Thursday, April 1, 2010

PPP- Lessons from Dhabol power project of Enron

Issue: The non-transparent dealing without a proper micro analysis of the whole situation led to the buildup of a suspicious environment from the very outset. No through and serious exercises were undertaken as to how they would enter successfully as the first entrant in a public domain was kept closed very securely for decades. Over reliance on Government of India and non rational activities in passion and haste by Enron landed it in crisis from the very start. . The Enron management was not able to appreciate and plan their strategies for an eventuality of a power shift at the Federal or State level. This established lack of foresight in planning and it was full of loopholes at every level and every step, as a result what should have been done first was done later when situation went out of control. All stakeholders at different level where kept in dark and not taken into confidence by different mechanism particularly media, political parties, board employees and local people and their organizations. Hence, constituency building was not done properly. The technical instruments between Enron, GoI and State Government were not based on sound research, logics and evidences, thus they generated suspicion and confusion against Enron and the media kept adding salt to injury from day one. No mechanism was evolved to reduce the expected opposition and garner support and resolve the conflicts.

Recommendation: A joint venture with some reputed business house of India should be transparent from the outset and a sound technical document and planning should have been carried out to make it work.

Background: On a three-week trip abroad, during May and June 1992, a senior Indian government delegation met Enron officials and announced the company was interested in building a power plant in India. On June 10, 1992, almost immediately after the delegation's trip, the Indian Government's Secretary of power informed the Maharashtra State Electricity Board that a group of Enron officials were coming to survey land along the coast of Maharashtra for a proposed power project. Five days later, representatives of Enron and General Electric arrived in New Delhi and met with officials of the Federal Government. Two days after that, the company’s delegation arrived in Mumbai and reviewed sites along the coast. Following their survey, they met with representatives of the Government of Maharashtra, and on June 20, 1992, a Memorandum of Understanding (MoU) with the State Government was signed to build the Dabhol Power project. The deal-making process was criticized for its haste, lack of transparency and the absence of competitive bidding. There was widespread belief that corruption played a role in the project's implementation. "It appeared like an ad hoc decision rather than a considered decision on a durable arrangement. After the agreement was signed, the Government of Maharashtra requested World Bank (WB) to review the project to determine the requirements of by the companies and the Government and to evaluate the MoU. The WB determined that the MoU was "one-sided" in favor of Enron and turned down financing on the ground "Not Economically Viable" and found that project did not satisfy the test of least cost power and it was too high for the power demands of Maharashtra. Secretive dealings at all levels created great confusion and media was antagonized when they were not given information. As such an opposition to the project started right from the very beginning. The superficial planning and approach made the things worse at each step.

Recommendation: Enron was the first implementation of a changed policy in power sector after decades of a narrow outlook. Indian mind set was not ripe for such changes. State electricity Board didn’t want any entry due to their won selfish reasons. Political uncertainty and change of power was a major factor which requires research and strategic planning. Transparency is the first step to be successful. Enron was not having long and good experience in such projects as per WB report. In the light of these, Enron would have taken a reputed business house or a Indian partner to get ground information and for managing the changes. The main reasons for failure were hasty actions, superficial approach and secretive dealings. This big a project which is implemented for the first time without any system and experience needs time and caution to avoid unforeseen problems. The project with transparent dealing and detailed approach would have led to reaching the destination with fewer problems in way.