To get ol' Dabhol going, Rs 10,000 crore of public money will be spent, and most of it to retire its foreign debt.
25 April, 2005
Rajesh Ramachandran
Outlook
After the meeting of the Cabinet Committee on Economic Affairs (CCEA) last week, defence minister Pranab Mukherjee made what seemed an innocuous announcement. "We are negotiating with all parties concerned for settling the issue amicably. This, it is hoped, will help them (stakeholders) settle these issues early." The issues in question were Enron and the revival of the Dabhol Power Company (DPC). Mukherjee stepped in because finance minister P. Chidambaram, former lawyer for Enron, had 'recused' himself.
What Mukherjee left unsaid was that it was the Indian taxpayer who would be bearing the burden of the Rs 5,000-crore bailout package for the promoters and lenders of the dubious US power company and its contractors. Outlook is in possession of the note prepared for the CCEA, which reveals shocking details of Enron's foreign loans that the government is promising to pay off. These include:
Offshore lenders: $230 million
Export credit agencies: $450 million
Overseas Private Investment Corporation (OPIC) loan: $138 million
OPIC political risk insurance: $111 mn
Buying out GE-Bechtel's stake and dues: $250-$350 million
The question of how the money would be generated has been left to Indian financial institutions (IFIS) which have already lost Rs 3,600 crore in DPC. The government isn't giving any details, neither to the media, nor even to Parliament. When the issue of Indian banks and financial institutions tapping the Employees' Provident Fund to repay Enron's loans was first reported by Outlook, the government refused to comment on it. When the matter was raised in the Rajya Sabha, minister of state for personnel, Suresh Pachauri, said it was improper to give out details since the issue is at negotiation stage.
The government's reluctance is understandable. It has never really revealed the full details of Enron's liabilities. Now, it has to subsidise a hugely unpopular project, the revival of which is fraught with questionable compromises.
April 21 is the deadline the government has set to pay off creditors. Through the Indian lenders to Enron—IDBI, ICICI, IFCI, SBI and Canara Bank—the government has promised to repay $230 million to 20 creditors, including Bank of America and ABN Amro Holding NV. To quote the cabinet note: "A settlement has been reached for the buyout of offshore lenders in the meeting between the negotiating committee and offshore lenders held in Singapore on January 21, 2005, and payments have to be made in the next 90 days. As per the terms of settlement, payment of US $230 million will be made against the principal debt outstanding of US $289, the outstanding interest will be waived, implying recovery of approximately 80 per cent of the principal dues of the offshore lenders."
That's not all. Enron owes $450 million to export credit agencies (ECAs) which have provided such credit for goods and services supplied to DPC. The primary ECA is the Japan Bank of International Cooperation. This debt too has fallen on IFIS, which have sought time till December 1, 2005. Then, the US government's lending arm OPIC had advanced $78 million for Dabhol's first phase and $60 million for the second stage. The total of $138 million is outstanding. Apart from this amount, OPIC had issued political risk insurance to Enron, equipment suppliers and contractors, GE and Bechtel and lenders Bank of America.
According to OPIC's official communication to the Indian government, it had paid $111 million under various political risk insurance policies and now wants all these to be repaid by the Indian government under the 'Investment Incentive Agreement between the Government of India and Government of USA'. A negotiating team led by Anoop Mishra, joint secretary of finance ministry, met OPIC representatives on January 12, 2005, and then again on March 7 and 9 in Washington to discuss the settlement of OPIC's claims.
The final settlement is to the benefit of OPIC: an upfront cash payment for the political risk insurance of $20.7 million before July 5, 2005, and the remaining $91 million to be repaid in eight years with 2 per cent interest. The deferred payment for $91 million would be guaranteed by the special purpose vehicle formed by IFIS and counter-guaranteed by the Indian government. The other upfront cash payment involves $108 million which goes towards the repayment of OPIC's $138 million loan. What the government's therefore agreed to pay under various heads is some $900 million or about Rs 4,000 crore.
This was stitched up even as the government told the Rajya Sabha that it could not reveal the details of the deal. Dipankar Mukherjee of the CPI(M) had sought a white paper on Dabhol on February 18. The CCEA note was written on February 19.
Another huge amount of over Rs 1,000 crore is at stake. For DPC to be revived, equipment suppliers GE and Bechtel have to be paid off. These two companies together had 20 per cent stake in DPC. Later, they bought 49 per cent of shares of Dutch shell company Offshore Power Production from Enron's liquidators, effectively controlling 85 per cent of DPC. The Mishra-led team went to New York on March 17 and the cabinet note written two days later says, "Information on the meeting was received orally by telephone from Mrs Kalpana Moreparia, deputy managing director, ICICI, on the morning of March 19, 2005."
When negotiations first began in January 2005, GE-Bechtel had sought $460 million for its equity and unpaid dues. The Indian government's offer began at $158 million and was then raised to $213 million while GE-Bechtel lowered its demand to $290 million. On March 12, 2005, GE and Bechtel wrote that the $213 million offer was "well below the $250 million verbally offered by (former IDBI chairman) Mr Damodaran in (GE chief executive officer) Scott Bayman's last meeting with him". They also upped their demand to $350 million. Mishra's team that reached New York on March 17 raised the Indian offer to $250.
Interestingly, Damodaran had told the government that while GE was keen on a settlement, Bechtel was insisting on full payment of dues because, "the personal funds of one of the directors of Bechtel were included in the contract". Thus the government has already committed $250 million or over Rs 1,000 crore to GE and Bechtel. This figure can only go up as the government bends over backwards to meet their demands.
Even this Rs 5,000-crore bailout package will not get the Dabhol plant going. The government has already asked NTPC, GAIL and IFIS to invest Rs 500 crore each to get the plant running. At the end of the day, over Rs 10,000 crore (including the Rs 3,600 crore already lost) would have been spent to get the 2,184 MW plant going. This is at least Rs 2,000 crore more than what a wholly new plant would have cost! Reliance's gas-based 3,500 MW plant in UP is expected to cost just Rs 10,000 crore.
Power experts have already asserted that by selling power at the competitive rate of Rs 2.2 per unit (as clearly indicated in the cabinet note), all the money sunk in Enron's bailout and GE-Bechtel's equity and dues can never be recovered. Who knows, the government may be waiting with yet another bailout package for this FDI once it gets revived.
Showing posts with label Enron. Show all posts
Showing posts with label Enron. Show all posts
Friday, July 27, 2007
Now, A Cure That Kills
EXCLUSIVE
In a dubious revival plan, EPF, LIC are asked to repay Dabhol foreign debt
21 Mar, 2005
Rajesh Ramachandran
Outlook
'Workers of India unite to pay Enron's foreign debts; you have nothing to lose but your provident fund!' This seems to be the slogan from a Left-supported UPA government keen to bail out foreign investors with bad debts in Enron's dubious Dabhol power project.
The Rs 2,000-crore bailout package to help foreign banks is proposed to be raised largely from the Employees Provident Fund Organisation (EPFO) and the Life Insurance Corporation of India (LIC). Outlook has copies of official letters to the Central EPF Commissioner, Anirudh Rai, seeking funds for the bailout.
