GIVE A THOUGHT TO YOUR REPUTATION

End this scandal

When Enron went bankrupt, Bechtel and GE acquired its equity in Dabhol Power Corporation (DPC). In effect, therefore, Bechtel owns 74 per cent, GE 10 per cent and Maharashtra Power Development Corporation 14 per cent. Under the Power Purchase Agreement made in 1993, the owners were entitled to arbitration in London in the event of a dispute. Bechtel asked for arbitration. The central and Maharashtra governments were represented by London-based counsel. The arbitration panel ruled on May 3 that the Maharashtra government and its subsidiaries had expropriated Bechtel and GE’s share in DPC, and awarded them $125 million.

This award will leave some red faces in the central government. It will be recalled that when Bechtel called for arbitration, the government began looking frantically for another solicitor. But it had spoilt its reputation so much that no one was ready to take on the mantle. Finally it did get a solicitor. But in the meanwhile it had dismantled the team of lawyers that was handling Enron affairs for the NDA government; so it had no one with the competence to brief the solicitor and the counsel. The nation has paid a price for its partisanship and incompetence.

This damaging award will immediately activate substitute minds in the governments in Delhi and Bombay to work out how to avoid paying. They do not have to work hard. Almost ten years ago, the Maharashtra government under chief minister Manohar Joshi of the Shiv Sena repudiated the agreement with Enron. It was hard for him, for Rebecca Marks had established excellent relations with his supremo, Bal Thackeray, and Dabhol had his blessings. He did so on the basis of a report of a cabinet subcommittee headed by the deputy chief minister, Gopinath Munde of the BJP, which alleged lack of transparency, absence of competitive bidding, inflated costs, underhand deals and potential environmental damage. The government can start with that report.

If the central government finds the Shiv Sena-BJP government’s repudiation of the contracts with Enron embarrassing, it can go to Bombay High Court, which had given an order in June 2003 restraining DPC from taking recourse to arbitration proceedings in London. Having acquiesced in the arbitration, the central government will look a bit silly if it now goes to Bombay High Court and asks to be rescued. But consistency has never been its weakness.

The Maharashtra government had also rushed to the Supreme Court in April asking it to hear the DPC case expeditiously; the haste seemed to suggest that it feared an adverse ruling in the London arbitration. If such a thing were to happen within the country, the Supreme Court would take a dim view of the appellant who goes about jurisdiction shopping. But attorney General Milon Banerjee had darkly hinted in his pleadings at a conspiracy of ‘ leaders of the capitalist world’. Obviously the government expects Indian courts to be kinder to it than to its foreign adversaries

However, each of these would be a subterfuge and a postponement of the inevitable. The government must ask itself what it hopes to get from these manouevres.

Immediately, it will be able to put the efforts at settlement back in the hands of its financial institutions. Their heads go every once in a while to Singapore and other exotic places, talk to creditors and shareholders of Enron without reaching any solution, and come back. They can go on having some more fruitless and enjoyable trips, and waste a few more years before starting the plant.

At the end of those wonderful delays, the best the government can hope for is not to have to pay foreign equity holders and creditors anything. That will save it a sum equal to about 1 per cent of its foreign debt and 0.1 per cent of its total debt.

That is not an insignificant sum. The bankrupt Maharashtra government in particular would appreciate any relief. But the capitalists who get Mr Banerjee’s goat will then go about telling everyone that the government of India went back on solemn agreements and cheated them. We in this country know how unfair, unreasonable and iniquitous the Dabhol agreement was; even the World Bank told us so. But when those foreign moneybags chat about Dabhol, they are not going to circulate amongst themselves the report of the cabinet subcommittee of the Mahrashtra government.

Further, the Dabhol plant is on Indian soil and cannot go anywhere. Maharashtra is reeling under a massive power shortage and needs power from Dabhol. The earlier it takes over the plant and gets it working, the better. That requires paying off the foreign investors in Dabhol. If, in the process, our global reputation is improved, so much the better.