The Hindu : Enron, a commercial and not political risk

Online edition of India's National Newspaper
Tuesday, Sep 23, 2003

Business

Business

Enron, a commercial and not political risk

By Oommen A. Ninan

MUMBAI SEPT. 22. There has been a repeat drama in the saga of the controversial Enron power project with the Overseas Private Investment Corporation (OPIC), the political risk insurer agency of the U.S. Government, and Christina Rocca, U.S. Assistant Secretary of State for South Asia, trying to arm-twist the Indian Government.

Continuing the pressure tactics, today General Electric and Bechtel Corporation, with 10 per cent equity each in the Enron owned $3 billion Dabhol Power Company (DPC), filed an arbitration action against the Government of India to recover their investments in DPC under the Arbitration Rules of the United Nations Commission on International Trade Law and the investment agreement between the Republic of Mauritius and the Government of India.

Earlier this month (September 9) an independent U.S. arbitration panel had ruled that the interests of the two multinationals in DPC were "improperly expropriated'' by the Indian Government. The tribunal ordered a binding award of $28.57 million to each for the claims they had brought against their political risk insurer.

"Like last year's February performance, the actors behind the Enron scam again made a big show involving political risk insurance claims by General Electric and Bechtel on the OPIC which gives political insurance to American companies for their investments abroad,'' said Pradyumna Kaul, a leading Mumbai based power expert.

The two companies in a jointly signed press release tried hard to send a signal that the OPIC could now make a claim against the Government of India under an international treaty after releasing payments to them. Christina Rocca who had announced at a press conference in Delhi last year that the Enron episode was at the centre of Indo-U.S. relations does not seem to have made any breakthrough in using the OPIC stick again.

Readers may recall that in February 2002, Enron had played the same card of making the OPIC pay political insurance to Enron, General Electric and Bechtel equal to their equity shareholding in Dabhol. In turn, the OPIC and the U.S. Government tried to force the Government of India reimburse the claim amount to the OPIC. General Electric and Bechtel claimed that they had made out a case of political "expropriation'' of their property rights in DPC and that the Indian Government and the State of Maharashtra had used their sovereign power to shut down and take over the DPC assets before the U.S. arbitration panel. The two have gone so far as to say, in their press release, that the lower courts and the regulator, Maharashtra Electricity Regulatory Commission (MERC), have also used political and sovereign powers to take over the property rights of the U.S. shareholders in this stranded project.

Government sources have clearly indicated that the controversy in Enron is entirely "commercial'' and at no stage has the Government used its sovereign or political powers. It may be recalled that the genesis of the dispute lay in the claims by Enron of partially unpaid bills by its sole buyer, the Maharashtra State Electricity Board (MSEB), which has a higher stake of 15 per cent, against 10 per cent each of General Electric and Bechtel.

It was in 2001 when Enron refused to accommodate the MSEB's request and proceeded unilaterally to invoke the guarantees and counter guarantees that the MSEB served a counter claim against DPC for having over-billed it by making false declarations of ''Availability'' (This is an engineering term indicating how much capacity would be available for delivery which the MSEB would have had to pay even if actual delivery had not taken place). The MSEB at this stage served the commercial notice on DPC exposing the misrepresentation in the ramping-up time of DPC generators and the false declaration of "Availability.''

The MSEB was within its commercial and contractual powers to make such a claim and initiate re-negotiations. It had all along offered to continue the commercial relationship with DPC and offered to continue purchase of electricity generated by DPC, though at a slightly reduced price than the agreement price. The threat of the OPIC being able to make out a case of political interference by the Indian Government does not seem to worry either the lenders or the Government.

In the Enron-DPC imbroglio, it is obvious that a solution can be found only if the plant is able to deliver power at a price that is lower than the existing cost of supply and is internationally comparable.

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