The deal is simple: Indian banks which have sunk over Rs 3,600 crore in Dabhol have been pressured by the government to form a Special Purpose Vehicle (SPV) or a company—Gas & Power Investment Company Ltd (GPIC)—to buy out the debt of foreign lenders. The GPIC proposes to rescue 20-odd foreign banks by floating 22-year bonds worth Rs 10 lakh each. EPFO, LIC and like institutions would buy them. While foreign banks are being rescued, there is no word on how the Indian banks' bad debts in Dabhol would be repaid.
After repaying the foreign lenders, the government, through a fresh SPV, may ask the National Thermal Power Corporation, the Gas Authority of India and Indian banks to put in Rs 500 crore each for a Rs 1,500-crore Dabhol revival plan.
But, according to Dr E.A.S. Sarma, former Union expenditure secretary and a member of the Godbole Dabhol review committee, it's inherently an unviable project and if power from it were to be sold competitively, someone would have to take the hit. Says Sarma, "It's unfortunate that the PF money of poor workers, investments by unsuspecting LIC policy holders and the
taxpayer are sought to be exposed to Enron's unethically incurred liabilities."
He feels the EPF and LIC are being arm-twisted by the government into violating their investment norms. The proposal was initiated by setting up the GPIC over a month ago. The State Bank of India (SBI), IDBI, ICICI Bank, IFCI and Canara Bank—the Indian lenders to Enron—were made part of it.
After the GPIC's formation, SBI managing director Ashok Kini wrote a confidential note, on February 9, to EPF commissioner Rai: "Your involvement, as a key investor in the SPV, is essential at this stage to facilitate the buyout of foreign banks' debt as a first and important step towards restructuring of the Dabhol project."
Such was his hurry that he wanted money within weeks. Kini told Rai, "It's imperative that the financial SPV raises resources in the next few weeks since the settlement reached with the foreign banks envisages payout within a definite time-frame within the next two to three months."
While Kini cited the support of the empowered group of ministers and the office of the cabinet secretary to tap the PF, another letter from the SBI on February 24 to EPFO stressed that the finance ministry was keen to resolve the issue.
Finance minister P. Chidambaram was earlier Enron's lawyer and hence had 'recused' himself from the group of ministers formed to clean up the Dabhol mess. This group includes agriculture minister Sharad Pawar, who first signed the agreement with Enron as Maharashtra chief minister, Planning Commission deputy chairman Montek Singh Ahluwalia, who as finance secretary gave the Centre's counter-guarantee to Enron, defence minister Pranab Mukherjee and power minister P.M. Sayeed.
However, sources told Outlook that the reference to the finance ministry's keenness to raise money from the EPFO in SBI's letter is not accidental and that the finance ministry is behind the revival project.
The EPFO normally does not invest in non-public sector bonds. So, to convince the PF managers "to make an exception to the internal practice of not investing in non-PSU bonds", the GPIC gave a presentation to the central board of trustees of EPF on March 3. Even while talking about the proposal, the GPIC assured the board of an AAA(SO) rating for the bonds by CRISIL and ICRA because these had central government guarantee.
But those who have tracked Dabhol for a decade, like Shantanu Dixit of Prayas, a non-governmental organisation, claim these bonds cannot be redeemed by running Dabhol on purely commercial terms. Enron's equipment suppliers GE Bechtel upped its stake to 85 per cent in Dabhol during the US bankruptcy court proceedings of Enron. It has also sued the Maharashtra State Electricity Board for Rs 26,000 crore in a London arbitration court for unpaid dues and loss of profit.
So even if the foreign lenders are paid off and money is found to refurbish Dabhol, GE Bechtel's unpaid dues and ownership rights would have to be settled before the issue is resolved. Therefore, the prospect of government recovering its money from Dabhol looks all the more bleak.
Abhay Mehta, author of Power Play, an expose on Dabhol, says this attempt to rope in the EPFO and LIC is a bigger scam than the original project. "The assets are worthless without a cash flow and the only way it can be ensured is by producing electricity. That requires buyers to purchase it at market prices. But given the capital cost involved and today's gas prices, Dabhol cannot sell electricity at less than Rs 4 per unit. And MSEB cannot buy electricity at this rate. So the money spent would have to go from the taxpayers' pockets either to redeem the bonds directly or through a plethora of tax concessions to make the project artificially viable," says Mehta.
In fact, Heinz Vergin, the World Bank's country director for India, had deemed the project "not economically viable" in April 1993. Then, why is the government desperate to help Enron's foreign lenders? Outlook contacted the cabinet secretary's office supposed to be spearheading the revival project, Kini who urged EPFO to invest in the bonds and power secretary R.V. Shahi. But failed to get a response.
Critics point to a Washington Post article that appeared two years ago by way of explanation. According to documents accessed by that newspaper under the US Right to Information Act, President George Bush was to speak to then Indian PM A.B. Vajpayee about Enron on November 8, 2001, but could not because Enron's collapse began that very day.
The US national security council was also involved, as evidenced by an e-mail which said, "Brajesh Mishra would be willing to meet with Mr Lay (Kenneth Lay, the disgraced ex-Enron chief) and the bankers but only at the residence". Also, vice president Dick Cheney during a visit to Delhi raised this issue with the then Opposition leader Sonia Gandhi.
The process continued even after Enron's collapse. All this was to "protect the US taxpayers' $640 million interest" in Dabhol. Now, Anup Mishra, joint secretary in charge of Dabhol in the cabinet secretariat, is in Washington, so were representatives of the Indian banks who are floating the bonds.
The BJP government, that had given the counter-guarantee to Enron during its 13-day government, had in its later avatar as the NDA set up a committee that recommended paying off Enron's foreign lenders by an Indian bank. The new government seems to have only amended this recommendation to rope in the EPF and LIC to share the burden.
Dr Sarma feels that on ethical considerations, the foreign lenders also should have made sacrifices like Indian banks. "Had the government insisted on that approach, perhaps, such an arrangement would have been arrived at," he says.
Now, the US banks can be sure of their money being returned by Indian taxpayers. But this move has prompted critics to allege that the government is writing off Dabhol's liabilities and gold-plating the company for eventual sale to Reliance, Tatas, Shell or British Gas.
The transparent alternative of nationalising Dabhol would obviously imply a loss of opportunity to the private sector. And this of course, runs contrary to the reformers' agenda of foreign direct investments replacing government ownership in the power sector.
In a dubious revival plan, EPF, LIC are asked to repay Dabhol foreign debt
21 Mar, 2005
Rajesh Ramachandran
Outlook
'Workers of India unite to pay Enron's foreign debts; you have nothing to lose but your provident fund!' This seems to be the slogan from a Left-supported UPA government keen to bail out foreign investors with bad debts in Enron's dubious Dabhol power project.
The Rs 2,000-crore bailout package to help foreign banks is proposed to be raised largely from the Employees Provident Fund Organisation (EPFO) and the Life Insurance Corporation of India (LIC). Outlook has copies of official letters to the Central EPF Commissioner, Anirudh Rai, seeking funds for the bailout.
