Ken Dam hassles India about Enron

["Ian Murray" <seamus2001@xxxxxxxxx>]

< http://www.atimes.com >
Trashed at home, Enron takes it out on India
By Praful Bidwai

NEW DELHI - As the Enron scandal sends wave after shock wave
through the US political system, the international repercussions
of history's most spectacular case of corporate bankruptcy are
just surfacing.

Enron has become an abusive transitive verb in the United
States, where some 15 committees are investigating the sleazy
political connections and the energy deregulation policies that
allowed the New Economy company to stage a meteoric rise. Many
of the 250-plus senators and congressmen (half the total) who
received Enron's "donations" are returning them to save
themselves from further opprobrium.

But in the Third World, Enron faces very little opprobrium, nor
shows any embarrassment. In India, where it has the largest
direct investment in an overseas industrial project, the
corporation continues to make bullying and threatening moves. It
is trying to drag the government of India's Maharashtra state
into international arbitration over the termination of a power
purchase contract signed with its subsidiary, Dabhol Power Co,
rather than submit itself to Indian jurisdiction.

The controversial contract for extremely expensive electricity
was suspended six months ago by the Maharashtra power board,
which nearly went bankrupt itself as a result of high power
prices. As reported earlier, the deal was reached through
shadowy, secret negotiations, and in violation of the
Electricity Supply Act.

Enron is also getting Washington to plead its case. Deputy
Treasury Secretary Kenneth Dam, who is visiting India, has told
New Delhi to resolve the Enron issue speedily and speed up
economic reforms.

On January 28, Ambassador Robert Blackwill made a forceful
intervention at an industry meeting, saying that all foreign
investment into India hinges upon a favorable resolution of the
Dabhol company dispute, which "feeds a chronic perception among
the overseas investing community that India may not be ready yet
for big-time international investment". Blackwill demanded
adherence to the "sanctity of contract", doubts about which can
"spell death to potential investors".

This statement left many industrialists angry and inspired
Blackwill's redescription as the "Viceroy", the British crown's
all-powerful representative in India during the colonial period
who towered over domestic subjects.

Blackwill may only be voicing the views of the Republican
administration. After all, US Energy Secretary Spencer Abraham
defends energy deregulation in spite of Enron's collapse and the
bankruptcy of PG&E, the United States' largest power
distribution company. In a January 14 Washington Post article he
claimed, "Deregulation is working".

Blackwill's remarks were indicative of US support for Enron's
effort to get as much as US$2.3 billion for its 65 percent stake
in Dabhol Power Co. Market analysts evaluate it at less than
half that figure.

Successive US administrations have heavily lobbied on Enron's
behalf. Vice President Dick Cheney, himself a former
energy-company boss, has been in the forefront here.

This policy is rationalized by the White House. Its spokesman
Ari Fleischer recently said: "It's not uncommon for [companies]
to have exposures, which do require contacts between American
officials and government officials in other countries."

In 1995, president Bill Clinton sent an official memorandum to
the White House chief of staff helping Enron clinch the Dabhol
deal, which was then being resisted by the New Delhi government.

The US energy secretary had publicly warned India: "Failure to
honor the agreements between the project partners and the
various Indian governments will jeopardize not only the Dabhol
project but also most, if not all, of the other private power
projects proposed for international financing."

The threat worked.

More recently, said The Washington Post, the US National
Security Council reduced itself to a "concierge service" between
Enron's Kenneth Lay and India's National Security Adviser
Brajesh Mishra. Normally, these disclosures would have sparked a
sharp political riposte in India, especially from opposition
parties such as Sonia Gandhi's Congress. But their response has
been supine. This is so in part because Cheney had "spoken to"
Gandhi and Manmohan Singh during their US visit in June.

However, pressure to liquidate or nationalize the Dabhol Power
Co is likely to build up in India as the Enron investigation
proceeds apace in the United States.

There are three general, and three specific, lessons in the
Enron story for the developing countries.

First, it is absolutely vital to fight off hegemonic pressures
on behalf of multinational corporations. Without such pressure,
the highly unequal contract between Dabhol Power and the
Maharashtra government would not have been signed in 1995. The
central government of India would not have given sovereign
guarantees to the project. The various Indian agencies could
have resisted such pressure by developing arguments about
competitiveness, efficiency and the logic of the market. They
failed to do so.

A second lesson is that developing countries should ignore all
hype and hoopla about the New Economy, which make it appear as
if corporations belonging to that sector follow rationales
different from those of the Old Economy, and that they are not
motivated by profits.

The third general lesson for the developing countries is that
private investment looking for quick returns cannot be the
favored instrument for building core infrastructure such as
roads and telecommunications. In fact, in the developed
countries themselves, such activities have typically been
financed directly by governments or through state-guaranteed
low-interest bonds. This is true not only of Western Europe, but
also of the United States. Western power utilities were built at
low rates of return, such as 2-3 percent. By contrast, private
companies look for quick paybacks and high rates of return such
as 16 percent or more. In the Dabhol company's case, the rate wa
s a complete ripoff, varying from 31 to 52 percent.

Professor A K N Reddy of the International Energy Initiative has
drawn many specific lessons for the energy sector. The first, he
says, is that it must not be deregulated. Deregulation has
proved disastrous in California, whose biggest power producer,
and distributor, has become unviable. In India too, deregulation
of electricity in states such as Orissa has led to skyrocketing
prices, coupled with low supply reliability.

The second lesson is that the energy industry's emphasis must
shift from supply to demand, with a clear focus on rational use
of energy services. This approach privileges users' groups and
ordinary people - not corporations.

The final lesson is that no contract should be signed without
full transparency, including open tenders, competitive bidding,
and credible evaluation of bids.

Efforts to rush deals on the ground that "no power is more
expensive than no power" will always produce terrible
distortions.

(Inter Press Service)