Skullduggery in a time of Enron: Remembering Abhay Mehta
Somewhere in my musty papers, I have a clipping of a Hindustan Times report from 8 July 1999. It says that the Maharashtra State Electricity Board (MSEB) asked the Tata Electric Co. (TEC) to “back down its power generation by 200-400 MW”. TEC was then the major supplier of electricity to the city of Mumbai, and this was a significant chunk—11-22%—of its installed capacity.
MSEB asked for this “despite TEC offering power at a rock bottom rate of Rs1.80 per kwh. MSEB [was instead] sourcing its requirements from the controversial Enron’s Dabhol Power Corporation (DPC) which is charging anything between Rs3.01 and Rs4.25 [per kwh].”
The HT report questioned “the rationale behind MSEB’s decision to source costlier power, which is beyond all principles of commercial jurisprudence. [It] may not be in the interests of the consumer as well. ... MSEB seems to have [ignored] the cardinal principle worldwide that cheapest power will be given the first preference in meeting electricity demand.”
What HT was reporting there was perhaps the first tangible fallout of the deal MSEB had signed with Enron, a name notorious in these parts in those last years of the 20th century. MSEB had contracted to buy more expensive electricity from Enron—and thus was forced to ignore the available supply of less expensive TEC electricity.
In other words, we turned off the cheap juice so we could turn on the expensive juice.
In his 1999 book Power Play, the perceptive, dogged analyst Abhay Mehta had warned of this perversity and more in the Enron deal. He was one of the few people who actually scrutinized and understood the deal.
Power Play should have been—and still can be—required reading in circles that place touching, unquestioning faith in governments, free markets and private enterprises.
Consider just a few more revelations in the book.
Enron first showed an interest in building a power plant in India in the early ‘90s, and began discussions with Indian authorities then. Right from the start, they had one serious concern.
They persuaded the chairman of MSEB to explain it to the Government of India, which he did in a letter dated September 30, 1992: “Public and judicial scrutiny of business policy and decisions as per the [Companies] Act will not be acceptable by a company like DPC.” Enron wanted to work in India, but didn’t want to be bothered by laws in India. Nice.
At the end of 1993, Enron signed a power purchase agreement with MSEB, some of whose terms the HT report suggests.
The PPA was the fulcrum of the whole project. Yet, as Mehta found, it “is remarkable in its complexity. It obfuscates seemingly trivial issues to such an extent that perhaps there is no single person who can understand all [its] aspects.”
Not that people did not try.
When, in those pre-RTI days, a consumer organization had asked Enron and MSEB for copies, the company had this supercilious reply:
“To a country as yet unused to the phenomenon of privatization, this may be difficult to understand, but in a competitive market a PPA is the one document that affords companies an edge over the other players in the field. ... [Therefore] such a document is zealously guarded by all companies.”
Excellent primer in privatization and free market dynamics there. Only, as Mehta was crass enough to point out, this was no “competitive market”. There were no “other players in the field”.
Enron did not bid for this contract. All the electricity that came out of Dabhol was to be bought by just one customer—MSEB.
Given this suspicious determination over many months to give Enron its deal, the Shiv Sena and the BJP, political allies fighting the 1995 Maharashtra Assembly elections, had a ready-made campaign plank.
Allegations of Enron-funded corruption against the then Congress chief minister of Maharashtra, Sharad Pawar, were shouted from every election meeting platform that year.
At the site where the plant was coming up, BJP’s Gopinath Munde roared: “[We will] throw the project in the Arabian Sea. ... [I] promise you that I will be fighting along with you till the time Enron is removed from this land.”
All of which helped sweep the Sena-BJP alliance into office that March. By July, their government had produced what Mehta calls “a damning and reasoned indictment of the project”.
Among much else, it noted that the consumer “would have to pay a much higher price for power than is justified [which would] adversely affect Maharashtra”. Using the report, and calling Enron “deceptive and fraudulent” and more, the government of Maharashtra cancelled the project.
Was that the end of Enron in India? Sorry, no.
On 3 November 1995, Enron’s CEO Rebecca Mark visited the Shiv Sena’s Bal Thackeray. It must have been an interesting meeting—five days later, the Maharashtra Government constituted a renegotiation committee, asked to “revive” the project.
Eleven days later—I am not making this up — the renegotiation was complete and Enron was back on track.
And the price of its power? The renegotiation committee claimed that the “starting tariff” would be Rs2.22 a unit.
To calculate that figure, it made a number of assumptions, one of which was that the dollar was worth Rs32 and would remain there for the next 20 years. (The price of power was tied to the dollar, not the rupee).
Not only was the dollar already at about Rs35 when the committee was “renegotiating”, it rose inexorably over the next 20 years to its current level of about Rs65.
No wonder HT had reported in 1999 that DPC was charging MSEB between Rs3.01 and Rs4.25 a unit for its power, twice TEC’s rates.
There’s much more in Mehta’s remarkable book. In the end, after all his prolonged analysis, Mehta confesses that he does not think the “problem is with Enron”.
On the contrary, he actually develops “a sneaking admiration for a remarkable opponent [that] did what most business houses would have done to secure such a deal”.
(The subsequent sordid story of Enron is another story.)
The problem, Mehta writes, is really with “the Indian nation state of India and all that term represents or should represent. At the core ... lies our inability to deal with or look after our own interests and to take responsibility for our actions or the lack thereof.”
Give that a thought.
On 31 July, Abhay Mehta died of organ failure. Those who knew him and his razor-sharp mind are devastated. But there remain lessons, even today, from his dissection of Enron two decades ago.
If we care to learn them, I think he will not have died in vain.