The deal is simple: Indian banks which have sunk over Rs 3,600 crore in Dabhol have been pressured by the government to form a Special Purpose Vehicle (SPV) or a company—Gas & Power Investment Company Ltd (GPIC)—to buy out the debt of foreign lenders. The GPIC proposes to rescue 20-odd foreign banks by floating 22-year bonds worth Rs 10 lakh each. EPFO, LIC and like institutions would buy them. While foreign banks are being rescued, there is no word on how the Indian banks' bad debts in Dabhol would be repaid.
After repaying the foreign lenders, the government, through a fresh SPV, may ask the National Thermal Power Corporation, the Gas Authority of India and Indian banks to put in Rs 500 crore each for a Rs 1,500-crore Dabhol revival plan.
But, according to Dr E.A.S. Sarma, former Union expenditure secretary and a member of the Godbole Dabhol review committee, it's inherently an unviable project and if power from it were to be sold competitively, someone would have to take the hit. Says Sarma, "It's unfortunate that the PF money of poor workers, investments by unsuspecting LIC policy holders and the
taxpayer are sought to be exposed to Enron's unethically incurred liabilities."
He feels the EPF and LIC are being arm-twisted by the government into violating their investment norms. The proposal was initiated by setting up the GPIC over a month ago. The State Bank of India (SBI), IDBI, ICICI Bank, IFCI and Canara Bank—the Indian lenders to Enron—were made part of it.
After the GPIC's formation, SBI managing director Ashok Kini wrote a confidential note, on February 9, to EPF commissioner Rai: "Your involvement, as a key investor in the SPV, is essential at this stage to facilitate the buyout of foreign banks' debt as a first and important step towards restructuring of the Dabhol project."
Such was his hurry that he wanted money within weeks. Kini told Rai, "It's imperative that the financial SPV raises resources in the next few weeks since the settlement reached with the foreign banks envisages payout within a definite time-frame within the next two to three months."
While Kini cited the support of the empowered group of ministers and the office of the cabinet secretary to tap the PF, another letter from the SBI on February 24 to EPFO stressed that the finance ministry was keen to resolve the issue.
Finance minister P. Chidambaram was earlier Enron's lawyer and hence had 'recused' himself from the group of ministers formed to clean up the Dabhol mess. This group includes agriculture minister Sharad Pawar, who first signed the agreement with Enron as Maharashtra chief minister, Planning Commission deputy chairman Montek Singh Ahluwalia, who as finance secretary gave the Centre's counter-guarantee to Enron, defence minister Pranab Mukherjee and power minister P.M. Sayeed.
However, sources told Outlook that the reference to the finance ministry's keenness to raise money from the EPFO in SBI's letter is not accidental and that the finance ministry is behind the revival project.
The EPFO normally does not invest in non-public sector bonds. So, to convince the PF managers "to make an exception to the internal practice of not investing in non-PSU bonds", the GPIC gave a presentation to the central board of trustees of EPF on March 3. Even while talking about the proposal, the GPIC assured the board of an AAA(SO) rating for the bonds by CRISIL and ICRA because these had central government guarantee.
But those who have tracked Dabhol for a decade, like Shantanu Dixit of Prayas, a non-governmental organisation, claim these bonds cannot be redeemed by running Dabhol on purely commercial terms. Enron's equipment suppliers GE Bechtel upped its stake to 85 per cent in Dabhol during the US bankruptcy court proceedings of Enron. It has also sued the Maharashtra State Electricity Board for Rs 26,000 crore in a London arbitration court for unpaid dues and loss of profit.
So even if the foreign lenders are paid off and money is found to refurbish Dabhol, GE Bechtel's unpaid dues and ownership rights would have to be settled before the issue is resolved. Therefore, the prospect of government recovering its money from Dabhol looks all the more bleak.
Abhay Mehta, author of Power Play, an expose on Dabhol, says this attempt to rope in the EPFO and LIC is a bigger scam than the original project. "The assets are worthless without a cash flow and the only way it can be ensured is by producing electricity. That requires buyers to purchase it at market prices. But given the capital cost involved and today's gas prices, Dabhol cannot sell electricity at less than Rs 4 per unit. And MSEB cannot buy electricity at this rate. So the money spent would have to go from the taxpayers' pockets either to redeem the bonds directly or through a plethora of tax concessions to make the project artificially viable," says Mehta.
In fact, Heinz Vergin, the World Bank's country director for India, had deemed the project "not economically viable" in April 1993. Then, why is the government desperate to help Enron's foreign lenders? Outlook contacted the cabinet secretary's office supposed to be spearheading the revival project, Kini who urged EPFO to invest in the bonds and power secretary R.V. Shahi. But failed to get a response.
Critics point to a Washington Post article that appeared two years ago by way of explanation. According to documents accessed by that newspaper under the US Right to Information Act, President George Bush was to speak to then Indian PM A.B. Vajpayee about Enron on November 8, 2001, but could not because Enron's collapse began that very day.
The US national security council was also involved, as evidenced by an e-mail which said, "Brajesh Mishra would be willing to meet with Mr Lay (Kenneth Lay, the disgraced ex-Enron chief) and the bankers but only at the residence". Also, vice president Dick Cheney during a visit to Delhi raised this issue with the then Opposition leader Sonia Gandhi.
The process continued even after Enron's collapse. All this was to "protect the US taxpayers' $640 million interest" in Dabhol. Now, Anup Mishra, joint secretary in charge of Dabhol in the cabinet secretariat, is in Washington, so were representatives of the Indian banks who are floating the bonds.
The BJP government, that had given the counter-guarantee to Enron during its 13-day government, had in its later avatar as the NDA set up a committee that recommended paying off Enron's foreign lenders by an Indian bank. The new government seems to have only amended this recommendation to rope in the EPF and LIC to share the burden.
Dr Sarma feels that on ethical considerations, the foreign lenders also should have made sacrifices like Indian banks. "Had the government insisted on that approach, perhaps, such an arrangement would have been arrived at," he says.
Now, the US banks can be sure of their money being returned by Indian taxpayers. But this move has prompted critics to allege that the government is writing off Dabhol's liabilities and gold-plating the company for eventual sale to Reliance, Tatas, Shell or British Gas.
The transparent alternative of nationalising Dabhol would obviously imply a loss of opportunity to the private sector. And this of course, runs contrary to the reformers' agenda of foreign direct investments replacing government ownership in the power sector.
Thursday, July 26, 2007
Big Bang Bailout
The government has chalked out a Rs 9,000-crore package to save IDBI. Or is it to save Dabhol Power?
11 Oct, 2004
Rajesh Ramachandran
Outlook
It's the Indian taxpayer who is being made a sucker again. On September 29, the Union government pumped in Rs 9,000 crore in a move to bail out defaulting promoters and infuse badly required finance to save one of the country's biggest financial institutions, the Industrial Development Bank of India (IDBI).
