The End of Imagination (22 page)

In a speech he made just before he died, Minister for Power P. R. Kumaramangalam said that the overall figure of loss and deficit in the power sector was 7.86 billion US dollars. He went on to say that India’s transmission and distribution (T&D) losses are between 35 and 40 percent. Of the remaining 60 percent, according to the minister, billing is restricted to only 40 percent. His conclusion: that only about a quarter of the electricity that is produced in India is metered.
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Official sources say that this is a somewhat exaggerated account. The situation is bad enough. It doesn’t need to be exaggerated. According to figures put out by the Power Ministry, the national average T&D losses are 23 percent. In 1947 they were 14.39 percent. Even without the minister’s hyperbole, this puts India in the same league as countries with the worst T&D losses in the world, like the Dominican Republic, Myanmar, and Bangladesh.
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The solution to this malaise, we discover, is not to improve our housekeeping skills, not to try and minimize our losses, not to force the state to be more accountable, but to permit it to abdicate its responsibility altogether and privatize the power sector. Then magic will happen. Economic viability and Swiss-style efficiency will kick in like clockwork.

But there’s a subplot missing in this narrative. Over the years, the SEBs have been bankrupted by massive power thefts. Who’s stealing the power? Some of it no doubt is stolen by the poor—slum dwellers, people who live in unauthorized colonies on the fringes of big cities. But they don’t have the electrical gadgetry to consume the quantum of electricity we’re talking about. The big stuff, the megawatt thievery, is orchestrated by the industrial sector in connivance with politicians and government officers.

Consider as an example the state of Madhya Pradesh, in which the Maheshwar dam is being built. Seven years ago it was a power surplus state. Today it finds itself in an intriguing situation. Industrial demand has declined by 30 percent. Power production has increased from 3,813 megawatts to 4,025 megawatts. And the State Electricity Board is showing a loss of $255 million. An inspection drive solved the puzzle. It found that 70 percent of the industrialists in the state steal electricity!
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The theft adds up to a loss of nearly $106 million. That’s 41 percent of the total deficit. Madhya Pradesh is by no means an unusual example. States like Orissa, Andhra Pradesh, and Delhi have T&D losses of between 30 and 50 percent (way over the national average), which indicates massive power theft.
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No one talks very much about this. It’s so much nicer to blame the poor. The average economist, planner, or drawing-room intellectual will tell you that the SEBs have gone belly up for two reasons: (a) because “political compulsions” ensure that domestic power tariffs are kept unviably low, and (b) because subsidies given to the farm sector result in enormous hidden losses.

The first step that a “reformed” privatized power sector is expected to take is to cut agricultural subsidies and put a “realistic” tariff (market value) on power.

What are political compulsions? Why are they considered such a bad thing? Basically, it seems to me,
political compulsions
is a phrase that describes the fancy footwork that governments have to perform in order to strike a balance between redeeming a sinking economy and serving an impoverished electorate. Striking a balance between what the market demands and what people can afford is—or certainly ought to be—the primary, fundamental responsibility of any democratic government. Privatization seeks to disengage politics from the market. To do that would be to blunt the very last weapon that India’s poor still have—their vote. Once that’s gone, elections will become even more of a charade than they already are, and democracy will just become the name of a new rock band. The poor will be absent from the negotiating table. They will simply cease to matter.

But the cry has already gone up. The demand to cut subsidies has almost become a blood sport. It’s a small world. Bolivia is only a short walk down the road from here.

When it recommends privatizing the power sector, does the government mean that it is going to permit just anybody who wishes to generate power to come in and compete in a free market? Of course not. There’s nothing free about the market in the power sector. Reforming the power sector in India means that the concerned state government underwrites preposterously one-sided Power Purchase Agreements with select companies, preferably huge multinationals. Essentially, it is the transfer of assets and infrastructure from bribe-taker to bribe-giver, which involves more bribery than ever. Once the agreements are signed, the companies are free to produce power at exorbitant rates that no one can afford. Not even, ironically enough, the Indian industrialists who have been rooting for them all along. They, poor chaps, end up like vultures on a carcass that get chased off by a visiting hyena.

