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US envoy warns against scrapping of Dabhol phase-II

Y Siva Sankar in Bombay

Hours before the Maharashtra government is to meet on January 23 to decide the fate of the second phase of the Dabhol power project promoted by Enron, the outgoing US Ambassador to India, Richard F Celeste, has issued a stern warning that any reneging on sovereign commitments would affect foreign investments in India.

"Sovereign agreements must be honoured," Celeste said in his speech at an appreciation-and-thanks function, organised in his honour by the American Consulate General.

"When you consider the gap between Letters of Intent, or MoUs, and actual investment, there seem to be as many disappointments as successes. In Maharashtra, one major success is tottering on the brink of turning into a major disappointment. I would like to do what I can to ensure that Enron's Dabhol power plant remains a symbol of successful American investment in India and not a symbol of the impediments that still hinder even greater foreign direct investment," Celeste remarked.

Outlining major partnership initiatives between the US and India, Celeste dwelt at length on Dabhol: "My concern stems not from some fuzzy economic theory, but directly from personal experience when I served as Governor of the state of Ohio.

"My predecessor as Governor, in an effort to attract jobs and investment, had promised a multinational car manufacturer a package of incentives worth $ 30 miilion -- if it would agree to build an auto assembly plant in the state. His promise, signed and agreed to, left me facing a tough political dilemma on my very first day in office.

"Our state confronted a one-half billion-dollar fiscal deficit. If I tried to balance my budget by reneging on the agreement, I would shake investor confidence in my state and drive away hundreds, if not thousands, of potential jobs for the citizens of Ohio. I believed then, as I do now, that sovereign agreements must be honoured. So I cut state spending, raised state taxes and honoured my state's commitments.

"These actions were difficult and not without political costs, but the results were increased investor confidence and an increase of 10,000 jobs from that one company alone for the state of Ohio over the next several years.

"The history of Enron's involvement in India has been a long and hard road strewn with innumerable pitfalls and potholes. Indian and American visionaries worked hard to bring the Dabhol power plant to reality. Any visitor to the site can see that its state-of-the-art design and its world-class capacity represent an invaluable foundation stone of India's 21st century infrastructure.

"Even this week, as informal talks between the Dabhol Power Company representatives and various officials are going on, I feel hopeful that -- despite the many misrepresentations and misunderstandings regarding the cost of Dabhol's power -- a working solution will be found to take full advantage of this essential addition to India's power grid.

"Let me stress three points. First, India needs Dabhol power. The day-long collapse of the northern electrical grid earlier this month sent a worrisome signal that the Indian infrastructure is not up to supporting the power needs of India's rapidly growing and diversifying economy. Every business in India needs sufficient and dependable power in order to compete in the global marketplace. Every farmer in Maharashtra needs sufficient and dependable power. And, I might add, if it is good power and steady power, I believe they will pay for it.

"Second, power sector reform is urgently needed. Neither the MSEB nor any other state electricity board can succeed if they are not permitted, indeed encouraged, to recover the full cost of the power they distribute. Rates must be rationalised, meters installed, bills paid. Everyone -- and I would include Dabhol -- needs to shoulder a fair share of the cost in achieving a stable and economically viable power distribution system.

"Third, the world is watching. Perceptions among American and other foreign investors will be affected by the challenge to Dabhol in Maharashtra, and how it is resolved. American businessmen are a cautious lot, and their caution increases dramatically in response to indications from any country that legal contracts openly arrived at, might be subject to re-negotiation, especially when a contract involves a multi-billion investment such as that made by the Dabhol Power Company.

"Dabhol's predicament has potential for far greater impact than on Dabhol itself. It regrettably feeds the concern among American businessmen that India remains a less than reliable destination for their investment dollars.

"Those of us who live and work in India know that this is not the whole story, that the potential of India as a business destination outweighs the problems faced by individual companies. But it is vitally important for leaders in Delhi and Bombay to understand the responsibility they carry to ensure that potential investors feel welcome and secure in India."

One of the invitees to the function, the DPC president and chief executive officer, Neil McGregor told rediff.com: "We are watching the situation closely. Tuesday's meeting of the Maharashtra government is crucial. We have found that people, be it government officials or the media or anyone else, are willing to reconsider their views after hearing us out, after examining the facts and our stance."

Speaking informally, industry luminaries among the invitees opined that the federal and state governments should tread carefully on the Dabhol issue. "Enron Corporation's chairman Kenneth Lay has been a key financial supporter of the Republican George Bush's presidential campaign. Now President Bush has appointed Lay as his advisor on the energy industry. These power equations have their own significance in the overall context of Indo-US partnership initiatives, and should not be lost sight of," an observer said.

FROM THE REDIFF ARCHIVES

An interview with Dabhol Power Company president and CEO Neil McGregor

Special feature on grid failures in India

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