This is the biggest rescue package since UTI was bailed out of its mess in 2002. With this Rs 9,000 crore, IDBI can erase from its books all non-performing assets (NPAs) or loans it has not been able to recover from corporate promoters who owe the financial institution in billions of rupees.
Critics describe this generosity to corporates as an attempt to help defaulting companies which have failed to repay their debts. Bankers, however, feel it is a smart move to keep IDBI afloat. They give its chairman M. Damodaran full credit for a 'strategy' that would make IDBI healthy just when it is switching from being a financial institution to a commercial bank.
Damodaran reportedly has said: "As a result of this transaction, IDBI would not have to provide for its ageing of assets any more and thus would come out healthy. And the 20-year term (the lock-in period for the money in the form of government securities) I think is sufficient for a problem even of the magnitude of Dabhol to be resolved".
The biggest beneficiary of this controversial bailout package is the notorious US multinational, Enron. Its Indian arm, the Dabhol Power Corporation (DPC), is still mired in controversial litigation. Its new owners GE and Bechtel have slapped a Rs 26,000-crore arbitration case against the Maharashtra State Electricity Board. Yet, DPC's liabilities are being taken out of the books of its biggest Indian lender, IDBI, without any immediate attempt to take over DPC's assets.
Says Abhay Mehta, author of Power Play, an expose on the Dabhol deal: "This huge bailout is largely on account of Enron. IDBI should have ideally moved the US bankruptcy court to take over the Dabhol plant."About 25 to 30 per cent of the Rs 9,000 crore bailout package for IDBI is for Dabhol.
Then, there are the steel majors who had turned around their businesses in the last couple of years with the growing global demand for iron and steel, but are still to clear old debts. Interestingly, the government has not named corporates who owe IDBI money even while dishing out the largesse. The government note only says, "With the cleaning up of IDBI books, the net NPA position of IDBI is expected to improve."
The method adopted by the government to keep IDBI afloat is this: it has formed a 'Stressed Assets Stabilisation Fund' (SASF). This special purpose vehicle has got Rs 9,000 crore from the government. The SASF in turn will use this money to buy government securities. These zero-interest government bonds will be exchanged for IDBI's bad debts. In effect, the government would have bought IDBI's bad debts for Rs 9,000 crore through the SASF.
The catch: though the government is not paying any real money now, it is issuing bonds that would mature in 20 years. And if the bad debts are not recovered by then, the taxpayer would have actually bankrolled the promoters, some of whom the government had declared as "wilful defaulters."
E.A.S. Sarma, expenditure secretary during the Vajpayee government and member of the Godbole committee which examined the Dabhol deal, maintains that finally it is the taxpayer who will haul the burden. He told Outook: "The scheme announced by the government for cleaning up the IDBI balancesheet is not strictly 'budget-neutral'. It may not involve any cash outflow during the current year, but the government has indirectly incurred a liability by issuing securities covering Rs 9,000 crore, as the securities are required to be redeemed in the future. Budget-neutrality is only cosmetic, as bad loans cannot become good loans overnight!"
Dr Sarma is certain that this tripartite arrangement merely implies that the IDBI's bad debts are being taken over by the government through the SASF, which has been created for this purpose. "It is the taxpayer who takes the hit finally," he says.
The most optimistic projection done by finance ministry officials is that around 60 per cent of the bad debts would be recovered by the SASF. That implies writing off Rs 3,600 crore worth of bad debts. But even this is wishful thinking given the fact that the SASF does not have a magic wand to make all the IDBI debtors pay up.
After all, IDBI failed to recover funds from its debtors so it does not seem possible for the SASF to achieve that feat. Also, the NDA government had set up Asset Reconstruction Companies (ARC) to recover bad loans and the IDBI is part of one such venture. Yet, the government chose a special fund instead of ARCs implying that these bad loans are not easily recoverable.
In the case of Dabhol, the IDBI was not willing to classify it as a bad debt till the government assured it of the bailout package. Had the bank done it, its NPA ratio would have zoomed past permissible levels, ringing in the bank's imminent death. So is the case with most of the loans taken by steel companies.
Now, the government is busy planning Dabhol's revival, first by paying off its foreign lenders and then by encouraging fresh promoters to take over the assets and run the company. In fact, a committee comprising former US ambassador Naresh Chandra and Vijay Kelkar, advisor to the finance minister, had recommended 'de-dollarisation' of all loans with an Indian bank paying off all the foreign debts.
Foreign lenders thus would be relieved off their burden.On October 1, a group of ministers led by defence minister Pranab Mukherjee will have a re-look at the project. Former Maharashtra chief minister Sharad Pawar, who first struck the Enron deal, and Planning Commission deputy chairman Montek Singh Ahluwalia, who had approved the project and the counter-guarantee as finance secretary, and power minister P.M. Sayeed, are members.
Former Enron lawyer and Union finance minister P. Chidambaram has kept himself away since there could be a conflict of interest. With $1.3 billion Indian loans and $600 million foreign loans, Dabhol is not exactly a prime asset that a new promoter would look at, particularly with GE-Bechtel's arbitration for Rs 26,000 crore and their demand for $500 million as its original investment. The revival formula that is being worked out is to provide concessions to potential buyers like Tatas, Reliance, British Gas or Shell.
These concessions would obviously imply a reduction in the liabilities like the over Rs 2,500-crore loan from IDBI, along with guarantees for foreign loans. Says Sarma: "It will be interesting to watch how the government is going to deal with projects covered by IDBI's bad loans, especially Dabhol. Would the government grant all sorts of concessions to make it appear as though electricity from that project had become cheaper? If it is made cheaper, it would only be at the expense of the taxpayer again."
In effect, public money is being spent on protecting private interests. This also involves larger governance issues. For instance, the badly appraised Dabhol project was forced on IDBI in the name of "power sector reforms". And reformers who hate even a penny of public money being spent in the public sector have greeted the huge bailout package for the private promoters with silent approval.
11 Oct, 2004
Rajesh Ramachandran
Outlook
It's the Indian taxpayer who is being made a sucker again. On September 29, the Union government pumped in Rs 9,000 crore in a move to bail out defaulting promoters and infuse badly required finance to save one of the country's biggest financial institutions, the Industrial Development Bank of India (IDBI).
This is the biggest rescue package since UTI was bailed out of its mess in 2002. With this Rs 9,000 crore, IDBI can erase from its books all non-performing assets (NPAs) or loans it has not been able to recover from corporate promoters who owe the financial institution in billions of rupees.
Critics describe this generosity to corporates as an attempt to help defaulting companies which have failed to repay their debts. Bankers, however, feel it is a smart move to keep IDBI afloat. They give its chairman M. Damodaran full credit for a 'strategy' that would make IDBI healthy just when it is switching from being a financial institution to a commercial bank.
Damodaran reportedly has said: "As a result of this transaction, IDBI would not have to provide for its ageing of assets any more and thus would come out healthy. And the 20-year term (the lock-in period for the money in the form of government securities) I think is sufficient for a problem even of the magnitude of Dabhol to be resolved".
