The Indian Budget 1996-97 The Indian Economy Overview

COMMENTARY : Enron Power Project

[Indian Power Industry] [Related Pages: 1 2 3 4 5 6 7]

Enron Power Project in India Steams Ahead

Six months after the right-wing government of the state of Maharastra canceled the Enron-led Dabhol power project, the $2.5 billion deal is back on track.



Controversial Enron Power Project Site
Photo: Shailendra Yadav/Outlook Magazine

In January 1996, the right-wing Hindu government in the Indian state of Maharashtra reversed itself and approved a controversial US$2.5 billion power plant to be built by an American multinational, the Enron Development Corporation.

In Bombay, the state's chief minister, Manohar Joshi, who in August had scrapped the 2,015 megawatt project as being "anti-people", cleared the project, the single largest foreign investment in India since the government in 1991 started new economic reforms. The political controversy in which Enron became embroiled in Maharashtra scared off other multi-nationals wary of risking money in India's emerging markets.

Maharashtra's right-wing Hindu government --an alliance between Shiva Sena and the Bharatiya Janata Party (BJP)-- said it was satisfied with the concessions made by the US-based multi-national during the arduous renegotiations. However, an Enron spokesman said that while the state's volte face was "a significant step", some details remained to be sorted out. Enron and state electricity authorities are reportedly still bargaining over the price the multinational will be able to charge for its power.

Mr Joshi tore up the Enron deal, made by the previous Congress state government, after the right-wing Hindu coalition won the Maharashtra elections. The chief minister said the contract was awarded without competitive bidding. He also claimed that the power plant threatened to damage the coastal environment and that Enron was demanding high rates.

The Hindu nationalists portrayed Enron as a multinational with fangs, ready to drain the savings of India's poor farmers and townspeople. It proved an effective vote-winner for them. Enron was lumped with MTV, Pepsi-Cola and Kentucky Fried Chicken as symbols of western obnoxiousness. The Enron fiasco was held up by the Hindu extremists as a cautionary tale of all that could go wrong when India opened its doors to greedy western firms, after nearly half a century of a shut-off socialist economy.

After Mr Joshi canceled the project, Enron's glamorous chief executive officer, Rebecca Mark, lobbied smoothly with Bombay's right-wing Hindu chiefs to change their minds. Ms Mark remarked, "Indians believe in reincarnation, so the (power project) too can reincarnate."

The newly-elected Hindu politicians also faced the prospect of paying off stiff penalty fees to Enron. International arbitrators might have forced Maharashtra to compensate Enron with up to $2 billion for tearing up the project. Mr Joshi claimed that Enron had agreed to lower its rates and scale down the project's original cost to $1.8 billion. Maharashtra, and especially Bombay, the country's economic powerhouse, is also desperately short of electricity. This makes the project critical in more ways than one.


[Indian Power Industry] [Related Pages: 1 2 3 4 5 6 7]

Tim McGirk is the South Asia correspondent for the Independent of London, and The Sydney Morning Herald of Australia. He is also the author of a book on Salvadore Dali's wife. McGirk lives with his wife and two sons in New Delhi.


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