Enron in India

The Dabhol Power Project and Enron's Global Reach

Revolutionary Worker #1140, February 24, 2002, posted at http://rwor.org

"Power to the People"

Enron's slogan for its Dabhol Power Project in India

"Indian experts who have studied the project have called it the most massive fraud in the country's history."

Arundhati Roy, from a recent article about Enron in India

*****

The Enron scandal has exposed layer upon layer of corruption, deceit and phenomenal rip-off. And the corporate theft by Enron bandits has had a global reach. Take the case of Enron in India.

Enron's Dabhol Power Project-a large electric power plant and liquefied natural gas storage facility-is the largest foreign investment in India. It was brought about through a combination of intense bullying by the U.S. government against the government of India, bribery of and collusion with the local ruling classes, and brutal actions against opposition from the masses in India. It has meant millions in revenue for Enron. For India it has meant huge additional debt, distorted economic development, and environmental harm.

Enron's speculative business operations, fraudulent accounting practices, and ruthless treatment of its workers are typical for the modern transnational corporation (see RW #1136). And in fact, Enron's business operations and accounting practices are so common that this is causing a great deal of turmoil among Wall Street investors these days, who worry that Enron's fate may be faced by many other corporations.

Another aspect of Enron that typifies today's huge corporations is the massive scale of its global investments - and the massive scale of its global fraud and rip-off.

Enron has billions of dollars in assets all over the world, and was quickly approaching a monopoly position in the energy industries in many of those countries. Just a few examples include:

A power plant in Panama which is the largest thermal power plant in Central America;

Two power plants in Guatemala, one of which supplies 35% of the electric energy used by that country;

A power plant in Puerto Rico that supplies 20% of the island's consumption;

100% of Jamaica's industrial gas business;

A 357-mile natural gas transmission line in Colombia;

Promigas, Colombia's premier natural gas pipeline operator;

Natural gas supply systems in Brazil that supply over 21% of Brazil's consumption; and

A 3,000-kilometer Bolivia-to-Brazil natural gas pipeline that is one of the largest gas projects ever undertaken in South America.

The Price of the Dabhol Power Project

In 1992, the government of India, under pressure from the International Monetary Fund, adopted a program of deregulation and privatization, including opening up the country's power and electricity sector to foreign investment. Later that year Enron, along with General Electric and Bechtel, two other huge multinational corporations, quickly signed an agreement with India's Maharashtra state government to build the Dabhol Power Project.

Forming the Dabhol Power Corporation (DPC), Enron was initially an 80% shareholder, while GE and Bechtel owned 10% each. Later, the Maharashtra State Electricity Board (MSEB) bought some of Enron's shares. But from the beginning, this was an Enron-controlled project.

The Dabhol project is located on the coast of Maharashtra-a state on the northwestern side of the Indian peninsula with access to the Arabian Sea. Water is the most precious natural resource of the state but is very unevenly distributed. A large number of villages lack drinking water, especially during the summer months, and only 11% of the farmed area is irrigated. The state as a whole is relatively industrialized compared to the rest of India, and India's largest city, Bombay, is located in Maharashtra. But in the area near Dabhol there are several groups of agricultural villages, and many people in this area also depend on fishing in the Arabian Sea. Average incomes here are less than 10% of the average income in the United States.

If the project had been completed as originally envisioned, it would have been the largest independent natural gas-based private power project in the world.

The project's power plants are fueled by natural gas, which is brought to the coast of India on ships, supercooled as liquefied natural gas (LNG) and stored in huge storage tanks. The LNG storage tanks were to be the largest LNG tanks in the world. Initially expected to be operational in December 1995, Dabhol was projected to be a 2550 megawatt (a million watts, or MW) power plant, to be built at a cost of $3.1 billion, and to be fueled by imports of LNG. (In the U.S., a 1000 MW power plant produces enough electricity for about a million households. In India, average electric usage per household is much less.)

The project was later slightly scaled down, and is now separated into two phases. The first phase, completed in 1999, can produce 740 MW, while the second phase, still under construction, is supposed to produce 1444 MW. The price tag is now set at $2.9 billion.

From the beginning, it was widely recognized that India did not really need a project of this size; that the agreement's terms were highly unfavorable to the Indian people; and that the project would cause environmental harm and displace many people in the area.

Local people affected by the project expressed concerns about the capital cost and pricing arrangements, land acquisition for the project, water usage and the effect on fresh water supplies, and salt water contamination. It was estimated that as many as 2,000 people would lose their homes and the land they farmed due to the project, and that virtually everyone in the surrounding area would be affected by its construction and operation. Human Rights Watch (HRW) noted that "Land acquisition for the project was particularly controversial because land was surveyed and appropriated for the project without notifying or compensating individuals whose land had been seized."