The biggest beneficiary of this controversial bailout package is the notorious US multinational, Enron. Its Indian arm, the Dabhol Power Corporation (DPC), is still mired in controversial litigation. Its new owners GE and Bechtel have slapped a Rs 26,000-crore arbitration case against the Maharashtra State Electricity Board. Yet, DPC's liabilities are being taken out of the books of its biggest Indian lender, IDBI, without any immediate attempt to take over DPC's assets.
Says Abhay Mehta, author of Power Play, an expose on the Dabhol deal: "This huge bailout is largely on account of Enron. IDBI should have ideally moved the US bankruptcy court to take over the Dabhol plant."About 25 to 30 per cent of the Rs 9,000 crore bailout package for IDBI is for Dabhol.
Then, there are the steel majors who had turned around their businesses in the last couple of years with the growing global demand for iron and steel, but are still to clear old debts. Interestingly, the government has not named corporates who owe IDBI money even while dishing out the largesse. The government note only says, "With the cleaning up of IDBI books, the net NPA position of IDBI is expected to improve."
The method adopted by the government to keep IDBI afloat is this: it has formed a 'Stressed Assets Stabilisation Fund' (SASF). This special purpose vehicle has got Rs 9,000 crore from the government. The SASF in turn will use this money to buy government securities. These zero-interest government bonds will be exchanged for IDBI's bad debts. In effect, the government would have bought IDBI's bad debts for Rs 9,000 crore through the SASF.
The catch: though the government is not paying any real money now, it is issuing bonds that would mature in 20 years. And if the bad debts are not recovered by then, the taxpayer would have actually bankrolled the promoters, some of whom the government had declared as "wilful defaulters."
E.A.S. Sarma, expenditure secretary during the Vajpayee government and member of the Godbole committee which examined the Dabhol deal, maintains that finally it is the taxpayer who will haul the burden. He told Outook: "The scheme announced by the government for cleaning up the IDBI balancesheet is not strictly 'budget-neutral'. It may not involve any cash outflow during the current year, but the government has indirectly incurred a liability by issuing securities covering Rs 9,000 crore, as the securities are required to be redeemed in the future. Budget-neutrality is only cosmetic, as bad loans cannot become good loans overnight!"
Dr Sarma is certain that this tripartite arrangement merely implies that the IDBI's bad debts are being taken over by the government through the SASF, which has been created for this purpose. "It is the taxpayer who takes the hit finally," he says.
The most optimistic projection done by finance ministry officials is that around 60 per cent of the bad debts would be recovered by the SASF. That implies writing off Rs 3,600 crore worth of bad debts. But even this is wishful thinking given the fact that the SASF does not have a magic wand to make all the IDBI debtors pay up.
After all, IDBI failed to recover funds from its debtors so it does not seem possible for the SASF to achieve that feat. Also, the NDA government had set up Asset Reconstruction Companies (ARC) to recover bad loans and the IDBI is part of one such venture. Yet, the government chose a special fund instead of ARCs implying that these bad loans are not easily recoverable.
In the case of Dabhol, the IDBI was not willing to classify it as a bad debt till the government assured it of the bailout package. Had the bank done it, its NPA ratio would have zoomed past permissible levels, ringing in the bank's imminent death. So is the case with most of the loans taken by steel companies.
Now, the government is busy planning Dabhol's revival, first by paying off its foreign lenders and then by encouraging fresh promoters to take over the assets and run the company. In fact, a committee comprising former US ambassador Naresh Chandra and Vijay Kelkar, advisor to the finance minister, had recommended 'de-dollarisation' of all loans with an Indian bank paying off all the foreign debts.
Foreign lenders thus would be relieved off their burden.On October 1, a group of ministers led by defence minister Pranab Mukherjee will have a re-look at the project. Former Maharashtra chief minister Sharad Pawar, who first struck the Enron deal, and Planning Commission deputy chairman Montek Singh Ahluwalia, who had approved the project and the counter-guarantee as finance secretary, and power minister P.M. Sayeed, are members.
Former Enron lawyer and Union finance minister P. Chidambaram has kept himself away since there could be a conflict of interest. With $1.3 billion Indian loans and $600 million foreign loans, Dabhol is not exactly a prime asset that a new promoter would look at, particularly with GE-Bechtel's arbitration for Rs 26,000 crore and their demand for $500 million as its original investment. The revival formula that is being worked out is to provide concessions to potential buyers like Tatas, Reliance, British Gas or Shell.
These concessions would obviously imply a reduction in the liabilities like the over Rs 2,500-crore loan from IDBI, along with guarantees for foreign loans. Says Sarma: "It will be interesting to watch how the government is going to deal with projects covered by IDBI's bad loans, especially Dabhol. Would the government grant all sorts of concessions to make it appear as though electricity from that project had become cheaper? If it is made cheaper, it would only be at the expense of the taxpayer again."
In effect, public money is being spent on protecting private interests. This also involves larger governance issues. For instance, the badly appraised Dabhol project was forced on IDBI in the name of "power sector reforms". And reformers who hate even a penny of public money being spent in the public sector have greeted the huge bailout package for the private promoters with silent approval.
Wednesday, July 25, 2007
Enron Saga: Power Of Political Will On Test
15 Feb 2001
Rajesh Ramachandran
The Times of India
NEW DELHI: Is there a way out of the Enron imbroglio? Contrary to what `experts' and the government say, there seem several options available to the government. But to avail them would require some political will.
S N Roy, former chairman of the Central Electricity Authority, points out that just as Pakistan got a US power company to reduce its tariff by half, India too should get the Enron tariff reduced.
When asked whether it is ready to re-negotiate the power purchase agreement (PPA) and bring down the tariff, Enron did not respond. Instead, a public relations agency replied that ``tariffs are not high''.
Observers assert that even after ensuring a reasonable profit for Enron, the tariffs can be cut. K K Govil, director projects, Power Finance Corporation insists, ``The present PPA is heavily in favour of Enron. The PPA should be re-negotiated to get capital costs and rate of return calculated in rupees and not dollars.''
According to Govil, pegging the costs and tariffs to foreign exchange is unheard of. ``The capacity related incentive should also go. Ideally, the cost of a gas-based plant should be half that of a coal-fired plant. But in Enron's case it is not so. This too has to be rectified,'' said Govil.
The government is tight-lipped, but sources say the government may palm off the burden to utlilities like National Thermal Power Corporation, Power Trading Corporation or Power Grid Corporation. That will end the public scrutiny of the project, contrary to what is happening in Maharashtra now, and the account will be shared by central utilities, state electricity boards and others.
Also making the round is a politically powerful industrial house's name, which might broker the deal. But will all this help? Roy feels it would be a disaster: ``Impossible. How can the government force NTPC or PTC, a commercial enterprise, to buy power at Rs 5 a unit and sell it at Rs 2?''
Even at full capacity, Enron's power is expected to cost around Rs 5 a unit, much higher than the NTPC's selling rate of about Rs 2 per unit. Prasant Bhushan, fighting a public interest litigation in the Supreme Court, has another set of solutions: Nationalise the project by an Act of Parliament, paying Enron a token or fair amount as in the case of bank nationalisation. Or, the Maharashtra Electricity Regulatory Commission's statutory power should be invoked to override the PPA and regulate the tariffs.
