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April 27, 2001
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Money > Reuters > Report April 27, 2001 |
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Enron gets ready to beat a retreat from IndiaRobin Elsham and Sriram Ramakrishnan In this 10-year battle between a gang of cocky cowboys and real Indians, it's the cowboys who are ready to retreat. Yet it's the Indians who could wind up the long-term losers. Enron Corp, a giant Texas-based energy company, on Wednesday took a major step toward bailing out of an almost complete $2.9 billion power project in India. The board of its Indian unit, Dabhol Power Co, authorised management to stop selling power to the virtually bankrupt Maharashtra State Electricity Board if a bitter dispute over pricing and unpaid bills cannot be resolved. The board has defaulted the past half year on bills for electricity supplied by Dabhol, which operates the world's largest gas-fired plant on the west coast of India, 160 kilometres (100 miles) south of Bombay. The overdue amount stands at Rs 2.26 billion ($48.2 million), which Enron has been unable to collect even after invoking guarantees issued by the government of Maharashtra, India's most industrialised state, and the federal government. Neither government is willing to foot the bill for a project, which has proved grievously expensive and hugely unpopular. Yet stiffing Enron threatens to reinforce the image of India as a lousy place to invest, making it harder for the nation to raise the huge sums needed to improve its infrastructure, a key to altering that image. Role reversal Ironically, Enron was once viewed as playing a lead role in sparking that process of infrastructure-investment led growth. A decade ago, the Houston outfit rode into India, offering to build a string of power plants. India had just rolled out the red carpet to multinationals, after a Gulf War-induced financial crisis forced the government to abandon its devotion to socialism and a Gandhi-inspire dedication to self-reliance. The country needed to add 8,000 MW of generating capacity per year to meet demand that was growing at 8-10 per cent annually. But years of socialism had left the nation with a network of money-losing state-run utilities incapable of footing the cost, estimated at Rs 300 billion ($6.4 billion) per year. And the government's reluctance to reform the domestic power sector meant few domestic companies were willing to build plants. Enron, and originally a swarm of other foreign energy companies, offered to fill the void. Kickbacks Enron quickly struck a deal in the early 1990s to build a plant in Maharashtra, a contract renegotiated after a state election brought to power a new government which claimed the terms were too generous, the result of alleged kickbacks. Through the deal, Enron became the largest foreign investor in the country, accounting for 10 per cent of total direct foreign investment in India since 1992. But the massive project proved hugely unpopular. Its power cost more than state-owned power plants, partly the result of rupee depreciation against the dollar and the rise in the cost of naphtha, the original fuel source. At its peak operating rate, the plant's output cost about Rs 4.75 per kilowatt hour. But because of the payment dispute with the state power board, it is now running at only 25 per cent of capacity and charges Rs 7.1 per kilowatt hour, more than three times the rate of other suppliers. Many Indians believe the Enron contract has bankrupted the state power board, and threatens to wreck havoc with the shaky state budget if the contract is not renenogiated. "We don't want Enron. They can go and sell their power elsewhere," state finance minister Jayant Patil fumed last month. Quadruple If only it could. The 740 MW first phase of the project began operating in May 1999, and later this year the project's second phase will come on line, tripling output to 2,184 MV. That is forcing both sides to toughen their positions, as next year the amount owed by the state electricity board will more than quadruple to over $1 billion a year under the 20-year contract. The nasty contractural dispute seems certain to cripple India's efforts to attract sorely needed foreign investment. India attracted just $2.6 billion in direct foreign investment last year, three times less than Singapore, a nation with an economy one-fourth its size -- and 250 times fewer people. China, the one nation with a roughly comparable population and an economy twice the size of India's, attracts 20 times more. YOU MAY ALSO WANT TO SEE:
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