Adequate drinking water and water for crops is a vital concern in the area, and the project was expected to use up a huge amount of fresh water, over 8,000 liters of fresh water per minute. After construction began, the problem actually became so severe that eventually the Dabhol Power Corporation had to bring in fresh water in tankers. But this was nowhere near enough to satisfy people's needs, and Enron failed to promise to restore the water supply to its original levels. In addition, sewage contamination of potable (drinkable) water occurred as a result of the project, causing one nearby village to have drinking water available only one hour per day.

It was also known that the price of electricity might be so high that one of the only industries that would be able to afford it would be the chemical industry. This would be to the detriment of an all-rounded development of the local economy and cause more chemical pollution of the area.

Many in the area depend on fishing for their livelihood, so project usage and thermal impacts on seawater were also a serious concern for local people. Enron estimated the project would need about 2,500 gallons of seawater per minute as a coolant. This seawater, which is then discharged back to the sea at a higher temperature, can not only have toxic elements, but the thermal effects can kill fish and destroy local habitats.

The Central Electricity Board had serious concerns about the project's capital cost and rates, finding that Enron's proposed price for "electricity from the Dabhol project was more than twice as expensive as what the CEA found to be acceptable or competitive." But under pressure from Enron, the CEA eventually gave clearance to the project in 1993-even though Enron failed to justify its costs or rates. Other sources of financing were eventually lined up, including loans by Indian banks and the U.S. Export-Import Bank.

Two of the key terms that were ultimately agreed upon are that the MSEB would commit to purchasing a fixed minimum amount of electricity every month from the plant, and that payment would be specified in dollars-at the prevailing currency exchange rate.

The Maharashtra State Electricity Board is the sole customer of the Dabhol Power Corporation (DPC) and MSEB then resells the power. So, regardless of the fluctuations in the exchange rate, or in the need for electricity by the MSEB, the project would always pull in a fixed minimum amount in dollars. In this way, DPC insulated itself from the risks associated with currency fluctuations and the risks associated with demand. The terms of the agreement also protected DPC from the risk of increases in the price of fuel or other costs of operation.

According to a 1993 study by the CEA, "The minimum amount MSEB would be required to pay for the proposed project was $1.3 billion per year, or approximately $26 billion over the life of the 20-year contract. The government would pay out over 20 years, over nine times what Enron would pay in. This price could increase if fuel costs, the costs of electricity transmission, or maintenance increased."

In 1995, the Indian government's own report on the project found that: secret or off-the-record negotiations occurred; special favors and concessions were granted to Enron; the expected rates for electricity were too high; significant environmental issues existed; and the high cost power from the project would adversely affect Maharashtra.

The report concluded that the project should be terminated, and the project was in fact halted. But Enron sued for recovery of $600 million it had already spent. Then, a few months later, in 1996, a "renegotiated" project was announced-which was hardly any better.

Arundhati Roy points out in the February 18 issue of The Nation, "The impugned contract had involved annual payments to Enron of $430 million for Phase I of the project (740 megawatts), with Phase II (1,624 megawatts) being optional. The 'renegotiated' power purchase agreement makes Phase II of the project mandatory and legally binds the Maharashtra State Electricity Board (MSEB) to pay Enron the sum of $30 billion! It constitutes the largest contract ever signed in the history of India."

Brutal Treatment of Dabhol Protesters, Paid for by Enron

From the beginning, local people opposed the Dabhol Power Project-voicing concerns about the capital cost and pricing arrangements, land acquisition for the project, water usage, and sea water contamination. Numerous opposition organizations were formed and there were regular local protests as early as 1994, when Enron began the project. These protests involved thousands of people. Protests died down in 1995 after the government terminated the project. But once the project was restarted, protests started up again.

Enron ignored people's concerns and had security forces attack protesters with harassment, tear gas, beatings and arrests. Some people were even given externment orders-which essentially exiled them from their own villages. The Maharashtra state government supplied the security forces for the project, and Enron paid these security forces. At times, up to 300 of these forces were stationed directly at the plant. Enron used local thugs to attack opposition activists. And at the same time tried to buy people off and divide the local people by promising jobs to some in exchange for silencing their opposition.

In June 1997, the Maharashtra Police and Special Reserve Police Force launched a raid on the entire village of Veldur. Using 135 police officers, they raided households at dawn, beating and arresting villagers. Many of the men had already left to go fishing so many of the people beaten by the police were women, children, and the elderly. Several women were subjected to especially brutal treatment because their husbands were suspected of being protest leaders. Dozens of villagers, mostly women, were arrested and charged with crimes like rioting, "endangering human life," and even attempted murder. Many juveniles were also arrested and detained, in violation of an Indian law that prohibits detention of juveniles.

In January 1999, a report by Human Rights Watch (HRW) found that "The DPC has facilitated human rights abuses by the state, has benefited from them, and has also benefited from a failure of the government to enforce human rights standards." HRW also said that it "believes that the Dabhol Power Corporation-and its parent companies Enron, General Electric, and Bechtel-are complicit in human rights violations by the Maharashtra state government."