The Supreme Court had earlier limited the petition's scope to accountability of the public servants. ``If the SC gives full leave, the project will be voided since there was much illegality involved. Most importantly, if a criminal investigation into the bribes is initiated, enough evidence could be unearthed in three months,'' said Bhushan.
Will all this deter foreign investment in India? Ashok Rao, convenor of national working group for power, feels the bogey of foreign investment fleeing is a blackmail tactic. He points out that India is a bigger power industry market than most of Europe, West Asia or Latin America. ``There is a global recession in power industry. So, most private power companies are just a front for power equipment manufacturers who have to sell their equipment in India. That is why they insist there should be no competitive bidding for equipment.''
Would it hurt much if the government synchronised people's needs with those of the investor.
Rajesh Ramachandran
The Times of India
NEW DELHI: Is there a way out of the Enron imbroglio? Contrary to what `experts' and the government say, there seem several options available to the government. But to avail them would require some political will.
S N Roy, former chairman of the Central Electricity Authority, points out that just as Pakistan got a US power company to reduce its tariff by half, India too should get the Enron tariff reduced.
When asked whether it is ready to re-negotiate the power purchase agreement (PPA) and bring down the tariff, Enron did not respond. Instead, a public relations agency replied that ``tariffs are not high''.
Observers assert that even after ensuring a reasonable profit for Enron, the tariffs can be cut. K K Govil, director projects, Power Finance Corporation insists, ``The present PPA is heavily in favour of Enron. The PPA should be re-negotiated to get capital costs and rate of return calculated in rupees and not dollars.''
According to Govil, pegging the costs and tariffs to foreign exchange is unheard of. ``The capacity related incentive should also go. Ideally, the cost of a gas-based plant should be half that of a coal-fired plant. But in Enron's case it is not so. This too has to be rectified,'' said Govil.
The government is tight-lipped, but sources say the government may palm off the burden to utlilities like National Thermal Power Corporation, Power Trading Corporation or Power Grid Corporation. That will end the public scrutiny of the project, contrary to what is happening in Maharashtra now, and the account will be shared by central utilities, state electricity boards and others.
Also making the round is a politically powerful industrial house's name, which might broker the deal. But will all this help? Roy feels it would be a disaster: ``Impossible. How can the government force NTPC or PTC, a commercial enterprise, to buy power at Rs 5 a unit and sell it at Rs 2?''
Even at full capacity, Enron's power is expected to cost around Rs 5 a unit, much higher than the NTPC's selling rate of about Rs 2 per unit. Prasant Bhushan, fighting a public interest litigation in the Supreme Court, has another set of solutions: Nationalise the project by an Act of Parliament, paying Enron a token or fair amount as in the case of bank nationalisation. Or, the Maharashtra Electricity Regulatory Commission's statutory power should be invoked to override the PPA and regulate the tariffs.
The Supreme Court had earlier limited the petition's scope to accountability of the public servants. ``If the SC gives full leave, the project will be voided since there was much illegality involved. Most importantly, if a criminal investigation into the bribes is initiated, enough evidence could be unearthed in three months,'' said Bhushan.
Will all this deter foreign investment in India? Ashok Rao, convenor of national working group for power, feels the bogey of foreign investment fleeing is a blackmail tactic. He points out that India is a bigger power industry market than most of Europe, West Asia or Latin America. ``There is a global recession in power industry. So, most private power companies are just a front for power equipment manufacturers who have to sell their equipment in India. That is why they insist there should be no competitive bidding for equipment.''
Would it hurt much if the government synchronised people's needs with those of the investor.
Enron Saga: Powered By Govt Generosity
14 Feb 2001
Rajesh Ramachandran
The Times of India
NEW DELHI: The tariff structure of Enron's Dabhol power project was conceived in such a manner that it was inevitable that the company would invoke its counter-guarantee against the Maharashtra and Union governments.
The Shiv Sena-BJP combine came to power in Maharashtra in 1995 on the slogan of throwing Enron into the Arabian Sea. Soon after, it cancelled the project. Later, it renegotiated the deal with Enron and even gave an assurance for the second phase.
Meanwhile, the 13-day Vajpayee government approved the extension of the government of India's counter-guarantee on May 27, 1996. The first counter-guarantee, given on September 15, 1994, was for Phase-I of the Dabhol project with a capacity of 695 mw. After the SS-BJP government cancelled the project, the then finance secretary Montek Singh Ahluwalia told the parliamentary sub-committee on fast-track projects that ``as of today, if the power purchase agreement (PPA) is being revised, that means the counter-guarantee is not effective''.
When Ahluwalia said this in 1995, the project was being cancelled only to be re-negotiated again after Enron's Rebecca Mark visited Bal Thackeray. But, Ahluwalia had held that if the PPA is revised, the earlier counter-guarantee would not hold good. Yet, the Union power minister told Parliament in May 1996 that the counter- guarantee held good.
Thus, a member of the standing committee gave a breach of privilege notice against Ahluwalia for misleading the House. The finance ministry, on behalf of Ahluwalia, replied to Parliament thus: ``While the government of Maharashtra had announced its decision for cancellation of the Dabhol power project, the PPA between MSEB and the company was not terminated.'' That is, despite the project being cancelled, the agreement to purchase power from the cancelled project is valid and hence the counter-guarantee stands.
It was then pointed out by the member who had moved the breach of privilege notice that the contract was repudiated by the Maharashtra government. After re-negotiation, the project itself was revised. There was a change in the capacity of the project, the fuel to be used, the capital cost, tariff and change in scope after inclusion of phase II of the project which was not included earlier.
In reply, Ahluwalia submitted that the counter-guarantee had provided for amendments to be made to the PPA, subject to prior written approval by the Central government. Thus, if Jaswant Singh as finance minister had not approved the extension of the earlier counter-guarantee, it would not have been valid insofar as the amendments to the PPA were concerned.
So the onus of the counter-guarantee rests with the 13-day BJP government, which did not wait for a review before it approved the extension of the earlier counter-guarantee. All this was done within 13 days when the government had not even won a vote of confidence in Parliament.
Again it was not a fresh counter-guarantee but the extension of the earlier one despite the Maharashtra government's repudiation, its renegotiation with Enron and the changed physical parameters of the project.
It is interesting to note what Jaswant Singh as chairman of the committee had said about the counter-guarantee a year before his government gave the approval for extension: ``Counter-guaranteeing for any project is uncalled for since several independent power producers are ready to implement projects without any counter-guarantee. Also, there appears to be no justification for giving counter-guarantee only to selective fast-track projects.''
Tomorrow: The way forward
Rajesh Ramachandran
The Times of India
NEW DELHI: The tariff structure of Enron's Dabhol power project was conceived in such a manner that it was inevitable that the company would invoke its counter-guarantee against the Maharashtra and Union governments.
