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The other Enrons

Print edition : Feb 16, 2002 T+T-

It just will not do to pretend that Reform Stage-II or the sanctity of the Dabhol contract should prevail over the public interest.

A GROTESQUE disjuncture - or, as the Americans say, disconnect - is opening up between the Vajpayee government's professions and practice. On the one hand, it is threatening to wage war against Pakistan ostensibly to secure the surrender of 20 criminals and fugitives from the law, based there. To this end, it has sustained the most spectacular military mobilisation ever, with some 700,000 troops, at a reported expense of Rs.4,000 crores. It speaks the language of correctness and strict application of the rule of law, although it has not presented detailed evidence about the culpability of the 20 men for terrorist acts of varying vintage.

On the other, the government is doing nothing to apply its own law - specifically, an unambiguous Supreme Court directive - against the accused wanted for 17 years for the world's worst industrial accident, caused by monumental criminal negligence: the Bhopal gas disaster of 1984. This led to over 3,500 early fatalities, and the death roll now exceeds 12,000, besides 100,000 injuries, involving a lifetime of suffering. This damage exceeds the toll taken over the past decade by all incidents outside Kashmir of terrorism and riots put together.

The handling of the Bhopal disaster - including the government's abject capitulation to corporate pressure, the unfair Supreme Court-imposed settlement, and the extinguishing of Carbide's civil liability, followed by the compensation scam - bears testimony to the plain truth that a right-wing pseudo-nationalist elite-dependent Third World government can never stand up to a First World power, in defence of its own people.

Corollaries of the same proposition are now being extended to one of the world's worst corporate scandals, and certainly the worst case of self-inflicted bankruptcy, Enron. The Enron-sponsored Dabhol Power Company (DPC) has become the exemplar of yet another disconnect: exposure and investigation of corporate malfeasance, in the United States; and insistence on the "sanctity" of commercial contracts, in India. "Sanctity" is a euphemism for covering up corporate wrong-doing.

None other than U.S. Ambassador Robert D. Blackwill has elevated the Dabhol dispute to the status of a litmus test on India's ability to attract foreign investment. He has since been reinforced by the U.S. Deputy Treasury Secretary, Kenneth Dam, who too was reportedly linking neo-liberal "reform" with the DPC dispute's speedy resolution.

The Blackwill Proposition is a classic. On January 28, the Ambassador told a business gathering that Indo-U.S. economic relations had become "flat as a chapati", just as India's neo-liberal "reform" had run out of steam. If India's reform "rabbit" is not to become a "turtle", and then "a rock", it must open itself up to foreign goods and investment. The key, he said, lies in resolving the Dabhol dispute.

Here is yet another disconnect: Blackwill was saying this just when the Enron mega-scandal put bigwigs from George Bush and Vice-President Dick Cheney downwards in the dock for their links with this corporate rascal. He focussed his doomsday scenario on Enron although it should be obvious that foreign direct investment (FDI) flows into India will not depend on that company's activity, and although "sanctity" of contract makes little sense in its context.

Blackwill said the dispute "feeds a chronic perception among the overseas investing community that India may not be ready yet for big-time international investment...the sanctity of contract may now be in doubt here, a concern that can spell death to potential inventors." The message is unambiguous and crude: don't punish or expropriate Enron, however crooked it might be, don't alter the power purchase agreement (PPA) with the Maharashtra State Electricity Board (MSEB), continue with the arrangement, however ruinous or you'll get no foreign investment, you'll become a Burma, you'll perish.

Perhaps Blackwill is only emulating his less abrasive predecessor, Frank Wisner, who in the mid-1990s lobbied openly, energetically and "patriotically" for Dabhol-only to join Enron's board of directors on retirement. Perhaps, he was only following the example set by the Clinton administration which too had pressured successive Indian governments. The U.S. Energy Secretary in June 1995 publicly warned: "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."

Perhaps Blackwill was only recalling the debt the Bush campaign owes Enron. Kenneth Lay, earlier "Kenny Boy" in the White House, was a Republican "pioneer" who had donated $13,800 to Bush. Lay has been central to the evolution of the right-wing pro-corporate, anti-environment Bush-Cheney energy policy. Blackwill may have only emulated U.S. Ambassador to Pakistan Robert Oakley who in 1996-98 pleaded Unocal's case to the Taliban and vice versa.

Whatever Blackwill's role-model, he is clearly mistaken in regarding Enron as a clean, normal, company, dealings with which carry "sanctity". Enron exemplifies all that is sleazy, greedy and unethical in corporate governance and in the unholy nexus among powerful corporations, governments and the media. Enron's is a horrible story of crooked conduct. It flourished on energy deregulation, which bribed its way to reach dizzying heights, which cooked its books to pump up its image, but which failed disastrously, taking down with it employees, investors and shareholders.

Enron was not just No.7 in the Fortune 500 list. It was a global "New Economy" icon, a company that marvellously combined entrepreneurship with advanced technology, and created a "free-market network" in the hitherto-closed energy sector, to establish, as U.S. Energy Secretary astonishingly said in a Washington Post op-ed article (January 14): "Deregulation Is Working". Enron's managers were glorified as "magicians of the free-market age".

In the U.S., Enron has become a transitive verb, meaning "to swindle", a household name for corporate criminality, a potential 21st century Watergate. MIT economist and commentator Paul Krugman says, "Enron, not September 11, will come to be seen as the greater turning point in U.S. society." The scandal has forced Americans to change the way they think about themselves, not others, not Islam, not Wahhabism, not Afghanistan.

