| |
Enron's ghost haunts
India
By Arun Bhattacharjee
NEW DELHI - With creditors breathing down the
government's neck and its reputation as a safe haven for
foreign investment at stake, two Indian bureaucrats are
trying to salvage what is left of a bust energy plant
built by Enron, which went bankrupt spectacularly in
2002 in the United States, leaving behind a cloud of
felony charges and outraged creditors.
Once the
seventh-largest company in the US, Enron in 1992 was
contracted to build a US$2 billion power project on
India's western coast, in what was then the largest
foreign investment ever made in India. The company had
close ties to the administration of President George W
Bush, who immediately denied them as Enron collapsed in
the US in a welter of charges that it had lied about its
profits.
Enron today still stands accused of a
range of shady dealings, including concealing debts so
they wouldn't appear in the company's accounts. Several
company executives have already pleaded guilty and
others remain under investigation. When Enron went
under, it took Arthur Andersen, one of the world's
largest accounting firms, down with it, on charges the
accounting firm had condoned or covered up the cooked
books.
Today, the Dabhol plant, 320 kilometers
south of Mumbai, is nearly 700 hectares of rusting
equipment, empty buildings and huge storage tanks
bisected and surrounded by deserted roads. It had been
projected as the world's largest natural gas-burning
energy facility. With its 65 percent equity under a
cloud and foreign creditors demanding repayment, India
is now involved in a dispute that involves five
countries and spans three oceans - the Atlantic, Indian
and the Pacific. In addition, India's leading bank,
Industrial Development Corporation, is bent under a huge
non-performing loan worth $1.3 billion while the country
is left holding the can without a single watt of power
generated.
In the meantime, India's energy needs
are already estimated at 30 percent short of demand - as
its economy powers ahead. The country is facing a power
crisis. According to a study by the Ohio Supercomputer
Center in the US, India's energy consumption grew 7,000
percent from 1950 to 1998. Per capita energy consumption
in India in 1997 was 19 million British Thermal Units
(BTU), compared to 323 million BTU in the US, against a
world average of 65 million BTU. By 2010, per capita
energy usage in India is expected to increase to almost
40 million BTU, a two-fold increase in 13 years.
At Dabhol, almost everything went wrong. Dabhol
Power Company (DPC), as it was named, was supposed to
generate 2,100 megawatts of power, not only to meet the
shortage around Mumbai and Maharashtra state, but to
partially meet the demand for an increasingly
power-starved country. Even before it was built,
opposition figures were charging that Enron had got the
contract with the aid of bribes, which the company
repeatedly denied.
The opposition campaigned in
1994 and 1995 against the then-ruling Congress Party on
an anti-Enron platform, charging that the contract was
unduly enriching the Texas company. The Maharashtra
state government fell in 1995, with the new government
appointing a team of ministers to review the project and
ultimately recommending the contract be scrapped. Enron
entered arbitration and demanded $300 million in
compensation. The state government countered with a suit
alleging fraud and misrepresentation.
In 1996,
when the currently ruling Bharatiya Janata Party had
only been in power for 13 days, Dabhol received the
green light for construction from Finance Minister
Jaswant Singh. He not only cleared the project, but also
provided the government's first-ever counter-guarantee
to a power project, assuring full payment to the
creditors in case of project failure under the Indo-US
Bilateral Investment Protection Treaty.
Legal
challenges continued, with Enron ultimately
renegotiating the agreement amid continuing legal
challenges by various Indian groups, although Phase I of
the plant began to generate power. After various other
legal challenges and squabbles, US Secretary of State
Colin Powell entered the fray, raising Enron's problems
with the Indian foreign minister. Later, Vice President
Dick Cheney would also attempt to intervene with Sonja
Gandhi, the president of the now-opposition Congress
Party. A provision to benefit Enron's India operations
was also included in the White House's so-far stalled
energy package.