The Shiv Sena-BJP combine came to power in Maharashtra in 1995 on the slogan of throwing Enron into the Arabian Sea. Soon after, it cancelled the project. Later, it renegotiated the deal with Enron and even gave an assurance for the second phase.
Meanwhile, the 13-day Vajpayee government approved the extension of the government of India's counter-guarantee on May 27, 1996. The first counter-guarantee, given on September 15, 1994, was for Phase-I of the Dabhol project with a capacity of 695 mw. After the SS-BJP government cancelled the project, the then finance secretary Montek Singh Ahluwalia told the parliamentary sub-committee on fast-track projects that ``as of today, if the power purchase agreement (PPA) is being revised, that means the counter-guarantee is not effective''.
When Ahluwalia said this in 1995, the project was being cancelled only to be re-negotiated again after Enron's Rebecca Mark visited Bal Thackeray. But, Ahluwalia had held that if the PPA is revised, the earlier counter-guarantee would not hold good. Yet, the Union power minister told Parliament in May 1996 that the counter- guarantee held good.
Thus, a member of the standing committee gave a breach of privilege notice against Ahluwalia for misleading the House. The finance ministry, on behalf of Ahluwalia, replied to Parliament thus: ``While the government of Maharashtra had announced its decision for cancellation of the Dabhol power project, the PPA between MSEB and the company was not terminated.'' That is, despite the project being cancelled, the agreement to purchase power from the cancelled project is valid and hence the counter-guarantee stands.
It was then pointed out by the member who had moved the breach of privilege notice that the contract was repudiated by the Maharashtra government. After re-negotiation, the project itself was revised. There was a change in the capacity of the project, the fuel to be used, the capital cost, tariff and change in scope after inclusion of phase II of the project which was not included earlier.
In reply, Ahluwalia submitted that the counter-guarantee had provided for amendments to be made to the PPA, subject to prior written approval by the Central government. Thus, if Jaswant Singh as finance minister had not approved the extension of the earlier counter-guarantee, it would not have been valid insofar as the amendments to the PPA were concerned.
So the onus of the counter-guarantee rests with the 13-day BJP government, which did not wait for a review before it approved the extension of the earlier counter-guarantee. All this was done within 13 days when the government had not even won a vote of confidence in Parliament.
Again it was not a fresh counter-guarantee but the extension of the earlier one despite the Maharashtra government's repudiation, its renegotiation with Enron and the changed physical parameters of the project.
It is interesting to note what Jaswant Singh as chairman of the committee had said about the counter-guarantee a year before his government gave the approval for extension: ``Counter-guaranteeing for any project is uncalled for since several independent power producers are ready to implement projects without any counter-guarantee. Also, there appears to be no justification for giving counter-guarantee only to selective fast-track projects.''
Tomorrow: The way forward
Enron Saga: Load-shedding ahead
13 Feb 2001
Rajesh Ramachandran
The Times of India
NEW DELHI: The Dabhol power project, India's first fast-track private venture promoted by Enron, continues to be mired in controversy, with the US energy major seeking to encash the Centre's guarantee after the Maharashtra State Electricity Board defaulted on its dues.
As per contractual obligations, the MSEB has to buy 90 per cent of Dabhol's installed capacity of 740 mw at a tariff that guarantees a 16 per cent rate of return to Enron, regardless of whether the state's pattern of demand justifies this. Anticipating payment difficulties at the state level, Enron had demanded - and received - a commitment from the Centre (known as a counter-guarantee) that the dues would be paid if Maharashtra defaulted. This commitment was given in 1996 by Jaswant Singh, who was finance minister in the 13-day Vajpayee-led government.
For some time now, Maharashtra has been complaining of Enron's high tariffs and that it would have to stop buying power from cheaper sources in order to use the 90 per cent of Dabhol's capacity. In July last year, the MSEB bought just 33 per cent of the power produced by Dabhol and paid Enron a staggering Rs 7.8 per unit. Though matters have only now come to a head, all the problems experienced by Maharashtra were painstakingly documented by Parliament's standing committee on energy in 1995-96.
Interestingly, this committee was chaired by Jaswant Singh, the present external affairs minister. This was how Singh explained what was wrong with the project: Maharashtra has surplus electricity in the night, with a `backing down' - i.e. shutting down of generation due to lack of demand - of seven billion units after office hours in the western region of the state alone. Hence, demand was for `peaking power' and not `baseload', which is the constant demand round the clock.
During a hearing of the standing committee's sub-panel on fast-track projects, SN Roy, former chairman of the Central Electricity Authority, warned: ``There is no question of Enron designing Dabhol as a baseload station. If Enron is there, they (MSEB will) have to close down most of their thermal power stations at night.''
In the standing committee's report, Jaswant Singh was conclusive: ``...Plant availability at levels significantly greater than the peak load demand for power (implies) that the existing power generation plants will have to `back down' well beyond present rates, thereby making them inefficient and financially non-viable. This alone would significantly increase the average cost of power to the consumer.''
Despite this recommendation, Dabhol was designed as a base-load station from which the MSEB is forced to buy electricity. To make matters worse, the Enron project was sanctioned on the basis of Enron's claimed costs, instead of competitive bidding on the lowest tariff. This cost, according to the committee, was the highest in comparison with other private projects.
For, as the committee explained, ``...guaranteed rate of return is tempting the investors to inflate their costs to ensure better returns. ...lack of competitive bidding has led to significant padding in the investment costs.'' Without any bidding, the government assured Enron a 16 per cent return on equity at 68.5 per cent plant load factor (PLF), a measurement of capacity utilisation. Even though the committee said ``return of 16 per cent..is questionable and calls for a review'', the Vajpayee government agreed to extend the guaranteed return to 90 per cent of Dabhol's capacity.
Tomorrow: How the counter-guarantees were given
Rajesh Ramachandran
The Times of India
NEW DELHI: The Dabhol power project, India's first fast-track private venture promoted by Enron, continues to be mired in controversy, with the US energy major seeking to encash the Centre's guarantee after the Maharashtra State Electricity Board defaulted on its dues.
As per contractual obligations, the MSEB has to buy 90 per cent of Dabhol's installed capacity of 740 mw at a tariff that guarantees a 16 per cent rate of return to Enron, regardless of whether the state's pattern of demand justifies this. Anticipating payment difficulties at the state level, Enron had demanded - and received - a commitment from the Centre (known as a counter-guarantee) that the dues would be paid if Maharashtra defaulted. This commitment was given in 1996 by Jaswant Singh, who was finance minister in the 13-day Vajpayee-led government.
For some time now, Maharashtra has been complaining of Enron's high tariffs and that it would have to stop buying power from cheaper sources in order to use the 90 per cent of Dabhol's capacity. In July last year, the MSEB bought just 33 per cent of the power produced by Dabhol and paid Enron a staggering Rs 7.8 per unit. Though matters have only now come to a head, all the problems experienced by Maharashtra were painstakingly documented by Parliament's standing committee on energy in 1995-96.
