By Anil Nair in Mumbai
The disclosure by Attorney General Milon Banerjee that the Indian financial institutions are in a delicate stage of negotiation with GE (General Electric) and Bechtel to take over their majority stake raises a lot of alarming questions.
The Indian financial institutions (FI) led by IDBI have reached a settlement with the consortium of off-shore lenders and US-based Overseas Private Investment Corporation (OPIC). There is a lot of speculation over the price that Indian FIs will have to pay to take over the company. Even though no one is ready to hazard a guess on the price quoted by GE and Bechtel to sell their stake to FIs in India, there is this growing concern that if the negotiations are not made public, we will have another Enron scandal in the making.
Interestingly, this issue came up during a hearing at the Supreme Court where Dabhol Power company has challenged the earlier Bombay High Court order to settle disputes through the Maharashtra Electricity Regulatory Authority (MERA). The company contends that there is an exclusive clause in the PPA (Power Purchase Agreement) which states that all disputes will be settled by an elaborate arbitration procedure, which will entail arbitration process to be carried out in London.
In international jurisprudence any new law will automatically over-ride the older laws, and even if any company insisted on the Indian Electricity Act of 1910, it will have to abide by the new laws passed by the country'slaw-makers?? explained Anil Gachke, the all India convenor of Action Group on Power and vice-president of the Maharashtra Chamber of Commerce, Industry and Agriculture.
India has already paid heavily for the naivety and, of course, the ?education? by Enron officials. By its own admission during a Congressional hearing in the US, Enron officials admitted that it had spent nearly $60 million to educate Indians.
What could be the motive behind this clause in the PPA which reveals lack of faith of the company in the Indian regulatory mechanism and institutions, is again a mystery. Probably the company is trying to make it hard and costly for the MSEB (Maharashtra State Electricity Board) to settle disputes with the company by approaching arbitrators in London, though the clause only shows a streak of racism.
But the sudden announcement by the Attorney General about the delicate negotiations between the Indian financial institutions and its majority foreign stakeholders has made many in the power industry seek transparency in the on-going discussions. Will the financial institutions be led up the garden path like it happened all through the company'schequered history? India has already paid heavily for the naivety and, of course, the ?education? by Enron officials. By its own admission during a Congressional hearing in the US, Enron officials admitted that it had spent nearly $60-million to educate Indians on the intricacies of setting up a gas-based power project. It was an incredibly smart way of camouflaging kick-backs. The commercial disputes over pricing of power between the company and MSEB led to the government stopping all purchase of power from the company. This was probably one of the few instances of Indian ingenuity in dealing with a rogue company.
The fast track Enron has fast disappeared. The foul remains.
But the moot question remains the same: Why did the government not scrap the PPA and renegotiate? At one point of time, when the parent company Enron was going bust, there was enough leverage for the Indian government to rescind on the PPA and start afresh, negotiate on a firmer footing and seek logical and reasonable agreement with DPC which would have brought the cost of power to much lower levels.
Also, instances of Enron selling its stake to GE and Bechtel without consulting MSEB could have been used favourably to renegotiate with the company. Enron stock going bust and the subsequent scandals, Congressional hearings in the US, etc. could have been an opportunity to turn the tide.
But the fact remains that no political party in India will be ready to scrap the PPA as that would bring a lot of skeletons out of the closet. When you prove that the PPA itself is fraud, the parties signing it will also be questioned for their intention and credibility.