India’s Power Troubles And Enron

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With severe power shortage problems predicted for the turn of the century, India was faced with finding a solution to this problem either domestically or through foreign investment in the early 90’s. India’s financial standing in the world markets was extremely low and had never been an attractive country for foreign investment. Enron Development Corporation, a part of American Enron, believed they could solve India’s power problem through the construction of the gas-fired power station, the Dabhol Power Company (DPC), in Maharashtra. “The ENRON/Dabhol project represented India’s biggest single foreign direct investment, and was intended to be showcase for India as a bankable country on the global stage.” (Rangan & McCaffrey, 1).

India’s current governing body wants to open their infrastructure sectors (power, telecommunications, air transport and roads) to private sector companies. They believed the development of a strong infrastructure was required for the country to have a prosperous future. However, foreign investors were not sure if India was stable enough for their direct investment. A successful DPC would make India much more attractive for foreign investment, practically opening the door to country wide infrastructure growth. A strong infrastructure would lead to economic development not possible in the current situation. Knowing how important Dabhol is to the economic future of the country, Enron was able to get the government to fast track the plant’s approval. The Indian government consolidated the 17 civil agencies responsible for oversight into one agency, the Foreign Investment Promotion Board (FIPB).

The government of India during this time had an economic agenda to pursue. They placed a very high value on the DPC and was doing everything it could to make it a reality. The creation of the FIPB and the speedy approval of the plant made the DPC seem as if it were a perfect fit for the country. However, when a more populist government took control of the country it announced that it was canceling the Dahbol power project. Eventually the new governing party and Enron came to a compromised agreement. By using outside lobbying interests to fast track transaction approval, Enron was able to raise its negotiation power since many outside lobbying interests coincided with theirs.

Source by Patrick Flaherty

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