Subject: Re: More Enron news from the Indian angle
Date: Mon, 24 Dec 2001 09:48:40 +0000


Margaret,

I had half-expected something like this from you; it shows misreading and 
misdiagnosing the problem. The issue is NOT foreign investment here; Enron's 
project could have been built by Tata, and still the problem would have been 
the same.

Let me recap: India has a chronic power shortage. When the wife of Shiv Sena 
supremo Bal Thackeray died, it was because she developed anginal pains, and 
in the dark hotel room (where power had failed) the family members could not 
find the necessary medication before her cardiac condition worsened and she 
succumbed. When the extremists who attacked the parliament of India on 
December 13, they failed to receive a phone call telling them to stop 
(because the parliament had adjourned) because the man who was to have made 
the phone call on their cell phones had a power failure in his house, and 
could not see the live parliamentary session. In other words, the powerful 
and the dangerous are equally-affected by India's power shortages. Not that 
the poor in many parts of India aren't affected, they are lucky to have any 
power in some cases.

Maharashtra, in 1990, was a surplus power state only marginally; it was 
widely expected that if the economy had grown at 7% a year, it would need 
more power, which the MSEB's chronically underfunded and relatively 
inefficient power plants would have failed to deliver. Which is why 
Maharashtra needed power, and Enron offered power.

The agreement Enron and India signed ***was based on the new investment 
policy formulated by the Indian government***. As India nearly defaulted on 
its payments in 1990, and had to pledge its gold reserves to the Bank of 
England (when Chandra Shekhar was the prime minister), it was not what you 
or I would call a good credit risk. Given the propensity of developing 
countries to devalue currency to boost exports, Enron sought payment in 
foreign currency. This meant there was an exchange risk involved, and India 
had to bear that exchange risk. The currency did fall -- in 1990, it was 
about 20 rupees to a dollar, today it is 45-50 rupees to a dollar. While 
Indian economy continues to grow at 4%-5%, which is better than the anaemic 
growth in the rest of the world, it has grown at a slower pace than expected 
-- which is hardly the fault of the foreign investor.

And as regards Maharashtra being forced to buy power it did not need. The 
leaders in India are surely aware that Maharashtra is part of a bigger 
entity called India, and in Southern India, some states have power deficit, 
as has Madhya Pradesh, the state immediately to Maharashtra's northwest. 
Nothing prevented Maharashtra from creating a secondary market, of buying 
Enron's power, and selling the surplus to other states which needed power. 
Karnataka, to Maharashtra's south, too has power shortage. IT companies in 
Bangalore are relocating to Hyderabad and elsewhere because of that. If the 
agreement with Enron did not allow such secondary sales, then that was the 
issue on which Maharashtra could have argued its case with Enron -- it did 
not. It created this fictitious debate about expensive power, about 
corruption charges (never proven despite a dozen court cases), when two 
successive Maharashtra governments, Congress and then the bitterly-opposed 
BJP-Sena government, ended up signing the deal with Enron. The BJP-Sena 
government had a deal which was even more of a sweetheart deal than the one 
Congress signed, in which the price for the second phase was to be 
renegotiated. Sena opted for a bigger overall project, thus guaranteeing 
surplus power.

The failure of the plant in Dabhol is because Maharashtra could not afford 
to pay, not because Enron did not deliver power. It was, and its future 
buyer will be able to deliver power. Maharashtra -- and India -- need to use 
their local power grid better and create a secondary market, so that surplus 
states can share power with deficit states. It does happen in some states, 
but that market needs to be more regularized.

To use the Dabhol fiasco as some sort of an indictment of foreign investment 
in India reveals a peculiar mind-set which sets about gathering convenient 
arguments after making up the mind. But hey, opinion is indeed free!

Salil


>From: Margaret Trawick <trawick-AT-clear.net.nz>
>Reply-To: postcolonial-AT-lists.village.virginia.edu
>To: postcolonial-AT-lists.village.virginia.edu
>Subject: Re: More Enron news from the Indian angle
>Date: Mon, 24 Dec 2001 11:01:25 +1300
>
>Amazing.  What I wonder is what those who tout the virtues of foreign
>investment in India will say about this.
>
>
>
>----- Original Message -----
>From: Thomas Palakeel <tjp-AT-hilltop.bradley.edu>
>To: <postcolonial-AT-lists.village.virginia.edu>
>Sent: Monday, December 24, 2001 4:34 AM
>Subject: More Enron news from the Indian angle
>
>
> > This is fresh out of Yahoo News.
> >
> >
> > http://biz.yahoo.com/rb/011223/business_utilities_india_enron_dc_1.html
> >
> >
> >
> >      --- from list postcolonial-AT-lists.village.virginia.edu ---
> >
>
>
>
>      --- from list postcolonial-AT-lists.village.virginia.edu ---



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