File spoon-archives/postcolonial.archive/postcolonial_2001/postcolonial.0112, message 134


From: "Margaret Trawick" <trawick-AT-clear.net.nz>
Subject: Re: More Enron news from the Indian angle
Date: Wed, 26 Dec 2001 22:46:41 +1300


Salil

Despite what I said about good guys and bad guys, the fact is that you and I
stand on two opposed sides:  you for liberal capitalism and centralization
of global power, me for decentralization of power, local self government,
and local economic self sufficiency.  Trade and cooperation are fine, but
dependency at the expense of freedom to choose should be avoided.  This is a
key precept of capitalism, I think.

We agree that "Enron" is not in itself a person.  And we agree that Enron's
senior officials are in large measure responsible for the collapse of Enron
as a corporation.  You say that risk-taking is essential to capitalism.  I
would respond that Enron's senior officials have taken careless risks which
have resulted in the collapse of the corporation and great loss to investors
and employees, while those senior officials will come out with millions of
dollars each in personal assets and profits - more than plenty to retire in
luxury, while former employees go hungry.  Sure, some of those former
employees will have "spunk" enough left to "rebuild their lives" - but what
of those who have spent their spunk in the employ of Enron?  What are they
to do now?  Some of them are most likely up a creek.  Their fault, maybe,
for trusting global capitalism.  Let others learn from their mistakes.

In terms of subsidized power, I don't see that it is wrong for taxpayers'
money to be used to subsidize public services.  This is in general what we
pay taxes for.  If you think that India's taxation system is unfair, take a
look at the US taxation system and have a blush.

If you submit that the cost of Dabhol power was equal or less than the cost
of other power systems with government subsidization taken into account,
then it is up to you to show that.  Let us see the hard numbers.  Show us
how much government money was spent in subsidization of other power plants,
and how much power they delivered to whom at what cost, and how much power
Dabhol delivered at what cost to whom.  Otherwise what you say is mere
speculation, and all that we have to show is a lot of money lost, and a
deteriorating power plant, built at great expense to the Indian people,
presently delivering power to no one at all.

Wishing a happy new year to you and your family and friends,

Margaret



----- Original Message -----
From: Salil Tripathi <salil61-AT-hotmail.com>
To: <postcolonial-AT-lists.village.virginia.edu>
Sent: Tuesday, December 25, 2001 11:18 AM
Subject: Re: More Enron news from the Indian angle


> Margaret
>
> To clarify: No, I am not saying that India is the bad guy and America is
the
> good guy in any general sense. You've said that I'm unprepared to accept
> that Enron is responsible for its bankruptcy. I don't know what gave you
> that impression: in my view, Enron's bankruptcy is due to a combination of
> factors: accounting firms' poor due diligence, greed on the part of some
> Enron executives, and the failure of the securities industry to understand
> how poorly-funded Enron really was. Enron's bankruptcy, at the same time,
is
> not due to its environmental record in Latin America, or its power plant
in
> India. Those are separate issues. Enron in 2000-2001 was a fundamentally
> different company from the one it used to be -- like Long Term Capital
> Management, like Barings, it had become a hedging, trading firm; it was no
> longer an infrastructure company -- anyway, all that is besides the point.
I
> agree with you if you are to say that Enron's officials, at senior levels,
> are to blame for the firm's bankruptcy and loss of jobs. But I wouldn't
> blame "Enron", as though it was somehow an entity acting on its own. Some
of
> my good friends have lost jobs in this and got measly compensation. But
> that's the nature of the system -- to their credit, those individuals have
> shown spunk and are rebuilding their lives.
>
> I don't believe that as a result of Enron's collapse the global economic
> crisis has deepened, as you've put it. Enron's assets will be bought cheap

> by others; and its trading operations are supposedly very good, and either
> Goldman Sachs or Citicorp will be buying it before too long.
>
> As regards Enron in India, you've asked:
>
> >but should Enron not be faulted
> >for taking this risk in the first place?
>
> Why is that risk-taking a fault? That's the principle on which capitalist
> system functions. You take a risk, you charge it accordingly, and ask for
a
> higher return -- that's what India offered -- 16 percent return on capital
> -- and Enron took that risk. Nobody has said that the project was
unsound --
> that is, it was faultily engineered, or it did not perform, in terms of
> generating power. The factors behind its failure have to do with finance,
> not the engineering or technology.
>
> >And given the devaluation of the
> >rupee, doesn't it make sense for India to avoid incurring debt to
overseas
> >companies?
>
> That's a point of view. Sometimes it makes sense to raise debt overseas,
> even with a depreciating currency, if the company/country's sovereign
rating
> is good, and if interest rates internationally are low. Reliance
Industries,
> for example, does raise debt, and its rating is superior, or was until
> recently, to that of the Indian Government. I'd say if the Tata group
tried
> to raise debt in the current environment, of low interest rates, they'd be
> doing something smart -- India's domestic interest rates are much higher.
It
> is a decision to be made based on the punt you want to take--will the
rupee
> depreciate so fast as to eat into the interest saving? It is a
hypothetical
> question, and it also depends on the risk-bearing capacity of each
> individual investor.
>
> >And could you explain more about how Maharashtra's claim about
> >expensive power was "fictitious"?
>
> I base this on the unstated assumption in my previous post: that India
> subsidizes power. So India's "cheap" alternative power comes at a cost
borne
> by other people. So if enron was "expensive" it was because the "cheap"
> power produced by the state electricity boards could be "cheap" because of
> subsidies. That's diversion of resources from tax-payers to other uses. As
> you know, in India taxes are only paid by the salaried class.
Businesspeople
> can, and do avoid taxes by claiming all sorts of business expenses;
> politicians and wealthy farmers never pay taxes, and as a result, as Nani
> Palkhivala put it, the transfer of resources from the honest salaried
class
> to the dishonest class takes place. And the beneficiaries of the cheap
power
> are often those in powerful vote banks, or the ruling elite and their
> constituents. Granted, there is an element of polemic here, but to call
> Enron power as "expensive" without looking at the subsidy economics which
> reduce the prices elsewhere shows a misreading of India's electricity
> economics on the part of the journalist who wrote the story for Reuters.
>
> >Of course, India needs more power, but it
> >has to be able to afford it somehow.  Other states would/could not buy
> >Dabhol power at the price Maharashtra was paying for it.
>
> Prices do fall when supply increases. If MSEB ran its other plants at full
> capacity and sold that power to other states, it could have recouped the
> extra cost of Enron -- or, as I said earlier, it could have renegotiated
> that element of the contract. And neither of the Maharashtra governments
did
> that.
>
> >  If,
> >hypothetically,  the Dabhol plant could have been built by an Indian
> >company
> >without incurring massive overseas debt, then the price of the plant and
> >the
> >price of the power it produced would have been lower.
> >
>
> That's hypothetical, because I don't think any Indian company has built a
> plant on this scale (2400 MW), with this technology, and in such a record
> time, despite the political hiccups. When I wrote about the project, which
> was a good five years ago or more, I remember senior engineers and
> executives of Tata Power marveling at the way the project was being
> engineered, designed and executed. There is much for India to learn from
> this, said a very senior Tata executive to me at that time. Many Indian
> companies do contract overseas debt for projects of this scale, through
> bonds and other instruments.
>
> Salil
>
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