Then, in May of 2001, with the
project 90 percent complete and producing electricity on
naphtha instead of natural gas, the price of the fuel
went through the roof. Dabhol Power ceased generating
power on Phase I and halted construction on Phase II,
although it was 90 percent completed. Only a few dozen
guards remain on the site today.
Two years
later, India woke up and appointed a committee to
renegotiate and find ways of oiling and running the
machinery, as General Electric, the US-based global
energy equipment major providing the software to run the
sophisticated power plant, and Bechtel, the consulting
US firm, threatened to go to an international tribunal
to recover their investment.
A flock of foreign
investors from Austria to Australia, France,
Switzerland, the Netherlands, the United Kingdom and the
US also are all asking for payment and demanding
comprehensive settlements to avoid international
arbitration.
Those creditors are big names - ABN
AMRO is asking for $77 million, Credit Suisse First
Boston $35.3 million, ANZ $35.2 million, BNP Paribas
$14.6 million and Australian Bank is asking for $9.5
million. The US government agency that ensured Dabhol
Power against political fallout is asking for another
$60 million.
The snowball started rolling as the
Bank of America asked the US insurer OPIC for $30
million following a US arbitration panel ruling that
international expropriation had taken place. India was
required to pay OPIC for $28.5 million each to GE and
Bechtel. Encouraged, other creditors simultaneously
served notices to the prime minister's office on
November 5 demanding settlement.
Indian banks
followed, led by the Industrial Development Bank of
India, the largest lender. Other Indian investors did
not sit idle either as they felt that the government
should not be partial only to foreign investors asking
for a comprehensive settlement to avoid international
arbitration.
India selected two of its
experienced bureaucrats, Naresh Chandra and Vijay
Kelkar, to attempt to sort out the mess to save money
and time without going through the courts. A power
ministry official says that GE holds the key to the
project, as without its software the first phase -
producing 700 MW - can't run. The Maharashtra State
Electricity Board, Dabhol Power's buyer, is an equity
holder and has come under criticism for conflict of
interest as any rate increase may increase its equity
value. But as a purchaser and distributor of the power
to the consumer, the rate has to be both affordable and
reasonable.
Indian negotiators have a government
mandate for settling the issue as fast as possible but
many suggest that the silence of the US government has
encouraged GE to go ahead without taking into account
that a revived Dabhol Power would be in the interest of
GE shareholders. India consulted Tractebel Energy
Engineering, the $15 billion European energy giant, and
was told that the value of the plant after settlement
would be worth three times the original investment.
Although government officials are tight-lipped
on Dabhol Power's future, it is rumored that there are
international as well as Indian buyers. Industry circles
say that the case was thoroughly mishandled. They point
out that the Maharashtra government's takeover sent
strong signals abroad that investing in India was
politically risky. Since the nationalization of the oil
industry by former prime minister Indira Gandhi's
government in the early 1970s, India did not take any
single step that was not negotiated before or
synchronized with the declared government policy, said
AC Chatterjee of the Birla group of industries.
Although GE India declines to comment on its
haste to settle without taking into account the
interests of other investors, India feels that GE and
Bechtel are under major pressure from their
shareholders, given their $400 million investment.
The two major industry bodies in India, the
Confederation of Indian Industry and the Federation of
Indian Chambers of Commerce and Industry, explain that
the value of the plant today would be around $1.8
billion (Rs9 billion). That would include the startup of
the natural gas-based third plant of the project which,
with inflation adjustment, would perhaps be less than
what it was two years ago. This is likely to be one of
India's arguments. The other would refer to a new
commitment by the lenders to start the plant after
absorbing minor losses to their shareholders with the
hope of a profit in the near future.
For
power-hungry India, Dabhol Power is a vital project. But
the government is unlikely to buckle under GE or
Bechtel's pressure as the interests of Indian investors
- around $1.32 billion - has to be taken into
consideration for political, as well as economic,
reasons.
(Copyright 2003 Asia Times Online Co, Ltd.
All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies)
|
| |
|
|
 |
|
