The story of Enron’s Dabhol power plant in India is not only a tale of globalization gone awry; it is also a fable in corporate greed and multinational exploitation.
In 1992, at the height of the economic liberalization fever sweeping South Asia, Enron proposed the 2995 MW Dabhol power project in India for a hefty price tag of over 2.5 billion dollars. Among the many suspicious aspects of the deal was the clause that the government-owned Electricity Board in Maharashtra would pay for the kilowatt-hours in dollars, regardless of the rupee exchange rate. This was curious, given that the power was to be made with local materials and labor, and from indigenous natural gas drilled offshore of Mumbai or Bombay. Among the other egregious aspects of the contract were the requirements that the Electricity Board would pay for the power whether it needed it or not, and Enron, a majority shareholder, would be guaranteed a 30% after-tax return on equity.
Enron completed the 732 MW first phase of the project in 1999. But, from the beginning, the deal, secured through bribes worth twenty million dollars veiled as “educational gifts” to various Indian officials, attracted fire from the World Bank, Human Rights, and Environmental organizations, as well as Indian media and labor groups.
As a result of the intense scrutiny of the Enron project, the State Electricity Board was forced to acquire equity in the project, to reduce Enron’s share to less than fifty percent, and to renegotiate the contract.
Enron’s Phase II project was even more ambitious and exploitative. Secured with loans from Indian financial institutions, Enron planned to build a 1444 MW power plant using liquefied natural gas. The Phase II venture was a demonstration of Enron’s ability at creative financing. Relying on loans from Indian financial institutions, the project planned to liquefy natural gas drilled offshore to produce power.
The Phase II project was never completed because Enron’s greed in it was too obvious to ignore. Now that Enron has gone bankrupt the Indian press is gleeful.
It is important to note however that one of the many seedy aspects of the Dabhol deal was the provision that if the Electricity Board failed to pay, Enron would seize the assets of the power plant.
Indian media now alleges that Enron has in fact moved crucial components of the plant from the site, so that even if the Indian government claimed ownership of the plant, it would be unable to operate it. Such are the joys of capitalism!
Even though Indian financial and engineering companies are hoping that they would be able to buy the power plant at bargain basement prices, the question remains: Did Enron already transfer some of the money it raised through its creative financing to its overseas corporations such as the Azurix Corporations?
Enron’s 2000 Annual Report in fact shows a $428 million debit to the Azurix Corporation and a 20 million credit to Dabhol Power Plant.
Another question is: did corporate executives of Enron’s overseas corporations already pilfer the money, sold their stock in Enron to become multi millionaires, and stash away the dough in various overseas tax-havens where the U.S. Congress will never be able to track it?
And there are other, more global questions: Did Enron’s greed in India lead to its downfall? A corporation like Enron could bribe government officials to get them to sign to almost anything, but in a democracy like India, which has a vibrant free press, once the public began to recognize that it had been led down the garden path, Enron ran into trouble.
What role did the Electricity Board’s refusal to pay Enron play in its financial problems?
Did Enron’s inability to pull together Phase II of the Dabhol project, upon which it might have relied for projections of its future profits, contribute to its troubles worldwide and particularly in the U.S.?
We may never find answers to these questions.
One thing is certain though. Indian financial institutions and government bodies that trusted the great capitalist machine of the Enron Corporation to lead them into a twenty first century adventure in free markets are now in for a rough ride. Both the Electricity Board and financial institutions like the Industrial Development Bank of India are in trouble as a result of the Enron debacle and might have to declare bankruptcies themselves.
Could the Indian economy, which is on the brink of recession as a result of the downturn in high tech industry and post-September 11 blues, collapse?
Congress should consider the effects the Enron bankruptcy is likely to have on the future of American foreign policy and overseas markets for the capitalist ideology it hopes to export to the “third world.
Sarita Sarvate writes commentaries for Pacific News Service and KQED.