Interestingly, this committee was chaired by Jaswant Singh, the present external affairs minister. This was how Singh explained what was wrong with the project: Maharashtra has surplus electricity in the night, with a `backing down' - i.e. shutting down of generation due to lack of demand - of seven billion units after office hours in the western region of the state alone. Hence, demand was for `peaking power' and not `baseload', which is the constant demand round the clock.
During a hearing of the standing committee's sub-panel on fast-track projects, SN Roy, former chairman of the Central Electricity Authority, warned: ``There is no question of Enron designing Dabhol as a baseload station. If Enron is there, they (MSEB will) have to close down most of their thermal power stations at night.''
In the standing committee's report, Jaswant Singh was conclusive: ``...Plant availability at levels significantly greater than the peak load demand for power (implies) that the existing power generation plants will have to `back down' well beyond present rates, thereby making them inefficient and financially non-viable. This alone would significantly increase the average cost of power to the consumer.''
Despite this recommendation, Dabhol was designed as a base-load station from which the MSEB is forced to buy electricity. To make matters worse, the Enron project was sanctioned on the basis of Enron's claimed costs, instead of competitive bidding on the lowest tariff. This cost, according to the committee, was the highest in comparison with other private projects.
For, as the committee explained, ``...guaranteed rate of return is tempting the investors to inflate their costs to ensure better returns. ...lack of competitive bidding has led to significant padding in the investment costs.'' Without any bidding, the government assured Enron a 16 per cent return on equity at 68.5 per cent plant load factor (PLF), a measurement of capacity utilisation. Even though the committee said ``return of 16 per cent..is questionable and calls for a review'', the Vajpayee government agreed to extend the guaranteed return to 90 per cent of Dabhol's capacity.
Tomorrow: How the counter-guarantees were given
Did Enron Cost Vilasrao His Job?
17 Feb 2003
Rajesh Ramachandran
The Times of India
NEW DELHI: Former Maharashtra chief minister Vilasrao Deshmukh's insistence on probing the Enron scandal — in which Sharad Pawar, former state CM and now Nationalist Congress Party supremo, allegedly figured — might have cost him his job, Congress insiders say with much impunity.
Former Enron executive Linda Powers had told a US Congressional hearing in the 1990s that the Enron Corporation had spent $20 million "educating Indians".
Deshmukh had, on October 27, 2001, instituted a judicial commission headed by retired supreme court judge S.P. Kurdukar to probe power purchase agreements (PPA) between the Maharashtra State Electricity Board and Enron. Politically, the probe put pressure on Pawar — ironically head of Deshmukh's coalition partner in the state — who, as Congress CM, signed the PPA in 1993, as well as the BJP-Shiv Sena combine that renegotiated the deal and gave further concessions to Enron in 1996.
By December last year, the Kurdukar Commission had issued notices against Pawar. His counsel contested the commission's jurisdiction to look into the issue as, he argued, the courts had already disposed of the Enron contract issue.
"Vilasrao's long-term strategy was to use the Enron scam against both the NCP and the Shiv Sena-BJP combine. By the 2004 elections, the Kurdukar Commission's hearings and its report would have come in handy for him. But his adversaries forestalled the move by getting him removed. Now let us see how far the new government co-operates with the commission," said a Congress leader.
On his part, Deshmukh denied that the Enron inquiry cost him his job. He told The Times of India: "The (Congress) high command was very happy with my strong position on Enron. After all, I have been vindicated by whatever happened to Enron. But some people within my own party were unhappy. I am still wondering what went wrong with my government."
Documents released under the US Freedom of Information Act and published in The Washington Post on January 20, 2002, show that the US government and its national security council (NSC) were directly involved in lobbying with Prime Minister Vajpayee's principal secretary, Brajesh Mishra, and Congress president Sonia Gandhi in 2001, till the company collapsed.
In fact, the NSC constituted a "Dabhol working group" which sought the help of the World Bank, the US embassy in India and the Indian embassy in Washington to sell Enron "interests" to the Indian government for $2.3 billion and settle the issue. Former Enron chief Kenneth Lay termed the price tag as "exceptionally reasonable."
President George W. Bush was to talk to Prime Minister Vajpayee on November 8, 2001, on the issue — for which talking points were prepared by the Dabhol working group. But the Enron collapse began that very day, with the company revising its financial statements.
According to a June 28, 2001, email from the NSC, "The vice-president mentioned Enron in his meeting with Sonia Gandhi." Even the mighty US government could not save Enron, but it seems that certain Indian leaders could well save themselves from Deshmukh's Enron trap.
Rajesh Ramachandran
The Times of India
NEW DELHI: Former Maharashtra chief minister Vilasrao Deshmukh's insistence on probing the Enron scandal — in which Sharad Pawar, former state CM and now Nationalist Congress Party supremo, allegedly figured — might have cost him his job, Congress insiders say with much impunity.
Former Enron executive Linda Powers had told a US Congressional hearing in the 1990s that the Enron Corporation had spent $20 million "educating Indians".
Deshmukh had, on October 27, 2001, instituted a judicial commission headed by retired supreme court judge S.P. Kurdukar to probe power purchase agreements (PPA) between the Maharashtra State Electricity Board and Enron. Politically, the probe put pressure on Pawar — ironically head of Deshmukh's coalition partner in the state — who, as Congress CM, signed the PPA in 1993, as well as the BJP-Shiv Sena combine that renegotiated the deal and gave further concessions to Enron in 1996.
By December last year, the Kurdukar Commission had issued notices against Pawar. His counsel contested the commission's jurisdiction to look into the issue as, he argued, the courts had already disposed of the Enron contract issue.
"Vilasrao's long-term strategy was to use the Enron scam against both the NCP and the Shiv Sena-BJP combine. By the 2004 elections, the Kurdukar Commission's hearings and its report would have come in handy for him. But his adversaries forestalled the move by getting him removed. Now let us see how far the new government co-operates with the commission," said a Congress leader.
On his part, Deshmukh denied that the Enron inquiry cost him his job. He told The Times of India: "The (Congress) high command was very happy with my strong position on Enron. After all, I have been vindicated by whatever happened to Enron. But some people within my own party were unhappy. I am still wondering what went wrong with my government."
Documents released under the US Freedom of Information Act and published in The Washington Post on January 20, 2002, show that the US government and its national security council (NSC) were directly involved in lobbying with Prime Minister Vajpayee's principal secretary, Brajesh Mishra, and Congress president Sonia Gandhi in 2001, till the company collapsed.
In fact, the NSC constituted a "Dabhol working group" which sought the help of the World Bank, the US embassy in India and the Indian embassy in Washington to sell Enron "interests" to the Indian government for $2.3 billion and settle the issue. Former Enron chief Kenneth Lay termed the price tag as "exceptionally reasonable."
President George W. Bush was to talk to Prime Minister Vajpayee on November 8, 2001, on the issue — for which talking points were prepared by the Dabhol working group. But the Enron collapse began that very day, with the company revising its financial statements.
According to a June 28, 2001, email from the NSC, "The vice-president mentioned Enron in his meeting with Sonia Gandhi." Even the mighty US government could not save Enron, but it seems that certain Indian leaders could well save themselves from Deshmukh's Enron trap.
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