The fishbowl of the drive to privatize power, its truly star turn, is the story of Enron, the Houston-based natural gas company.
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The Enron project was the first private power project in India. The Power Purchase Agreement between Enron and the Congress Party–ruled State Government of Maharashtra for a 695-megawatt power plant was signed in 1993. The opposition parties, the Hindu nationalist Bharatiya Janata Party (BJP) and the Shiv Sena, set up a howl of
swadeshi
(nationalist) protest and filed legal proceedings against Enron and the state government. They alleged malfeasance and corruption at the highest level. A year later, when state elections were announced, it was the only campaign issue of the BJP–Shiv Sena alliance.

In February 1995, this combo won the elections. True to their word, they “scrapped” the project. In a savage, fiery statement, the opposition leader L. K. Advani attacked the phenomenon he called “loot-through-liberalization.”
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He more or less directly accused the Congress Party government of having taken a $13 million bribe from Enron. Enron had made no secret of the fact that, in order to secure the deal, it had paid out millions of dollars to “educate” the politicians and bureaucrats involved in the deal.
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Following the annulment of the contract, the US government began to pressure the Maharashtra government. US Ambassador Frank Wisner made several statements deploring the cancelation. (Soon after he completed his term as ambassador, he joined Enron as a director.)
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In November 1995, the BJP–Shiv Sena government in Maharashtra announced a “renegotiation” committee. In May 1996, a minority federal government headed by the BJP was sworn in at New Delhi. It lasted for exactly thirteen days and then resigned before facing a vote of no confidence in Parliament. On its last day in office, even as the motion of no confidence was in progress, the cabinet met for a hurried “lunch” and reratified the national government’s counter-guarantee (which had become void because of the earlier “canceled” contract with Enron). In August 1996, the government of Maharashtra signed a fresh contract with Enron on terms that would astound the most hardboiled cynic.
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The impugned contract had involved annual payments to Enron of $430 million for Phase I (695 megawatts) of the project, with Phase II (2,015 megawatts) being optional. The “renegotiated” Power Purchase Agreement makes Phase II of the project mandatory and legally binds the Maharashtra State Electricity Board (MSEB) to pay Enron a sum of $30 billion! It constitutes the largest contract ever signed in the history of India.

In India, experts who have studied the project have called it the most massive fraud in the country’s history. The project’s gross profits work out to between $12 and $14 billion. The official return on equity is more than 30 percent.
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That’s almost double what Indian law and statutes permit in power projects. In effect, for an increase in installed capacity of 18 percent, the MSEB has to set aside 70 percent of its revenue to be able to pay Enron. There is, of course, no record of what mathematical formula was used to “reeducate” the new government. Nor any trace of how much trickled up or down or sideways and to whom.

But there’s more: in one of the most extraordinary decisions in its not entirely pristine history, in May 1997 the Supreme Court of India refused to entertain an appeal against Enron.
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Today, four years later, everything that critics of the project predicted has come true with an eerie vengeance. The power that the Enron plant produces is twice as expensive as that of its nearest competitor and seven times as expensive as the cheapest electricity available in Maharashtra.
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In May 2000, the Maharashtra Electricity Regulatory Committee (MERC) ruled that temporarily, until as long as was absolutely necessary, no power should be bought from Enron.
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It was based on a calculation that it would be cheaper to just pay Enron the mandatory fixed charges for the maintenance and administration of the plant that they are contractually obliged to pay than to actually buy any of its exorbitant power. The fixed charges alone work out to around $220 million a year for Phase I of the project. Phase II will be nearly twice the size.

Two hundred and twenty million dollars a year for the next twenty years.

Meanwhile, industrialists in Maharashtra have begun to generate their own power at a much cheaper rate, with private generators. The demand for power from the industrial sector has begun to decline rapidly. The SEB, strapped for cash, with Enron hanging like an albatross around its neck, will now have no choice but to make private generators illegal. That’s the only way that industrialists can be coerced into buying Enron’s exorbitantly priced electricity.

