Talk:Dabhol Power Company

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First, i was surprised that the project was started when congress party was in power. For some reasons, i was under impression that current party was more transparent (Well, i am aware transparent government is an oxymoron} than the previous party, but it looks like i should ease of on my crack intake.

Anyway, i came across the company's name from Joseph Stiglitz "The Roaring Nineties" and here is an interesting quote from the book.

...Enron became a symbol of everything wrong with globalization. Nothing tells the story better than its investment in Dabhol located in the state of Maharashtra, India. While the whole transaction was tainted by political influence, it is the economics of the deal that concern me here. The World Bank, though it was hardly Enron unfriendly, having provided over $700 million to various Enron projects, strongly criticized the project as costing too much, concluding that it was not economically viable. There was one way it could be made economically viable, for Enron but not for India - which was to guarantee Enron high electricity prices. Of course, high electricity prices would mean that India, struggling to compete on global markets, would be put at an even greater disadvantage.

Enron received a so called "take or pay" contract that left Enron taking the profit and India paying the price and bearing the risk. It was the kind of private/public partinership that the private sector finds so profitable thoughout the developing world.

....One might have thought that given that so much of the risk was being borne by India, the return would be relatively low, not so: the contract provisions were designed to yield Enron a before-tax return of 25%. The price that were set stunned outside observers. Before Enron was forced to back down in 1995, it proposed a tariff of 7-14 percent per kilowatt hour. Even afterwards when the price was reduced by some 25% - Enron was still able to earn a return that exceeded the normal level allowed by Indian law. (Note the company was selling electricity at twice the price of its local competitors.

Given Enron low risk, subsidies from US government provided by America's Export-Import Bank, why did the India government sign the contract when it could get electricity at a better rate elsewhere? Part of the answer was: US put political pressure. Enron officials joined a cabinet trip to India, and direct pressure was put on India by the American ambassador. Though Enron contined to maintain it abide by Foreign Corrupt Practice Act, those in India remain unconvinced.

When riots broke out, the police acted abusively, according to later reports by Human Rights Watch. Whether justified or not, Enron was blamed, further intensifying the antagonism. When India threated to cancel or alter the deal, the full pressure of US administration was brought to bear, both during the Bush and Clinton administration. During Bush administration, the phone call allegedly came from Dick Cheney; during Clinton, only somewhat short of that level...... gathima 01:22, 15 Jun 2005 (UTC)