Enron’s troubles are still far from over

It’s after this that the matter gets a bit murky. Just last week, a newpaper report pointed out that MSEB did not take kindly to the unfair conditions being imposed by Enron Mauritius. What are these conditions?

If you go by the letter the MSEB wrote to the DPC at the behest of its advisors, the MSEB is willing to subscribe to the equity with the same rights as other shareholders, but has reservations about the obligations that this will entail on it! Mind you, these are the same strenuous obligations that it was so keen that the DPC meet in the first place.

Clearly there’s a big dichotomy in the role of the MSEB as a purchaser of power from the DPC and the MSEB as a body which will now have to fulfil these obligations. It is quite obvious that neither the MSEB or its advisors has any idea that such an agreement can never be accepted in any international court, or by any of DPC’s international lenders.

In its letter, the MSEB says it is not the promoter of the DPC, and so cannot be asked to pay for expenses such as guarantee and other fees that have to be paid to suppliers. In order to ensure that the project is completed on time, big penalties have been imposed on every supplier every step of the waybut these suppliers, in turn, want guarantees that their payments will be made on time. Similarly, the MSEB points out that it was the DPC that undertook to take over the cost overruns in the project as part of the renegotiation, and so it shouldn’t be asked to pay any additional money for this. This is nothing but sophistry, for if the MSEB is a shareholder of the DPC, it just has to take an equal share of the obligations. The piece de resistance, of course, is the MSEB’s assertion that in the event of the project being stopped/suspended/abandoned, then the MSEB will have the option to withdraw and that they will have the first charge on the projects assets. This goes against the very canons of equity shareholding. Nowhere in the world does a shareholder get first preference when a company is wound up — it is always the debtors.

Other objections raised by the MSEB seek to illustrate that there is little understanding of how projects are financed and executed. Thus, MSEB’s advisers have objected to the possibility of the MSEB being forced to shell out huge amounts of money in case of a default on the part of the DPC. While that is certainly a valid point, especially since DPC is incorporated as an unlimited liability firm, even Enron has used a shell company with limited liability (Enron Maurtitius) to reduce its exposure. Surely the same option of investing in DPC through a shell company is also open to MSEB? A more fundamental problem, however, relates to the MSEB’s objections to reimbursing Enron Mauritius 37.5 per cent of the expenses incurred by it so far. The point is, how is the equity capitaland the MSEB’s share of this to be determined eventually. The only way is that an audited statement be made of all expenses incurred to put up the project, and that this sum be divided into debt and equity, and the equity be further sub-divided into each partner’s shares. But isn’t this exactly the course of action suggested by Enron?

The point is that if the dialogue between local and foreign partners is so uninformed, it is certain that all future projects are likely to be badly affected as well. What really irks foreign investors is the lack of transparency in the whole issue. After all, if the MSEB doesn’t want the stake, then let it say so. The issue of transparency, in fact, has recently surfaced in another deal which, coincidentally, also involves Enron. Enron, along with other international gas majors such as Amoco and Shell, has been participating in a negotiated deal to buy out the Mafatlal group’s stake in Gujarat Gas. But just when Mafatlal’s advisors began talking of preparing a short-list of companies, rumours and newspaper reports began surfacing that the state-owned GIIC, the project’s co-promoter may block the sale and buy out Mafatlal’s stake.

This, understandably, has taken all the gas majors by surprise especially since neither the Mafatlals nor their advisors has been able to throw any light on the matter to the proposed suitors. In the event, companies don’t even know if they should pursue the matter any further or not. It is difficult to see how the country will manage to sustain the long-run interest of foreign investors if all deals are to be shrouded with secrecy and almost never-ending.