December 6, 2000


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Dilip D'Souza

Hungry for Power on December 6

There's a curious justice -- though as curious is that it gives me no satisfaction at all -- in that this column will go on air on or about December 6. For this column is about one of the fallouts -- in an oblique way, but a fallout nevertheless -- of the events of that day eight years ago.

That day eight years ago, they told us Hindu pride was rekindled in Ayodhya, finally rebuilt on the rubble of a mosque torn to the ground. Whatever you make of that, that call to awakening among Hindus helped install, in Maharashtra in early 1995, a government made up of just these peddlers of pride. The Shiv Sena-BJP alliance came to power on a wave of disgust with the old Congress ways, on a promise that Hindus would no longer be "pushed around"; that their interest and the national interest -- always assumed conflated by the peddlers -- would be protected.

And it was riding on those sentiments that the new Maharashtra government went to court to stop the Enron power project that the preceding Sharad Pawar Congress government had agreed to. Hadn't Gopinath Munde of the BJP promised while campaigning to "throw Enron into the Arabian Sea"? Didn't Manohar Joshi of the Shiv Sena pronounce on the floor of the assembly that the Enron contract was "anti-Maharashtra" and "smacked of lack of self-respect"? In court, Joshi's government called the contract more names: it was "null and void [and] violative of ... public policy, consumer interest, public interest and the interest of the state. ... [It was] conceived in fraud."

Victory! thought the activists who had spent months studying the deal very carefully. For they had come to the only conclusion such a study could produce: that Pawar and his government had done a fine job of committing the state, and in fact the country, to a deal that was -- I'm trying to be kind here -- simply absurd. And of course, here was proof that the defenders of Hinduism, the purveyors of rekindled pride, had Maharashtra's and India's best interests in mind. They threw out the contract.

Unfortunately, the proof didn't last beyond its allotted 15 minutes of fame. Within months, the Sena-BJP government had "renegotiated" the Enron contract. In a word or two, the project came back bigger and better than before. That same Manohar Joshi told the court that his allegations of corruption and skullduggery in the deal Pawar's government had signed were made on the "basis of newspaper reports." Those reports, Joshi said, should now be ignored. So his pride-peddling government, so naively taken in by mere newspaper reports -- sheepish stage laugh produced in court at this point, I have no doubt -- was now dropping the case against the project.

Now there's forthright protection of Hindus for you.

Enron built its plant in Guhagar, and began supplying electricity to the state. Today, it is in the news again. Why? Because the state government -- now a Congress-NCP alliance -- has realised that the state cannot afford the payments to Enron under the contract. In other words, the repeated warnings from activists and academics, right from the days Pawar's government first dealt with Enron and through the days Joshi and Munde's government "scrapped" and then "renegotiated" the project -- those warnings are now coming true. They predicted that Enron power would be fiercely expensive, and that is exactly the case today. Not that that could be a source of much satisfaction to the warners.

How expensive? As with everything in this Enron deal, precise figures are hard to pin down. But here's a flavour of how much Enron power costs, taken just from the spate of recent news reports. On November 29, The Times of India reported: "The government is worried over the steep hike in the rate of purchase of power from Enron to Rs 7.90 a unit." On December 2, The Indian Express told us: "[The Maharashtra State Electricity Board] had purchased power from [Enron] between May 1999 and September 2000 at Rs 6.91 a unit." Also on December 2, the Times had two separate reports on the mess. One said: "MSEB had been forced to purchase power from Enron at a very high price -- Rs 7.80 a unit -- because of the agreement [signed with the company]." The other: "MSEB now has to pay nearly Rs 7 per unit to Enron for power purchased."

Aside: Some of the discrepancies here are explained by a Catch-22-like clause in the Enron deal, alluded to in the Times report of December 2: "[The minister for power said that] MSEB was unable to buy all the power from Enron despite its contract. ... Enron [therefore] had penalised the electricity board for buying fewer units ... As a result, MSEB had been forced to pay Rs 1.61 more per unit for the power it COULD NOT purchase from Enron." (Caps mine). Enron's power is so expensive that MSEB cannot afford it; but because they cannot afford it, they must pay a penalty for not buying it. Such is the contract MSEB has signed. Yossarian, welcome to Maharashtra. Do bring a supply of "D" cells with you. End of aside.

