excessive force to beat
and arrest peaceful protesters. [http://www.web.amnesty.org/ai.nsf/index/ASA200311997]
-
- Two months after the May 1997 incident,
the National Human Rights Commission of India found the tactics of local
police forces to be "unjustified" and criticized Maharashtra
Chief Minister Manohar Joshi for giving orders to target the activists.
At the time of the arrests, Joshi was embarking on a five-nation tour of
Asia to attract foreign investment and promote the business interests of
Maharashtra. The law-and-order tactics may have been meant as a statement
to potential investors. [http://www.hrw.org/reports/1999/enron/enron5-2.htm]
-
- Future Uncertain
-
- In June 2001, with the project about
90 percent complete, development was again put on hold amid new disagreements
over the price of energy. Work has not resumed.
-
- In the week's before Enron's Chapter
11 bankruptcy filing in November, negotiations were underway to sell Enron's
stake in the project. The stake's estimated value was between $500 million
and $1 billion. [Reuters, Dec. 10, 2001]
-
- Enron and its U.S. partners, Bechtel
and GE, have filed claims with OPIC to collect $200 million in compensation
for losses suffered in the Dabhol project. [Bloomberg News, Dec. 21, 2001]
That money ultimately might come out of the pockets of U.S. taxpayers,
though the outcome of Enron's end game is not clear.
-
- Yet, by any measure, the near-decade-old
project to build India's largest power plant has been a disaster. Dabhol,
which was expected to deliver much-needed electricity to an energy-thirsty
country by 1997, has produced no energy and is facing an uncertain future.
-
- The company that started it all -- a
company that as recently as April ranked as America's seventh biggest corporations
and counted George W. Bush among its closest political allies -- is bankrupt
after admitting that it overstated earnings by $586 million since 1997.
-
- The lessons of Dabhol may be like the
larger lessons of the Enron debacle. A company known for its hubris tried
to accomplish too much, too quickly, playing fast and loose with the financial
realities and counting on political allies to clear the way.
-
- In the end, Enron found that even its
enormous political clout could not override the rules of economics and
the resistance from everyday citizens of India.
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- http://www.consortiumnews.com/Print/123001a.html
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