The Battle That Never Was

"Indians believe in reincarnation, so (the Dabhol project) too can reincarnate."
- Rebecca Mark, CEO, Enron Development Corp, in The New York Times

PROPHETIC words. Conventional wisdom suggests that after whipping up a frenzy of economic nationalism", the Maharashtra Government realised it had bitten off more than it could chew. It was scared of having to pay up huge damages to Enron for reneging on the Dabhol contract. After all, agreeing to renegotiate with what it portrayed as the Evil Empire seems to be an embarrassing retreat for a government, whose leader, Manohar Joshi, had declared in the Assembly--to thunderous applause--that it would rather pay up than suffer "national dishonour".

In reality, however, this may be a perfect win-win solution that benefits both parties and ends the protracted bout of shadow boxing. For that's what it may have been beneath all the sound and fury of the 2,015-megawatt power struggle, with neither party interested in moving out of their corners to the centre of the ring.

All of us know the facts by now. On September 29, the Maharashtra Government lowered its ante in a letter to Mark, declaring its willingness to "discuss the revival of the Dabhol project." The desired quid pro quo: the Houston-based corporation should put off arbitration proceedings, slated to begin on October 17 in London.

This was 11 days after an Enron letter offered "a tariff equivalent...to the best competitively bid tariff by similar, recently approved projects in Maharashtra." While this letter was being delivered to Mantralaya, Deputy Chief Minister and chief Enron-baiter Gopinath Munde was telling a BJP convention-again to thunderous applause--at Jalgaon in north Maharashtra that renegotiation with Enron was ruled out.

Why the change of heart then?

"They made charges thy couldn't prove for electoral purposes. Once their bluff was called they had no option but to negotiate."
Murli Deora, Congress leader

A recent report by US-based investment bankers Salomon Brothers says the Enron episode is unlikely to shrink India's investment rating-currently BB+ or "steady" according to Standard & Poor's. Meanwhile, Maharashtra, which led the pack in foreign investment stakes ever since liberalisation began, has just been elbowed into second place by Gujarat.

The obvious conclusion: foreign investors have informally downgraded Maharashtra's credit rating while remaining bullish on India. That's bad news-economically and electorally--for the BJP-Sena combine.

The other aspect is the very real possibility of having to shell out damages--$300 million or Rs 1,000 crore at the very least, going up to a terrifying $2 billion or Rs6,700 crore--to Enron. Says economist Kirit S. Parikh, who had suggested renegotiation of the project's first phase long before the scrap: "The chances of losing the arbitration are very high."

There are also reports that the state's bureaucrats refused to play ball. "The Joshi Government may have had the political will to tell Enron to pack up and go," says a Mantralaya source, "but even it couldn't break the hold of the bureaucrats over the files. They are completely in the project's favour."

That's as far as the conventional-wisdom view of the matter goes.

"The BIP is not against privatisation of the lower sector per se. Nor do we have any personal animosity against Enron Development Corporation or its CEO Rebecca Mark."
-Pramod Mahajan,
National general secretary, BJP

Of course not. Enron has a solar power project in BJP-ruled Rajasthan, and Gujarat Chief Minister Keshubhai Patel was talking to Enron Chairman Kenneth J. Lay in Houston about a proposed project in the state when he had to rush back to tackle the Vaghela-led rebellion.

The BJP has always looked for easy-to-digest symbols which simplify political or ideological knots for the masses. Enron is finally just an icon, supposedly personifying all that's wrong with the way India was going in for foreign investment, and corruption in the Pawar regime. And Joshi's bankruptcy-before-dishonour declarations should be taken with large helpings of salt. Later chapters of the Dabhol story, as they unfold, hint at a subtler stratagem.

So too for Enron. After filing for damages, Enron never stopped making friendly noises. Mark met Mahajan, Joshi and Bal Thackeray. Assuming Enron won the suit, and collected damages, would it be anything more than a pyrrhic victory? Enron's future lies in setting up power plants in emerging markets. How many developing world governments will entertain investment proposals from a giant corporation that has sued governments? Even in India, the business opportunities for Enron remain numerous, given the magnitude of the country's power shortfalls.

Is Enron putting the arbitration proceedings on hold, as requested? At the time of going to press, Enron's Bombay-based vice-president Sanjay Bhatnagar would not confirm that. "We are still considering the request. At the moment, they are proceeding smoothly." Anyone wants to bet that Enron will refuse the request?

The upshot: renegotiation is definitely on. The BJP will tell the populace it managed to hack the price to reasonable levels. Enron will have its project. The state will negotiate hard, but leave a meaningful profit margin for Enron. "The BJP-Sena regime is on the right track (by agreeing to renegotiate), but the project will be revived only if we are satisfied with what Enron now offers," says Mahajan.

Not everyone in the party agrees. BJP economic ideologue Jay Dubashi's personal opinion is: "The project should not be renegotiated--it's not compatible with the principle of competitive bidding. There were five aspects on which the Joshi Government pilloried the project: capital cost, electricity tariff, environmental impact, lack of transparency and absence of competitive bidding. Willingness to renegotiate ducks the last completely. Also, the proposed switchover from distillate oil to naphtha would mean a less environment-friendly fuel.

But there's a smile on Mahajan's face. "Now every MNC which wants to set up a project in India checks with us. They know if the deal is not above board, we will scrutinise it and, if necessary, scrap it." That's power. Meanwhile, there are unconfirmed reports that Joshi has had talks with local leaders of Dabhol on how to present a reactivated project to the villagers--who had celebrated when the deal was trashed.

And Rebecca Mark was doing her bit too. On here 31st visit to India, a stopover enroute to Houston from Indochina, she drove to Kalanagar in Bombay. The purpose: to call on Thackeray and express grief at the death of his wife Meenatai.