Price of inexperience

For the third month in a row Maharashtra’s cash-strapped State Electricity Board is unable to pay bills from the US energy major Enron. The reasons are: Enron power is priced three times higher than power from other sources and MSEB’s finances are in a mess. Thus, when the CEO of Enron’s Indian arm, the Dhabol Power Company, warns that letters of credit will be invoked, all that Maharashtra’s power minister says is, `go ahead’. For the last few weeks MSEB has been running from pillar to post to raise the money to pay its dues. And underlining the resources crunch is MSEB’s decision not to take a 30-per cent stake in phase two of the Dhabol plant. As the crisis comes to a head, observers should be forgiven for seeing parallels here with the giant dams and copper smelting plants that came up half a century ago in newly independent countries. Eagerly ordered by ambitious leaders and eagerly built by western business consortia, many projects turned out to be monstrous mistakes: the economics did not work outright, some projects were white elephants, in others the costs grew beyond anything imagined at the start. It took many decades to recover from shattered hopes. The Enron affair shares some of those characteristics.

So will it end up as a monument to folly or will the third attempt to negotiate terms work out well for Maharashtra and Enron? One less than positive contribution towards early resolution of the dispute is the intervention by outgoing US ambassador Richard Celeste. When he said in Mumbai that foreign investors would consider India a less than reliable destination he could not have had the facts at hand. From China to Pakistan, deal-making with independent power producers has been a tough process. Those who have stayed the course have done so first because agreements that work for both sides make good business sense and second because of wider, long-term commitments such as Enron has in the infotech and other fields in India. It is not surprising that the CEO of DPC should indicate he is examining various options including renegotiation of the deal. It may not be the ideal option but it is pragmatic to look for a way out of the current mess.

For the third bid to get the figures right the Vilasrao Deshmukh government must put together a team of top-notch experts. The political jostling going on to name members to the renegotiation team does not augur well. Deshmukh should cast his net wide and draw from the power industry in India and abroad. The mistakes committed by the panel of experts which renegotiated the deal for the Shiv Sena-BJP government — including a project three times the size of the original — must be avoided. Expertise in international finance was lacking. One expert who then argued for India to bear exchange rate risks argues today for Enron to bear it. Last time little thought was given to the need for prior financial restructuring of MSEB. Now that the chickens have come home to roost, reform of MSEB is foremost on everyone’s mind. A high price has been paid for inexperience and ignorance. It should not happen a third time.