Enron’s Pawar Game03/06/2001
THE two states, Maharashtra in India and California in the US, have many things in common. Both are the most economically advanced states in their countries; both are passing through a serious power crisis; in both these states, Enron is very much a part of the crisis. And in both the US and India, Enron has friends in high places to see that it continues to make huge profits even if both these states sink.
Enron is currently in focus in the United States as the architect of the Bush energy policy, which favours the oil industry. Enron is also in focus here with Sharad Pawar signalling that any criticism of the Enron deal as being “too negative”. More ominous, there are now reports in the papers that he is sounding his party, the NCP, to shift to the BJP. This will ensure that both the Maharashtra government and the central government will be controlled by the Friends of Enron Society; it was Sharad Pawar’s government in Maharashtra which sanctioned the first phase of 748 MW followed by the even more ruinous second phase of 1444 MW sanctioned by the BJP-Shiv Sena government. Enron has friends in high places, whether in the US or in India. And unless the people are vigilant, it is Enron that will dictate the energy policies of both countries.
ENRON DISPUTE CRITICAL PHASE
The Enron dispute is now entering a critical phase. The Godbole Committee report made clear that there is no way that the finances of Maharashtra will survive the Enron project. It is also clear that there are no takers for Enron power, either in or outside Maharashtra at its current rates. While the losses due to the first stage alone is of the order of Rs 1,000 crore per year, the second stage would require Maharashtra State Electricity Board (MSEB) to hand over more that 50 per cent of its total annual revenue of about Rs 10,000 crore to Enron. It is clear that MSEB and Maharashtra will have to get out of the Enron contract, which is an albatross around its neck.
Unfortunately, the Maharashtra government is willing to strike but afraid to wound Enron. The major controversy MSEB has created is around the issue of the ramp-up rate of the Dabhol project: it failed to ramp-up to full load when called upon to do so within the stipulated time period specified in the contract. On this basis, it has issued notice for voiding the Power Purchase Agreement (PPA) with Enron. Earlier, Enron had given notice to MSEB for cancelling the PPA as a prelude to claiming damages from MSEB. Both sides are negotiating now under cancellation threats.
PROBLEM WITH MSEB’s STAND
The major problem with MSEB’s stand is that it has left out of its armoury the most potent argument for cancellation of the Dabhol contract, that it was signed under conditions that prima facie show corrupt practice. Unless they are willing to take this position as a prelude to repudiation of the contract, they are leaving themselves open to the acceptance of the basic terms of the contract and an arbitration procedure laid down in the agreement. In such a scenario, the legal challenge is considerably weaker than questioning the way the contract was struck. In fact, the Maharashtra government should have instituted an enquiry in the way the agreement was signed taking into account all the acts of omission and commission now listed in the Godbole Committee report. This should have been followed by cancellation, if after the enquiry it was found there was a prima facie case of corruption. The Godbole Committee has provided enough ammunition for such an enquiry and it is difficult to believe that the enquiry would come to any other conclusion than that it was a corrupt deal. Allowing negotiations at this stage is a sign of weakness. The clear issue in Dabhol is that it is not possible to tinker with the existing Power Purchase Agreement.
It is here that the Sharad Pawar and other Friends of Enron have come into play. Both the central government and the NCP are unwilling to question how the contract was signed and the various behind the scene “deals” that must have been struck as part of Enron’s “education” drive. For such a wholesale violation of norms and “mistakes” that all favoured Enron as detailed by the Godbole Committee, it is obvious that those running the government then were closely involved. Apart from the two governments in Maharashtra – Sharad Pawar’s and Joshi-Munde’s, there was also the 14-day government of Atal Behari Vajpayee that gave the counter-guarantee to Enron. Thus, both at the centre and at the state, the Friends of Enron are unwilling to take on Enron: they have too many skeletons in their cupboard.
