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Enron is on the MPCC agenda - Views on News from Equitymaster
 
 
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  • Sep 8, 1999

    Enron is on the MPCC agenda

    According to newspaper reports, the Maharashtra Pradesh Congress Committee (MPCC) has threatened to pull the plug on Enron Corporation’‘s controversial power project if it were to win the elections in the state. The MPCC has justified its stand on the basis of the high tariffs charged by the Dabhol Power Company (50% owned by Enron).

    India, which initiated the current phase of economic reforms in the beginning of the decade, still lags its emerging market peers in terms of inflow of foreign funds into the country. The move by the MPCC could further worsen the situation.

    The Dabhol Power Company has been in the eye of the storm ever since it entered into an agreement with the then Congress government in Maharashtra to set up a power plant in the state. In the subsequent elections to the state assembly, the Shiv Sena and Bhartiya Janata Party coalition won comfortably on the promise to plug the Enron project. The main argument for this stand was that high tariffs were built into the contract with the company. On being elected to the state assembly, they reworked the contract and gave a go ahead for the project.

    This saga seems to be never ending. The Congress has again raised the issue of high tariffs being paid to the company. However, if the contract were to be cancelled or reworked, it would not reflect well on the Indian investment climate. This could further dent the future inflows of foreign funds into India.

    In conclusion, it is the Indian polity that should take most of the blame for having worked out high tariffs in the first place.

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