The ruling political and bureaucratic elite seem to believe that the ghost of Enron project and the monumental failure of governance in its approval can be exorcised by reviving it at any cost. The settlement reached with the two foreign equity holders and the international banks and financial institutions is far too generous. In addition there are the large subsidies (estimated at Rs 10,000 crore) doled out at the cost of the unsuspecting taxpayer to hide from public scrutiny how totally unviable this project was.

MADHAV GODBOLE, E A S SARMA

In perhaps the largest corporate scandal in the world, the Enron empire of the US collapsed in 2001 after ruining the lives of millions of its employees and shareholders. It is noteworthy that in spite of the complexities of the financial trans-actions of the company, the web of shell

companies it had created and the extra-ordinary political clout of its president, Kenneth Lay, criminal cases against the top executives of the company were pursued vigorously, and in less than five years, several top executives were convicted to undergo prison terms running into several decades.

Lay died of a heart attack soon after the judgment was announced but before the sentence could be pronounced. In sharp contrast is the position in India where all those involved in the approval of the Enron power project, which unjustly tarnished India’s image internationally, led to series of arbitration proceedings and court cases, and resulted in a huge financial loss to the exchequer, have not even been held accountable. The ruling political and bureaucratic elite seem to believe

that the ghost of Enron project and the monumental failure of governance in its approval can be exorcised by reviving it at any cost and renaming it the Ratnagiri power project. The settlement reached with the two foreign equity holders and the international banks and financial institutions is far too generous. In addition there are the large subsidies (estimated at Rs 10,000 crore) doled out at the cost of the unsuspecting taxpayer to hide from public scrutiny how totally unviable this project was.

To begin with, it would be useful to recapitulate the salient features of the project. It was to be a base load project with an installed capacity of 2,184 MW and was to use LNG as feedstock. Phase I of 740 MW was commissioned on May 13, 1999 and when the project was mothballed on May 29, 2001, construction of phase II of 1,444 MW was at an advanced stage. This was the largest private sector power project taken up in the country by a foreign investor at an estimated cost of $ 3,000 million. The power purchase agreement (PPA) entered into by Enron with the Maharashtra State Electricity Board (MSEB) was totally one-sided and the cost of power was so high that it would have meant financial ruin, not just of the MSEB but also the government of Maharashtra (GoM), which had given guarantees for the timely payment for the power purchased by MSEB.

The GoM appointed an expert commit-tee on February 9, 2001 to examine the project and suggest a way out. Apart from three other members, the authors of this article worked as the chairman and member of the committee respectively. The committee submitted its report on April 10, 2001 in which it, inter alia, recommended that the project should be restructured by negotiating it afresh to bring down the cost of power. The committee had underlined that this would mean all concerned parties taking a “hair cut”, i e, making substantial concessions. The settlement reached by the centre needs to be examined in this background.