- The Washington Times - Saturday, July 13, 2002

BOMBAY On a craggy hill overlooking a cove once used by gold smugglers, Enron Corp. set up a $2.9 billion dream enterprise what was to be the world's largest natural-gas-fired electricity plant.

Nine years and a slew of court battles later, the 1,700-acre complex is a rusting ghost town with deserted roads and buildings. Its hospital, school, engineering institute, industrial sites and miles of mango orchards are eerily still. Several gas-storage tanks each big enough to accommodate a Boeing 747 are empty.

Long before the corporate giant crumbled in Texas, its troubles had started in India, in the western state of Maharashtra.

The sole customer of the project, the Maharashtra State Electricity Board, delayed its start and then refused to pay for the electricity. Enron accused the utility of reneging on its contract. The utility countered that Enron was charging some of the highest rates in the world.

At its height, the power plant in Dabhol, 200 miles south of India's industrial hub of Bombay, employed 15,000 people who bustled about in yellow helmets, constructing the last phase of the 2,184-megawatt plant.

It was to be Enron's largest overseas project, the biggest foreign investment in India, and the showpiece of U.S. economic relations with this country.

The project was 90 percent complete. It was producing electricity its generators running on naphtha and was to convert to liquefied natural gas supplied through India's biggest fuel terminal.

But production and construction stopped in May 2001, and now only a few dozen men are left to guard the decaying empire.

What remains is Enron's unsecured debt of more than $1.5 billion to Indian financial institutions and an additional $650 million owed U.S. lenders, which American taxpayers may end up reimbursing.

Enron and its U.S. partners, Bechtel and General Electric, want their assets sold for $1 billion.

But unloading Enron's Dabhol Power Corp. looks like a distress sale, especially since Enron filed for bankruptcy in the United States amid a scandal over its accounting practices and its influence in Washington.

The bankruptcy proceedings have not touched the India operations, which are mired in separate lawsuits in Bombay. A Maharashtra court is hearing the state utility's complaint that Enron's high power charges were not covered by the agreement, and Enron's counterclaim that the utility's refusal to pay violated the contract.

Critics see Enron's experience as the saga of a big corporation that used political muscle and, it is said, bribes to win a lucrative contract for a power plant that never should have been built. They note that the World Bank refused to finance the project in 1993, calling it "unviable."

"The government was taken for a ride," Madhavrao Godbole, a former government minister who headed an inquiry into the affair, told AP. "Enron cheated India. It's an outstanding example of how a multinational company should not get into an agreement with a developing country."

In Enron's view, the Dabhol plant was the victim of unexpected economic changes, and its India spokesman, Jimmy Mogal, rejects the view that Indian officials were hoodwinked.

"No one had them signing the contract with a gun to their head," he said. "The government of Maharashtra and the government of India have completely reneged on their international contracts signed not once, but twice."

Enron has repeatedly denied assertions it paid bribes. It has never been charged with a crime in India.

Mr. Mogal, Enron's spokesman in India, said power costs soared for reasons beyond Enron's control beginning with the sharp rise in global prices for the naphtha used as fuel in the project's first stage.

"Naphtha prices went flying through the roof, and it impacted the tariff" to be charged to the state utility, Mr. Mogal said. "Also, the rupee-dollar exchange rate changed. A tariff is a formula. It is never a fixed number."

As in most of India, the state utility was selling subsidized electricity to consumers charging 3 cents per kilowatt hour for power purchased from Enron at 16 cents.

The Indian currency stood at 32 rupees to the dollar when the latest contract was signed in 1996. Today, a dollar is worth more than 48 rupees.

Prices also shot up owing to a formula that meant "the less you buy, the more you pay," Mr. Mogal said. He said that by the time the plant shut down, the utility was buying just 40 percent of the electricity produced, yet paying for the entire power production since it was the only customer.

The great advantage for Enron and the major complaint against it was a contract clause that required India's federal government to pay up in case of default by Maharashtra state.

Enron invoked the federal guarantee twice. The national government in New Delhi has said it will pay, but only after the financial dispute is resolved.

U.S. Ambassador Robert Blackwill argues that India's failure to pay makes potential investors nervous about doing business in India.

"The Dabhol dispute feeds a chronic perception among the overseas-investing community that India may not be ready yet for big-time international investment," he said. "I hear frequent buzz from the United States that the sanctity of a contract may now be in doubt here, a concern that can spell death to potential investments."

India's Industry Ministry says foreign investment in the country is currently valued at $4 billion, higher than before economic sanctions prompted by the country's 1998 nuclear-weapons tests.

Meanwhile, charges continue to swirl about how Enron influenced Indian politicians to ease its way through the bureaucracy. The charges are widely believed, given that electrical power often plays a role in Indian politics. Farmers sometimes get subsidized rates, and state governments rarely act against powerful constituents who illegally tap into power lines.

Rumors of corruption arose in 1995, when Enron executive Linda Powers told a subcommittee of the U.S. House that $20 million had been spent "educating" Indians. Indian politicians and news media contended the money was used to buy political influence.

"They bought over all the political parties who were opposing them," charged Pradyumna Kaul, a management consultant whose Anti-Enron Front is waging a separate court battle to have the Enron contract voided.

The Bush administration took an active interest in Enron's situation in India.

U.S. government files show that President Bush's aides prepared for him to talk about the company when he met Prime Minister Atal Bihari Vajpayee in November, but his spokesman said it didn't come up. Vice President Richard B. Cheney raised the issue a year ago with opposition leader Sonia Gandhi.

Critics blame both Mrs. Gandhi's Congress party, which governed India at the time Enron was invited to Maharashtra in 1992, as well as the state's main opposition party, the Hindu nationalist Shiv Sena.

The Shiv Sena threatened to "throw Enron into the Arabian Sea" if voted into power. After it was elected in June 1995, the party scrapped the contract, but then renegotiated it after meetings with Enron International Chief Executive Officer Rebecca Mark to allow Enron to produce even more power.

"The truth is that those who negotiated the deal did not protect the interests of the state or the nation, and went on a signing spree, succumbing to Enron's pressure," charged Murli Deora, a senior Congress party leader, referring both to members of his own party and the opposition.


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