Enron’s demise

Opportunity to turn DPC into model project

Enron Corporation’s spectacular global flameout has caused no major shock in India. Barring powerful Enron apologists who include politicians, bureaucrats, businessmen and journalists, everybody else has always known that its dealings stink. The rest of the world is now discovering, at a huge cost, the lack of transparency, the powerful political connections, the brazen hustling to change policy, the fudging of accounts, and the enormous arrogance. If Enron hustled the world into deregulating power, telecom and water tariffs — with disastrous consequences in California –– one must remember that it followed the same strategy while pushing expensive Independent Power Projects. The difference is that several major power utilities marched alongside it in their effort to set up largely unviable IPPs in the most corrupt countries of the developing world. They splurged money to convince policymakers (remember Enron’s $20 million effort?) that instead of reforming electricity distribution systems, reducing theft, dismantling State monopolies and increasing the operational efficiency of existing power utilities, it was far better to bring in high cost foreign companies by signing up sweetheart deals which eliminated all business risk through multiple guarantees. But there is no point in gloating over the collapse of Enron. While the world is busy writing the obituaries of Wall Street’s defunct darling, it is time for us to get down to serious business.

Enron’s receivers will want to sell the Indian operation as quickly as possible. We have a world-class power generation facility in the Dabhol Power Company, which has to be acquired and made viable through huge sacrifices by all lenders and equity holders. Indian financial institutions, with their Rs 6,200 crore exposure to DPC and first charge on assets, would naturally lead negotiations but a smooth deal is possible only if our politicians stay out of the picture and the three bidders do not work at cross purposes to drive the price up or sabotage negotiations. A fresh power purchase agreement will have to be signed with the new owner, one which scraps all the most expensive elements of the old deal such as the terms of the fuel supply agreements, the O&M contract and the proper utilisation of excess capacity built into the cost. With Enron’s powerful influence out of the way, it will be embarrassing if we still cannot facilitate Dabhol’s transition from India’s most controversial project to a model IPP.