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Enrol and Dabhol
THE SENSATIONAL COLLAPSE of Enron and the ever-expanding sequel to it hold important and varied messages, including for us in India. The fate of the Dabhol project comes into sharp focus. Even before the totally unanticipated plunge of its chief promoter into bankruptcy, the future of India's largest and most controversial foreign direct investment was delicately poised. Among the several suggestions made to restart the project, the only feasible course seemed to be the one which would involve the buy-out of Enron's stake by one or more of Indian companies and thereafter renegotiate the entire project terms, including the contentious power purchase agreement with all its stakeholders. That route needs to be pursued even in the vastly changed circumstances, by all accounts with an even greater sense of urgency.
Many in India who believe that Enron's troubles in America would help in an early resolution of the DPC imbroglio might be mistaken. On the contrary, Enron's demise seems to complicate matters. Despite its tough posturing before its fatal flaws became public, Enron was reportedly preparing to exit from the DPC. Although not confirmed, there were indications that it would have accepted much less than the one billion dollars, which it had claimed was a fair price for its 60 per cent stake. It is highly unlikely that such a decision will be made by Enron alone: the bankruptcy proceedings now going on will determine the way and the speed with which its assets will be sold.
In any case, the time for reckoning has come for the DPC. Prospective Indian buyers, the Tatas and BSES in the beginning joined by a few others later, would have to move faster, complete the due diligence and arrange the funds. Both the tasks were never easy even in what by today's standards seem to be normal times. A failed Enron will be more difficult to handle, posing major challenges to those determining the price of its investments here and thereafter funding the acquisition by an Indian party. Needless to add, a distressed vendor would rather receive the bulk of its sale consideration at one go rather than accept a leisurely deferred payment schedule, which it might have accepted in its better days.
All other stakeholders of the DPC face a similar uncertainty in the wake of Enron's collapse. Indian financial institutions and banks having a very large exposure have special reasons to be worried, even though they are publicly claiming that they have adequate security. Not getting interest on their loans, they will soon have to make provisions. For all of them there would be a serious dent in their profits for the current year. Moreover, since the Dabhol project has for all practical purposes been closed and nearly all its employees laid off, it is going to be particularly expensive to restart the operations.
In short, none of the controversies — relating to its economics, legal or any other — seem abating in a post-Enron scenario. The legal route on which the Maharashtra State Electricity Board and the State Government were banking on will not move any faster than before. The fact remains that both of them have been in default, having reneged on valid contracts. The other legal option of striking at the roots of the original one-sided contracts alleging ignorance, even malfeasance on the Indian side, suddenly looks good in the light of the voluminous material now available on Enron's unethical behaviour in the U.S. However, no India-specific shenanigan has yet come to light and even if it does it will be useful to remember that another cumbersome process can be fatal for Indian interests in the DPC and on the flow of FDI into the country.
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