But, you're wondering, is this price -- Rs 7 or whatever it exactly is -- truly expensive? The Tatas, says the December 2 Times report, "supply [power] at only Rs 2.20 [a unit]." That is, Enron power is at least three times pricier than power available elsewhere. But, you're wondering, is that power from elsewhere available freely? Well, in July 1999, we read news reports that the MSEB had asked the Tata Electricity Company to "back down its power generation" in and around Bombay so that it could get power from Enron. That is, cheaper power is so readily available from elsewhere that it must be turned off so we can pay more for power from Enron. (See my review of Abhay Mehta's book Power Play for a fuller examination of this and related issues).

Of course, at the time the deal was being negotiated and renegotiated, we heard loud claims from Enron and the governments concerned about the affordability of Enron power. Elaborate tables and projections told us that in 2000, Enron power would cost only Rs 2.22 a unit, and that this would rise to only Rs 2.32 a unit in 2019. I suppose they were talking about the years 2000 and 2019 on the Planet Xoomar, because here in Maharashtra on Planet Earth in the year 2000, Enron is billing MSEB three times that 2019 figure for electricity. No tables and projections necessary.

How did this situation come about? Again, the rash of recent news reports tells you one reason for this extortionate price for power. Times, Nov 29: "Due to the strengthening of the US dollar against the rupee, the purchase cost is going to rise further." Times, Dec 1: "Consumers were actually paying high rates [for Enron power] as the purchase price was linked to the fluctuating rate of the US dollar."

Very briefly: the contract with Enron, as "renegotiated" by the Sena-BJP alliance, assumed that the dollar was worth Rs 32. It also assumed that the dollar would remain worth Rs 32 for the next 20 years. These assumptions are vital, because Enron power is bought in dollars. Not rupees.

Small problem with these vital assumptions that I hope you caught: the dollar today is at about Rs 46 -- nearly 50 per cent higher than the assumption in the contract. Taken together with other similarly absurd assumptions, we get that make-believe projection: that in 2000, we will pay only Rs 2.22 a unit for electricity from Enron. In reality, partly because the rupee has slid against the dollar, we are paying vastly more than Rs 2.22 a unit. (See my 1997 article, How To Pay More For Power And Like it Too for an examination of this dollar-rupee sham and others in this contract).

And the truth is that there are people who have shouted themselves hoarse about this high price from the time they first heard about this contract. Just one such is a Pune group called Prayas. They did their calculations with somewhat more realistic assumptions, including that the rupee would slide against the dollar. In a note dated September 16, 1996 -- one year after the government of the defenders of Hinduism "renegotiated" the Enron contract -- Prayas writes:

"In the very first year [2000], the tariff as per [Enron's power purchase agreement, or PPA] starts at Rs 3.32 and not Rs 2.22 as represented by the Govt. ... [In fact, a] more likely [scenario] is that the tariff starts at Rs 3.45 ... (According to the Chief Minister, the end user has to pay about double [this] tariff)."

Aside: double Rs 3.45 is Rs 6.90 -- about what news reports today are quoting as the cost of Enron power. End of aside.

The upshot of all this? All of us in Maharashtra -- Hindu, Muslim, Sikh, paanwalla, farmer, girl, boy -- are paying steeply more for power; and in another Yossarian dream come true, paying more when it is available at far lower cost. If Sharad Pawar's government got us into this mess in the first place, the Sena-BJP government got us further embroiled in an even larger mess. All while it roared on about "self-respect" and "public interest."

And defending Hinduism.

How do we get out of this and prevent it happening again? Two suggestions, if I may.

One, initiate steps to void the contract with Enron. The state government whimpers that such a breach of contract will cost us Rs 200 billion or more. "Balderdash", says Sucheta Dalal in a December 3 column in The Indian Express; this is just a "gimmick aimed at embarrassing the BJP coalition" at the Centre. (Not that that coalition does not deserve embarrassment, anyway). "If the government can prove that the contract is bad in law," she continues, "there can be no compensation claim."

Two, understand that supposed defenders of Hinduism are just as ambitious for political power as the Congress wheeler-dealers they supplanted. The supposed "defence" is no more than a pose to help them get that power. They have no interest in protecting our interests, which is why they signed our money away on this absurd Enron deal.

Then again, you can hardly expect any better from rath-yatra exponents and mosque-breaking champs. Which is why this Enron fiasco is one real lesson of December 6th 1992.

Dilip D'Souza

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