April 01, 2020
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Enron Unplugged

It seems everybody has forgotten that the deal is just a contract and nothing more. It can be easily scrapped.

Enron Unplugged
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Saurabh Singh I pay if I turn on a light bulb. If I turn it off, I still pay. If I own a light bulb and never turn it on, I have to pay. As a citizen of Maharashtra, even if I don't own a light bulb, I still pay! Welcome to the new age of light. The Enron game stretches on like a never-ending soap opera—it has for about eight years now and will for the next 20 if the machinations of Sharad Pawar and his ilk are to prevail. Much ado continues to be made, perpetrating the horror in a series of endless farcical episodes. Whereas, by now, it ought to be crystal-clear even to Dabhol's most ardent proponents that if this were to go ahead, it would mean the end of Maharashtra.

There's no set of economic parameters that one can posit that allows payments of the order of $1.4 billion a year and rising annually for the next 20 years for expensive base-load power. According to the Madhav Godbole committee, even a state electricity board (seb) in perfect health (for example, without any theft and very little distribution losses) cannot make such payments. There is simply no demand, for example, in the night for such expensive power. Or, consider the fact that the seb has to stop buying cheaper sources of power to meet its contractual obligations to the most expensive producer. Furthermore, it is not simply an issue of the seb defaulting—the guarantees ensure that the state government pays all the monies due. The sheer magnitude of these dues is noteworthy—over Rs 6,000 crore a year even at current rupee-dollar exchange rates.

There appears to be very little scope for "renegotiations" again. The farce hoisted upon the nation the last time around should have stopped this process. Instead, once again the tired refrain of 'renegotiations'. This time, despite what seems to be a honest negotiating team in place, once again, the same issues are on the agenda. But these are not open to being "renegotiated". The very nature of these issues—dollar linkages to the tariff, expensive base-load power and gross breaches of law are fundamentally non-negotiable. These were the issues even eight years ago: for example, the concerns raised by the World Bank, the Central Electricity Authority (cea), and specific organs of the government itself.

In all this, both our state and central governments seem to have forgotten that the Enron affair is simply a contract and nothing more. It so happens that this is the single largest contract in this country's history—Rs 35-40-odd billion dollars. If the rupee behaves in the same manner as it has for the last 50 years, the amount we will be paying Enron will be above Rs 4,000,000,000,000. Does anyone even remotely understand the magnitude of these zeros? Put simply, it means that every Maharashtra family will have to pay Rs 4 lakh plus to Enron.

The project's gross profits are of the order of $12-14 billion dollars. The profits in excess of those allowed by Indian law and statute are of the order of $6-8 billion. If you recall, much was made of the fact that a 16 per cent return on equity was allowed and this was considered excessive. Well, this is what the law provided after opening up the power sector. In Enron's case, even the official return on equity is 31.05 per cent in dollar terms and if the Godbole Committee is to be believed, it is far in excess of even this number on account of over-capitalisation and several hidden profit streams. This alone ought to be the end of the project even in a banana republic.However, in this great republic of ours, frantic backdoor meetings and political compromises to convince Enron to stay on continue to be the order of the day.

Considering the magnitude of money and profits involved, a more-than-straightforward case of corruption under the Prevention of Corruption Act is apparent. However, how does one bell the cat? Most of the political apparatus in this country are parties to this whole mess. The consequences of this go far beyond the ordinary reaches of corruption. This is several hundred times more than that of Bofors in contractual dues! The outcome is the complete economic bankruptcy of the richest state in the Union.

The evidence is clear even to a child—the most massive fraud in this country's history has been perpetrated. Does the project even have valid clearances? It does not. The cea's techno-economic clearance is a necessary prerequisite to any contract that is signed. If this is not in place, or were proved to be fraudulent or breached law, Enron's entire edifice crumbles. Consider the Godbole Committee finding that the cea did not "discharge the statutory" duties as required by the law. Furthermore, it appears that the tariff comparisons done were fraudulent!

If this is indeed the case, the iron-clad contracts and agreements—the ppa, the guarantees (on which the Union of India has staked, illegally, all of its assets), the various support agreements and ancillary contracts collapse like a house of cards. The techno-economic clearance issued by the cea as well as the fraudulently obtained tariff clearances were necessary legal pre-clearances for any of these agreements to have any validity. No court, or for that matter the government, has chosen to act on this central issue. Even if one were to look at it in the most cynically pragmatic manner, that it is quite possible to get rid of Enron without any consequences or residual contractual liabilities in a politically neutral face-saving manner, there appear to be no takers. By the way, countries like Indonesia, Croatia, and yes, even Pakistan, have been able to do this. But what we have here in India is simply the monotonal, tired reverberations of a diseased and crumbling society that cannot look after even the most elementary aspects of its own self-interest.

(Abhay Mehta is the author of Power Play, a book on the Enron deal)
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