If Enron is confronted with cancellation based on corrupt practice, conceivably, the skeletons in Pawar’s and BJP’s cupboard will come tumbling out. The Congress, which has also been complicit in the Enron deal, will not escape unscathed. It was only due to the imminent bankruptcy of MSEB and the Maharashtra government, along with pressure from the left and democratic forces in Maharashtra that the Godbole Committee was set up. We now have an operational scuttle that threatens cancellation but refuses to take up the strongest argument for such a step. And the Congress is willing to go along with BJP, Shiv Sena and Sharad Pawar in this operation.
The first indication regarding Sharad Pawar’s intentions of saving Enron was when he criticised Godbole regarding his role during negotiations with Enron. Apart from the unseemly spectacle of leader of one of the major constituents of the government publicly criticising its negotiating committee, it was also an attempt to weaken Maharashtra government’s position. Now, games are afoot to wreck the negotiations, with behind the scenes pressure being brought on the Maharashtra government. Sharad Pawar’s public statement was the first step. The next is the thinly veiled threat of NCP pulling out and joining with the BJP. If the Congress does buckle under pressure for the fear of losing its government in Maharashtra, the Congress would have performed the job of bailing out Enron. All consequences of such a bailout will be left at the door of the Congress, effectively immunising both Enron and BJP-NCP.
ENRON’s ILL-GOTTEN PROFITS
Enron is not only a major player sinking Maharashtra state, it is being charged with a similar scuttling of the California economy. The rise in gas and electricity prices in California has, amongst other beneficiaries, also Enron. The Houston based company, has been charged as a part of the Confederate loot of California. In the Civil War, Texas was on the side of the slave owning Southern states (the Confederates) while California sided with the North. Californians allege that the Texas energy companies have taken out a whopping 20 billion dollars in ill-gotten profits out of California as a result of its power crisis. There also, it is its political clout that ensures the continued fleecing of California subscribers.
It is this multi-national-political nexus that makes nonsense of the theory that private capital and de-regulation favours competition and lowers prices. Whether in India, as in the Dabhol contract or in the failed California experiment with de-regulation, finally it is the consumers that bear the burden of such failures. The consumers in this country opposed the Dabhol contract. They were never told of the terms of the agreement and even today do not know the full details of Dabhol or other PPA’s entered on their behalf. Recently, Prayas, energy NGO, has asked for such documents from MSEB. Even though MERC, the Maharashtra power regulator has given directions to MSEB, the documents still are not forthcoming. However, when the bill has to be paid, whether in Maharashtra or in California, it is the consumers, particularly the smaller ones that bear the burden. This is the true nature of private capital and so-called competition in the power sector.
We have already indicated in our earlier columns that Dabhol requires hard decisions. Trying to work with Enron to find a solution will not work, as we are not talking of cosmetic changes in the contract. What we need is a wholesale restructuring of the contract. This means that the Maharashtra government will have to argue from a position of strength. Unfortunately, the flaw that is has picked in the contract, is unlikely to help them in such a wholesale restructuring.
DESHMUKH’s LAST CHANCE
Vilasrao Desmukh is in a lose-lose situation. If he negotiates on BJP-Shiv Sena and Sharad Pawar’s terms, the contract will have changed marginally and will sink the Maharashtra economy. If he gets tough with Enron, he might see NCP walk out of the government. What he has to realise is that NCP can walk out anyway after getting the Vilasrao government to bailout Enron. In such a scenario, he will be the one who will have put the final nail in Maharashtra’s coffin and sink his party for good in Maharashtra. It is much better then for both Vilasrao and the Congress to take Enron head on and fight for a just cause. Vilasrao needs to start an enquiry on Enron and ask how CEA and the Finance Ministry cleared this contract. He needs to bring within the scope of enquiry not only the state government but also the central government. This will at least ensure that even if he loses his government, he would have put the BJP-Shiv Sena on the mat. If Sharad Pawar is also implicated, so be it. The Congress and he would live to fight another day. Otherwise, he can start writing his and Congress obituary in Maharashtra.
The Dabhol battle is entering a critical phase. Unless the people are vigilant, we might find a re-enactment of the last times cancellation charade conducted by the BJP-Shiv Sena government. This is Maharashtra’s chance of a survival. If they lose this one too, we may as well write off Maharashtra from the economic map of the country. It will have become a permanent basket case.