Cancellation of Giant Electrical Project in India Scares U.S. Investors

By Ali, M. M. | Washington Report on Middle East Affairs, September 1995 | Go to article overview

Cancellation of Giant Electrical Project in India Scares U.S. Investors


Ali, M. M., Washington Report on Middle East Affairs


Cancellation of Giant Electrical Project in India Scares U.S. Investors

By M.M. Ali

The decision of the Maharashtra state government in Bombay to cancel a $2.8 billion electrical power project that was to be built by Enron, an American consortium, has embarrassed the Indian national government in Delhi and frightened many of the U.S. investors who had decided to plunge into the Indian market. None of this has disconcerted the new Maharashtra government installed since the deal was originally signed in June 1992.

The Bharatiya Janata Party and the extremist Hindu Shiv Sena had made the Enron deal an election issue, promising to scrap it if they won the Maharashtra state elections from the previous Congress party administration. The victorious BJP-SS coalition appointed a commission to look into the terms of the deal and the circumstances under which it was struck.

The commission charged that the 2,015-megawatt power project had been approved without open bidding and given to an Enron creation, the Dhobal Power Company. According to the present chief minister of Maharashtra, Manohar Joshi, who recently returned from a visit to the U.S., "the negotiations were one-sided, and whatever Enron asked for was granted." He said that according to the memorandum of understanding (MOU) signed between the parties, Enron would have received Rs. 2.40 per kilowatt hour from the state electricity board in 1997, compared to Rs. 1.74 currently being paid to existing power plants. Further, Enron had been offered a guaranteed minimum return of 16 percent on investment which would rise to 30 percent when the plant was brought up to full operational capacity.

The American consortium behind the Enron project, which includes the General Electric Capital Corporation and Bechtel Enterprises, represented the largest single foreign investment in India. Indian Finance Minister Manmohan Singh had termed the Enron project a "litmus test for the nation's freemarket program." The project also had been publicized heavily during U.S. Commerce Secretary Ron Brown's visit to India last year.

Reacting to reports of opposition coming from Maharashtra, U.S. Energy Secretary Hazel O'Leary warned in June that failure to honor the Enron agreement would jeopardize "other private power projects being proposed for international financing." This was interpreted by opponents of the project as an example of U.S. arm twisting. Responding to a warning note that his decision could lead to a multimillion-dollar law suit, Joshi replied: "We are prepared to pay the price to protect the interests of the state and the consumers."

The Hindustan Times reports that $20 million already has been disbursed toward "educating Indians" on the project. The paper adds: "The beneficiaries--trusts, companies and individuals--made substantial withdrawals immediately." The BJP-SS government is believed to have instituted an inquiry for possible prosecution of people involved in the deal on charges of receiving kickbacks and of by-passing established government procedures.

Enron now has initiated talks with Israel.

Enron had contracted with Qatar for the purchase of substantial quantities of gas for use in the Dhobal project. The Times of India reported on July 20 that Enron CEO Rebecca Mark now has initiated talks with Israel concerning the marketing of five million tons of natural gas from Qatar. The Israeli project, the paper reported, could offset the loss of the Indian market for the same amount should the Enron program finally fall through.

Sheikh Hamad Bin Khalifa Al Thani, who has replaced his father as the emir of Qatar, has focused on the construction of facilities to develop his country's huge natural gas reserves as the future mainstay of Qatar's economy. According to Platt's Oilgram News of New York, the Qatari government holds a 65 percent interest in the gas project, Mobil and Total have 10 percent each and two Japanese firms, Marubeni and Mitsui, have 7. …

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