Enron in India: The Giant's First Fall

Enron's collapse may have begun with the kind of misadventures it engaged in half a world away among the quiet coastal villages of Dabhol, India.

In 1992, the Enron Corp. announced it would build a $3 billion natural-gas power plant in Dabhol in the western state of Maharashtra. The project was to be the poster child of economic liberalization in the country -- the single largest direct foreign investment in India's history.

Instead, Enron in India has been an economic disaster and a human rights nightmare.

From the get-go, the Dabhol project was mired in controversy. Enron worked hand in hand with corrupt Indian politicians and bureaucrats in rushing the project through. Charges filed by an Indian public interest group allege Enron and the Indian company Reliance bribed the Indian petroleum minister in 1992-93 to secure the contract to produce and sell oil and gas from the nearby Panna and Mukta fields to supply the plant.

A Human Rights Watch report recounted incidents of farmers' land stolen, water sources damaged, officials bribed and opponents of the project arrested on trumped-up charges. In 1997, the state police attacked a fishing village where many residents opposed the plant. The pregnant wife of one protest leader was dragged naked from her home and beaten with batons.

The state forces accused of abuses provided security to the Dabhol Power Corporation (DPC), a joint venture of Enron, the Bechtel Corp. and General Electric, overseen by Enron.

The U.S. State Department issued the DPC a human rights clean bill of health. Charged with the assessment was U.S. Ambassador Frank Wisner, who had also helped Enron get a contract to manage a power plant in Subic Bay in the Philippines in 1993. Shortly after leaving his post in India in 1997, Wisner took up an appointment to the board of directors of Enron Oil and Gas, a subsidiary of Enron.

Thanks in part to Wisner's positive rights review, Washington extended some $300 million in loan guarantees to Enron for its investment in Dabhol -- even though the World Bank had refused to finance the project, calling it unviable.

A recent Indian investigative committee report exposed an "utter failure of governance" -- bribery, lack of competitive bidding, secrecy, etc. -- by both the Indian federal government and two successive state governments as they rushed the Enron project through.

By June 2001, the Maharashtra state government had already broken off its agreement with DPC because its power cost too much. That was the plant's one and only customer.

By December, news of Enron's collapse was in newspapers across the world. But the company still filed a $200 million claim with the U.S. government's Overseas Private Investment Corporation, a U.S. taxpayer-funded insurance fund for American companies abroad, in an attempt to recoup losses from the DPC. Indian newspapers reported that Vice President Dick Cheney, Treasury Secretary Paul O'Neil and Commerce Secretary Don Evans tried to twist the Indian government's arm into coughing up the money. Otherwise, U.S. officials warned, other investment projects would be jeopardized. International media reported last month that U.S. government documents showed Cheney tried to help collect the debt.

Today in Dabhol, the power plant is considered polluting and undependable. Spring water has become undrinkable, the mango crop is blighted and the fish catch is dwindling. Often at nightfall, the electricity fails.

How did Enron manage to push the project through? By using a time-tested strategy. Centuries ago, the East India Company went to India to trade and stayed on to rule. Before long, Indian money and goods were feeding coffers in London, and the products were sold back to the colony. The DPC was in India, but the money went to Enron's offshore tax shelters. And just like the East India Company, Enron appeared to apply a strategy of divide and conquer. It offered groups of villagers money, hospitals and lucrative labor contracts, with the result that families sometimes became divided against each other.