According to the MSEB’s calculations, from January 2002 onward, even if it were to buy 90 percent of Enron’s output, its losses will amount to $1.2 billion a year.

That’s more than 60 percent of India’s annual rural development budget.
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In contravention of the MERC ruling, the MSEB is cutting back production from its own cheaper plants in order to buy electricity from Enron. Hundreds of small industrial units have closed down because they cannot afford such expensive electricity.

In January 2001, the Maharashtra government (the Congress Party is back in power with a new Chief Minister) announced that it did not have the money to pay Enron’s bills. On January 31, only five days after the earthquake in the neighboring state of Gujarat, at a time when the country was still reeling from the disaster, the newspapers announced that Enron had decided to invoke the counter-guarantee and that if the government did not come up with the cash, it would have to auction the government properties named as collateral security in the contract.
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At the time that this book [
Power Politics
] is going to press, Enron and the government of Maharashtra are locked in a legal battle in the High Court of the State of Maharashtra. But Enron has friends in high places.
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It was one of the biggest corporate contributors to President George W. Bush’s election campaign. President Bush has helped Enron with its global business from as far back as 1998. So the old circus has started up all over again. The former US Ambassador (Richard Celeste this time) publicly chastised the Maharashtra Chief Minister for reneging on payments.
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US government officials have warned India about vitiating the “investment climate” and running the risk of frightening away future investors. In other words: Allow us to rob you blind, or else we’ll go away.

The pressure is on for re-re-negotiation. Who knows, perhaps Phase III is on the anvil.

In business circles, the Enron contract is called “the sweetheart deal.” A euphemism for rape without redress. There are plenty of Enron clones in the pipeline. Indian citizens have a lot to look forward to.

Here’s to the “free” market.

Having said all this, there’s no doubt that there
is
a power-shortage crisis in India. But there’s another, more serious crisis on hand.

Planners in India boast that India consumes twenty times more electricity today than it did fifty years ago. They use it as an index of progress. They omit to mention that 70 percent of rural households still have no electricity.
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In the poorest states, Bihar, Uttar Pradesh, and Orissa, more than 85 percent of the poorest people, mostly Dalit and Adivasi households, have no electricity. What a shameful, shocking record for the world’s biggest democracy.

Unless this crisis is acknowledged and honestly addressed, generating “lots and lots of power” (as Mr. Welch put it) will only mean that it will be siphoned off by the rich with their endless appetites. It will require a very imaginative, very radical form of “structural adjustment” to right this.

“Privatization” is presented as being the only alternative to an inefficient, corrupt state. In fact, it’s not a choice at all. It’s only made to look like one. Essentially, privatization is a mutually profitable business contract between the private (preferably foreign) company or financial institution and the ruling elite of the third world. (One of the fallouts is that even corruption becomes an elitist affair. Your average small-fry government official is in grave danger of losing his or her bit on the side.)

India’s politicians have virtually mortgaged their country to the World Bank. Today, India pays back more money in interest and repayment installments than it receives. It is forced to incur new debts in order to repay old ones.
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In other words, it’s exporting capital. Of late, however, institutions like the World Bank and the International Monetary Fund, which have bled the third world all these years, look like benevolent saints compared to the new mutants in the market. These are known as ECAs—export credit agencies. If the World Bank is a colonizing army hamstrung by red tape and bureaucracy, the ECAs are freewheeling, marauding mercenaries.

Basically, ECAs insure private companies operating in foreign countries against commercial and political risks. The device is called an export credit guarantee. It’s quite simple, really. No first world private company wants to export capital or goods or services to a politically and/or economically unstable country without insuring itself against unforeseen contingencies. So the private company covers itself with an export credit guarantee. The ECA, in turn, has an agreement with the government of its own country. The government of its own country has an agreement with the government of the importing country. The upshot of this fine imbrication is that if a situation does arise in which the ECA has to pay its client, its own government pays the ECA and recovers its money by adding it to the bilateral debt owed by the importing country. (So the real guarantors are actually, once again, the poorest people in the poorest countries.) Complicated, but cool. And foolproof.