So much has been written about Enron's unethical methods - its doctored balance-sheets, reckless speculative trading, collusion with its auditors, "befriending" of politicians and the media (with payments of $50,000 for a single speech) that it is unnecessary to recapitulate that tangled web of lies and filthy politics. Enron was both a beneficiary of the U.S.' "free-market" policy of energy deregulation under Clinton, and a major influence in its further "development" under Cheney (himself a former chairman of oil industry giant Hallibuton). It made "donations" to 70 per cent of all congressional energy committee members.

This network of lobbying and influence-peddling did not exclude India. According to The Washington Post, Dabhol was on the list of President Bush's "talking points" with Vajpayee during his November visit to Washington. It eventually was not taken up, but there was an e-mail from the U.S. National Security Council to the Overseas Private Investment Corp. that suggested a resolution was close. It asked: "Do you still want to sign an MoU with the Indians or announce one during Vajpayee's visit?"

Secretary of State Colin Powell discussed the Dabhol project on April 6 in a meeting with Foreign Minister Jaswant Singh. In July and August, several U.S. government agencies applied pressure on the Indian and Maharashtra governments to pay Enron the $2.3 billion it was seeking for its 65 per cent DPC stake. Lay told the Financial Times: "If they try to squeeze us down to something less than cost, then it basically becomes an expropriation..." He hinted that the U.S. could use sanctions and cut off aid if a government expropriates the "property of U.S. companies".

Critical to Enron's lobbying was Cheney, who is likely to be forced to submit documents showing that energy companies like Enron influenced his own pro-corporate energy policy. E-mail exchanges suggest that Cheney discussed the issue with Jaswant Singh in a meeting on October 3. Jaswant Singh, says The Washington Post, heard again from the administration in October, when Under Secretary of State Alan P. Larson raised Dabhol. Earlier, in June, Cheney also brought up the Dabhol issue with Sonia Gandhi and Manmohan Singh, then on a visit to the U.S.

Under Enron's pressure, the U.S. National Security Council, says The Washington Post, was turned into a "concierge service" fixing Kenneth Lay's appointments with National Security Adviser Brajesh Mishra. Evidently, many Indians in key positions, particularly Jaswant Singh and Brajesh Mishra, should have a lot to say about Enron's recent lobbying. They must be compelled to reveal it to the public, just as their counterparts in the U.S. are likely to be.

The plain truth is that over the past nine years Enron brought enormous influence to bear on successive U.S. administrations, and through them on governments in India, in respect of the Dabhol project, which was signed in 1993, but which the BJP-Shiv Sena in Maharashtra had threatened "to throw into the Arabian Sea". So hectic was Enron's lobbying that the White House Chief of Staff got written orders to promote Dabhol and worked with Wisner to "monitor" negotiations. The project was not only signed, its size was tripled.

OF pivotal importance here were four things: a mid-1995 meeting between Bal Thackeray and (Enron Chief Executive) Rebecca Mark; Enron's self-confessed expenditure of $20 million (Rs.95 crores) in "educating" Indians; a highly improper "clearance" to the project from (former) Finance Secretary Montek Singh Ahluwalia (violating statutory procedures under the Electricity Supply Act), and "sovereign" counter-guarantee from the 13-day Vajpayee government in 1996. This was the only executive decision taken by that Cabinet, during a five-minute meeting on May 27, 1996. Without these moves, the PPA would not have been approved, India's financial institutions would not have lent it Rs.6,000 crores, and the MSEB would not have been forced to buy 15 per cent of DPC's equity.

The whole cost-inflated project was pushed through without competitive bidding, in breach of market principles. The MSEB, forced to pay the DPC a horrendously high return of 31 to 52 per cent, went into the red. Finally, six months ago, it was forced to stop buying DPC's power.

The Maharashtra government-appointed Madhav Godbole committee has made many proposals to resolve the imbroglio, but the DPC does not cooperate. Enron invokes a clause in the PPA that shields the DPC from Indian judicial jurisdiction and demands overseas arbitration. The Maharashtra government did sign a humiliating agreement with the DPC in 1996 forswearing its own right to legal remedies in Indian courts. It restrained itself from "commencing or prosecuting or continuing or taking any steps or otherwise participating in any court or tribunal in India" or "in any other jurisdiction" in respect of disputes.

This runs totally contrary to Indian law. The pertinent question is not how to defend the "sanctity" of the Enron PPA, but how to replace it with a reasonable contract. This cannot be done merely by transferring Enron's 65 per cent stake in the DPC (or along with General Electric and Bechtel's 10 per cent each) to the highest bidder. The PPA is bad in law, violative of sound economics, and steeped in fraud. It must be scrapped under Section 23 of the Indian Contracts Act 1872, which annuls all contracts that violate "morality or public policy". True, a contract is a "voluntary" commercial transaction. But that does not mean it can be obnoxious or offensive. 'A' cannot enter into a valid contract with 'B' for, say, being brutally beaten up periodically in return for a certain sum. In any case, national laws override commercial contracts.

The way out of the Dabhol mess lies in nationalising the DPC, or in placing its assets in a special-purpose vehicle, evaluating them accurately, and then transferring them to the MSEB at their true value. Any compensation to Enron must naturally exclude padded-up costs, rigged-up electricity prices, and DPC-caused past losses. This is a precondition for undoing the damage upon India.

Bringing errant corporations to book is part of the global democratic agenda. India must contribute to it as it redresses the injustices perpetrated by MNCs.