Bribes, Pressure and Threats

In 1995, around the time the project was halted, a major scandal broke out when the Indian government alleged that Enron had bribed government officials in order to reach agreement on the new deal. Enron of course denied all allegations of bribery, then later "apologized" for its actions and offered renegotiated terms for the project. Shortly afterward, the "renegotiated" terms were accepted by the government and construction was restarted.

In 1996, public interest litigation was filed against the project and the Maharashtra government, alleging "fraud, misrepresentation, corruption, and bribery." After numerous legal maneuvers that favored Enron, the Bombay High Court finally dismissed the petition on technical grounds.

An army of U.S. government officials and agencies (including the Department of Energy, Department of State, Department of Commerce, and the Central Intelligence Agency) heavily "lobbied," bullied, and threatened the Indian government on behalf of Enron, GE, and Bechtel throughout the project's development. The bullying by the U.S. government was so intense that the New York Times referred to the level of lobbying as a "carefully planned assault." This "assault" helps to explain why the Indian government decided to proceed with the project, even after a series of highly critical reports had been issued, including by the Indian government itself.

Just one example occurred in 1995, after the project was temporarily suspended by the Indian government. The U.S. Department of Energy issued a condemnation of the project's suspension saying, "We...believe that bringing private power is central to Indian economic development."

The DOE statement threatened: "The first of these projects, Enron's Dabhol Project, has already reached financial closure and is under construction, sending a positive signal to international investors about the future of the Indian market. Failure to honor the agreements between the project partners and the various Indian governments will jeopardize not only the Dabhol project but also the other private power projects being proposed for international financing."

While President Bush and the Republicans have been deeply tied into Enron interests, the Clinton administration was a big promoter for the Dabhol Power Project. The U.S. government extended hundreds of millions of dollars in public funds for the project. The Export-Import Bank of the U.S. and the Overseas Private Investment Corporation pitched in $400 million in financing. And even the CIA helped to assess the risks of the project. Later, Dick Cheney picked up where the Clinton administration left off and personally lobbied Indian officials on behalf of Enron.

When construction of the project was halted in 1995, Ambassador Frank Wisner told Indian government officials that U.S./Indian business ties would suffer if the Dabhol Project was cancelled. This caused an official in the Indian Power Ministry to comment that Wisner's backing "...speaks volumes for Enron's ability to rope powerful people in to help their cause. The Indian government was clearly intimidated by Enron's clout." In October 1997, after he completed his term as ambassador to India, Wisner was named to Enron's board of directors.

High Rates, Unneeded Power and Crisis

The first phase of the Dabhol Power Project was finally completed in May 1999, but turmoil continued to surround the project. As was predicted when the project was first proposed, the price of electricity from the project was too high, due to escalating costs of fuel and to devaluation of the rupee in relation to the dollar. In addition, not all of the electricity from the plant was needed. But because MSEB had committed to buy fixed amounts of electricity, the amounts it owed to DPC quickly escalated. By the end of 2000, MSEB was falling seriously behind in its payments-which amount to tens of millions of dollars per month. Enron sought to invoke legal arbitration against the MSEB with the London Council of Arbitration.

All this ultimately caused the DPC to shut down the plant's operations in early 2001. In addition, even though the financial arrangements for the 1444 megawatt Phase II of the project had been completed, and almost all of the loans of about $1.5 billion had already been distributed to the DPC by financial institutions by March, construction on the second phase of the project was halted in June 2001 and has yet to be restarted. Phase II was reportedly less than a month from completion.

At the end of the summer of 2001, Enron Chairman Kenneth Lay himself visited India to discuss the future of the project. Enron was looking for a way out, but wanted to recover all of the money it had already spent. The Indian government was considering whether to launch a judicial inquiry into the project.

This appears to have been one of the things contributing to Enron's collapse. After sinking $1 billion into the project, it suddenly appeared that the future prospects for Phase II were dead in the water, and the profits it had expected from Phase I had also suddenly evaporated. Now Enron is actively looking for bidders to take the project off their hands. And in the aftermath of the Enron collapse, Indian banks that helped finance the project are facing significant losses.

Indian lenders are now receiving bids for the shares in the DPC held by Enron, GE, and Bechtel. In actions reminiscent of their infamous document shredding at corporate headquarters in Houston, Texas, the Industrial Development Bank of India reported that the DPC has removed dozens of crates of potentially incriminating documents, e-chips, and CDs from the plant premises and destroyed many documents.

The story of Enron in India is a story of imperialist globalization at work.

A series of privatization policies favoring foreign investment were adopted under pressure from imperialist-dominated financial institutions. A large multinational corporation used its economic and political clout to obtain highly favorable terms, pushing aside and suppressing widespread objections and protests. And the whole project proved to be harmful to the environment and thousands of local people.


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