Kenneth Lay, dead of a heart attack several weeks ago. It must say something about the man that within a couple of hours of his death—even in a time of Bombay train blasts and Middle-East horror—people proclaimed that he must have “faked his own death” to evade punishment for his crimes. After all, as AP reminded us, it was Lay who “help[ed] perpetuate one of the most sprawling business frauds in U.S. history.” It was Lay of whom one juror at his trial confessed she “felt [his] character was questionable.”
Must be easy to think such a man would fake his death.
That “sprawling” fraud was, of course, Enron, the company Lay founded in 1985 and built into a $100 billion giant by 2000. Then it collapsed.
Here in India through the 1990s, Lay turned Enron into a household name. They were to build a power plant at Dabhol, on the coast south of Bombay. An Enron subsidiary, the Dabhol Power Corporation (DPC), would supply electricity to the Maharashtra State Electricity Board (MSEB).
Now Enron was never an energy company, not that this should have been a strike. It was a firm that came to India with the oldest motive in the book: make money. Period. It would do what it took, in whatever field seemed appropriate, to fulfill that mission. In this case, energy seemed appropriate, and lucrative. Not much wrong there. Making money is what businesses do, what business is about.
On the other hand, India had its rules, and the officials to enforce them, in place. They were meant to ensure that in this agreement with Enron, Indian interests were protected.
Yet on Sept. 30, 1992, when the Dabhol plant was still a twinkle in Lay’s eyes, the chairman of MSEB wrote thus to the Government of India: “[P]ublic and judicial scrutiny of business policy and decisions as per the [Companies] Act will not be acceptable by a company like DPC.”
Not only did Enron start operations in India by saying Indian law is not “acceptable,” it even managed to persuade an important Indian official to tell his government so himself.
Want more? In March 1993, the finance ministry asked the World Bank to fund the Dabhol plant. A month later, the Bank replied: no. DPC power, predicted the Bank, would “displace lower cost [power] in the off-peak periods.” After its “standard project economic analysis,” the Bank concluded, “the project is not viable.”
What happened then? Maharashtra’s Secretary of Industries, Energy, and Labour, U.K. Mukhopadhyay, wrote to the Government of India to say that the Bank should review its decision. The Bank, wrote Mukhopadhyay, “… does not support the project. It, however, points out very clearly that this project would be a very good project if it was not coming up in India.”
This excellent reasoning did not impress the Bank, which wrote back in July: “We reconfirm our earlier conclusion that the Dabhol project … is not economically justified and thus could not be financed by the Bank.”
The end of Enron’s Indian adventure? Not on your life. Less than six months later, the foundation of the whole Enron presence in India was worked out. That’s the Power Purchase Agreement (PPA) that MSEB and Enron signed. This was an almost deliberately intricate document that nobody could fully follow. But a consumer organization tried to get a copy of it from DPC. Their reply:
To a country as yet unused to the phenomenon of privatization this may be difficult to understand, but in a competitive market a PPA is the one document that affords companies an edge over the other players in the field. … [Therefore] such a document is zealously guarded by all companies.
A good lesson indeed, in the ways of the market and privatization. Thank you, Enron!
Only, “competitive market” and “other players” don’t quite apply. There were no “other players,” no “competitive market,” no “edge.” For DPC bid for no contract, and all of its power would be bought by one customer—MSEB.
The “phenomenon of privatization,” Enron style.
Want still more? There’s plenty, because Enron’s is a long saga of chicanery, evasion, and betrayal.
Enron first came to Maharashtra when the state was ruled by a Congress government led by Sharad Pawar. The opposition Bharatiya Janata Party (BJP) leader, Gopinath Munde, promised to “throw Enron in the Arabian Sea.” That slogan took his party all the way to power in the 1995 assembly elections. The BJP formed a coalition government with the Shiv Sena party, and in a blaze of righteous rhetoric, they scrapped the Enron project. It was “anti-Maharashtra,” they said, and “conceived in fraud.”
Then Enron’s CEO, Rebecca Mark, visited the Shiv Sena’s leader, Bal Thackeray, in early November 1995. Two weeks later—yes, two weeks—the entire project had been “renegotiated,” bigger and better (for Enron) than under the Congress regime. So much for being “anti-Maharashtra.”
One final intriguing detail. That same November, the renegotiation committee claimed that DPC power, when it came online, would cost Rs 2.22 a unit. To calculate that figure, it assumed that the dollar was worth Rs. 32 and would remain so for the next 20 years. This is important because the price of DPC power was tied to the dollar, not the rupee.
Except that the dollar was already at Rs. 35 that month, and in the decade since has risen as high as Rs. 48. No surprise, then: when DPC actually supplied power briefly to MSEB in 2000, the Hindustan Times reported that it was priced “between Rs. 3.01 and Rs. 4.25 [per unit].” Well over the renegotiation committee’s claim, but by then who remembered?
In the United States, Enron eventually sank under the weight of its “sprawling fraud.” Kenneth Lay faced trial. But at least those things happened. In India, what has happened to the Pawars, Mukhopadhyays, Thackerays, and Mundes—men who should have protected Indian interests in such deals?
Answer: nothing. In his superb book about the Enron project, Power Play, Abhay Mehta remarks on exactly this:
The problem lies mostly with us—the Indian nation state … and all that term represents or should represent. At the core … lies our inability to deal with or look after our own interests and to take responsibility for our actions or the lack thereof.
So if Kenneth Lay’s death makes us Indians think about that a little, he will not have died in vain.
A computer scientist by training, Dilip D’Souza now writes for his supper in Bombay. His main interests are social and political issues in India.
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