As the Enron scandal sends wave after shock wave through the American
political system, the international repercussions of
history's most spectacular case of corporate bankruptcy are just
surfacing.
NEW DELHI, Feb 7 (IPS) - As the Enron scandal sends wave after shock
wave through the American political system, the
international repercussions of history's most spectacular case of
corporate bankruptcy are just surfacing.
Enron has become an abusive transitive verb in the United States, where
some 15 committees are investigating the sleazy political
connections and the energy deregulation policies that allowed the "New
Economy" company to stage a meteoric rise.
Many of the 250-plus senators and congressmen (half the total), who
received Enron's "donations", are returning them to save
themselves from further opprobrium.
But in the Third World, Enron faces very little opprobrium, even
embarrassment. In India, where it has the largest direct investment in
an overseas industrial project, the corporation continues to make
bullying and threatening moves.
It is trying to drag the government of India's Maharashtra state into
international arbitration over the termination of a power purchase
contract signed with its subsidiary, Dabhol Power Company, rather than
submit itself to Indian jurisdiction.
The controversial contract for extremely expensive electricity was
suspended six months ago by the Maharashtra power board, which
nearly went bankrupt as a result of high power prices. As reported
earlier, the deal was reached through shadowy, secret
negotiations, and in violation of the Electricity Supply Act.
Enron is also getting Washington to plead its case. Deputy Treasury
Secretary Kenneth Dam, who is visiting India at present, has
told New Delhi to resolve the Enron issue speedily and speed up economic
reforms.
On Jan. 28, Ambassador Robert Blackwill made a forceful intervention at
an industry meeting, saying that all foreign investment into
India hinges upon a favourable resolution of the Dabhol company dispute,
which "feeds a chronic perception among the overseas
investing community that India may not be ready yet for big-time
international investment".
Blackwill demanded adherence to the "sanctity of contract", doubts about
which can "spell death to potential investors".
This "arrogant" statement left many industrialists angry and inspired
Blackwill's redescription as the "Viceroy", the British Crown's all-
powerful representative in India during the colonial period who towered
over domestic subjects.
Blackwill may only be voicing the views of the Republican
Administration: After all, U.S. Energy Secretary Spencer Abraham defends
energy deregulation in spite of Enron's collapse and the bankruptcy of
PG&E, the United States' largest power distribution company.
In a Jan. 14 'Washington Post' he claimed, "Deregulation is Working".
Blackwill's remarks were indicative of U.S. support for Enron's effort
to get as much as 2.3 billion dollars for its 65 percent stake in
Dabhol Power Company. Market analysts evaluate it at less than half that
figure.
Successive U.S. administrations have heavily lobbied on Enron's behalf.
Vice President Dick Cheney, himself a former energy
company boss, has been in the forefront here.
This policy is rationalised by the White House. Its spokesperson Ari
Fleischer recently said: "It's not uncommon for (companies) to
have exposures, which do require contacts between American officials and
government officials in other countries."
In 1995, President Bill Clinton sent an official memorandum to the White
House chief of staff, helping Enron clinch the Dabhol deal
that was then being resisted by the New Delhi government.
The U.S. energy secretary had publicly warned India: "Failure to honour
the agreements between the project partners and the various
Indian governments will jeopardise not only the Dabhol project but also
most, if not all, of the other private power projects proposed
for international financing."
The threat worked.
More recently, said 'The Washington Post', the National Security Council
reduced itself to a "concierge service" between Enron's
Kenneth Lay and India's National Security Adviser Brajesh Mishra.
Normally, these disclosures would have sparked a sharp political riposte
in India, especially from opposition parties like Sonia
Gandhi's Congress. But their response has been supine. This is so in
part because Cheney had "spoken to" Gandhi and Manmohan
Singh during their U.S. visit in June.
However, pressure to liquidate or nationalise Dabhol Power Company is
likely to build up in India as the Enron investigation proceeds
apace in the United States.
There are three general, and three specific, lessons in the Enron story
for the developing countries.
First, it is absolutely vital to fight off hegemonic pressures on behalf
of multinational corporations.
Without such pressure, the highly unequal contract between Dabhol Power
and the Maharashtra government would not have been
signed in 1995. The central government of India would not have given
sovereign guarantees to the project.
The various Indian agencies could have resisted such pressure by
developing arguments about competitiveness, efficiency and the
logic of the market. They failed to do so.
A second lesson is developing countries should ignore all hype and
hoopla about the "New Economy", which make it appear as if
corporations belonging to that sector follow rationales different from
those of the Old Economy, and that they are not motivated by
profits.
The third general lesson for the developing countries is that private
investment looking for quick returns cannot be the favoured
instrument for building core infrastructure such as roads and
telecommunications.
In fact, in the developed countries themselves, such activities have
typically been financed directly by governments or through state-
guaranteed low-interest bonds. This is true not only of Western Europe,
but also of the United States. Western power utilities were
built at low rates of return, such as two or three percent.
By contrast, private companies look for quick paybacks and high rates of
return such as 16 percent or more. In the Dabhol
company's case, the rate was a complete rip-off, varying from 31 to 52
percent.
Professor AKN Reddy of the International Energy Initiative has drawn
many specific lessons for the energy sector.
The first, he says, is that it must not be deregulated. Deregulation has
proved disastrous in California, whose biggest power
producer, and distributor, has become unviable.
In India too, deregulation of electricity in states like Orissa has led
to skyrocketing prices, coupled with low supply reliability.
The second lesson is that the energy industry's emphasis must shift from
supply to demand, with a clear focus on rational use of
energy services. This approach privileges users' groups and ordinary
people -- not corporations.
The final lesson is that no contract should be signed without full
transparency, including open tenders, competitive bidding, and
credible evaluation of bids.
Efforts to rush deals on the ground that "no power is more expensive
than no power" will always produce terrible distortions.
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