Image source - https://bit.ly/3pW5JH8

The article is written by Daksha Khanna from Symbiosis Law School, NOIDA. The article discusses the Enron Power Project, its incentives and plans, and the problems associated with implementing the project in the context of Indian Law. 

Introduction

Enron USA came to India in the early nineties to set up a 3 billion dollar power plant. The then government invited Enron to India, led by the Indian Prime Minister Narashima Rao. The process and incidents associated with the Dabhol Power Company setting are highly relevant, even in current times, for companies who intend to set up operations in India. The case could be ideal for the strategic importance of moral company decision-making and sensible neutral management practices as an associate degree inherent in a company’s culture.

If an organisation lacks this understanding, it’s possible to experience opposition and neutral management disasters that may ultimately significantly impact the company’s success. The events related to Enron putting in place the Dabhol project in India with a read to achieve an associate understanding of Enron’s company culture and its stakeholder management policies. Human Rights Watch (an international non-governmental organisation or NGO) defended Enron of human rights violations against its stakeholders once conducting investigations in India. However, it can be safely concluded that Enron was determined to succeed at all costs, and its actions left little doubt that the company had no respect or consideration for its stakeholders. 

Background 

During the United States visit by Indian Prime Minister Narashima Rao in 1992, Enron was invited to set up power companies in India. The government launched a liberalisation program and was a gap up the Indian economy to foreign direct investment. Throughout the United States visit, Enron was invited to set up power comes in India. The government’s five-year plans is what focussed on the development of the power sector during that time. The first Industrial Policy Resolution of 1951 reserved the ability sector for state investment, restricting the non-public sector from investment in power.

Later five-year plans continued within the same socialistic tradition and controlled industries near a series of licensing and allowed necessities. Ostensibly, these necessities were meant to shield the interest of the ordinary Indian; however, in the application, these necessities led to a scenario called the License rule within the hands of Indian bureaucrats and politicians. Industrial opportunities were inconsistently distributed between the state-owned enterprises or the general public sector. Development of infrastructure facilities like power was mostly entrusted to the general public industry through licensing necessities designed to stay non-public enterprise away from such companies. Gandhi’s swadeshi (made in India) movement adopted during the independence struggle against a people rule served because of the raison d’être for promoting public sector enterprises.

For many vital politicians, the setting up of significant parties below the general public sector banner had the potential of safeguarding their election prospects in their electoral constituencies. Between 1977 and 1990, the Indian political state of affairs underwent significant irreversible changes with Congress’s loss of elections. As a consequence, once the elections in 1990, Prime Minister Narashima Rao formed a central government with coalition partners for the first time in the history of the Congress party in India.

Entry of Enron

The birth of the new economy was supposed to bring substantial foreign investment into India. Most of the acquisition was expected from major multinationals that would persuade an extended supply of funds for the politicians and, therefore, the political structure. Enron International, the world’s most successful energy company, was invited by the Indian government to set up a $2.8 billion power plant during the 1990s in India. This power project was the single largest foreign direct investment in India (McClean and Elkind, 2003). Enron was thus invited to set up the power plant in India not only because Enron was a highly successful company but because Enron was likely to cooperate with the rent-seeking machinations of the Indian political structure comprising both ruling parties and parties in the opposition as later events indicate. 

Significant incentives planned by Enron

A major incentive was to set up a power plant in India based on the Indian government’s assurance that Enron would be fast-track entry into India. Representatives of Enron and General electric arrived in Delhi. They met with officers of the central government concerning the planned project. They visited the urban centre (now Mumbai) to review sites on the coast of Maharashtra. Enron officers opt for Dabhol on the beach because of the web site for the project. Later, a Joint venture was witnessed by Enron, General Electric and Bechtel Corporation.

Problems associated with the Project: the Indian Law 

Enron recommended changes to the Electricity Supply Act, 1948

  • The Indian Electricity Supply Act, 1948 needed an organisation in operation within the power sector ‘to operate and maintain within the best and economical manner, its generating stations’ to produce cost-effective electricity. 
  • Enron had no intention of supplying a cost-effective power generation to the Indian Consumer because they knew that their electricity and power generation cost was higher than what was acceptable. 
  • As a consequence, they relied on a group of solicitors, Linklaters and Paines, to study the Indian Electricity Supply Act, 1948 and recommend changes to the Electricity Supply Act to protect their company’s interest. 
  • A report named ‘Problems Concerning the Application of the Indian Electricity Acts’ was submitted to the Government of India, recommending changes in the Indian laws concerning the procedures of accounting, judicial scrutiny, public scrutiny, purchasing agreements, etc. This was done to protect themselves from legal scrutiny.
  • Suggestions were given by Maharashtra State Electricity Board (MSEB) officials that Enron is exempted from this duty cast by the Electricity Supply Act. Without a corrupt understanding between the Maharashtra State Electricity Board ( MSEB) officials and Enron, this would not be possible.

Human Rights violation by Enron

  • There was a lack of transparency, followed by silence when questioned about the Memorandum of Understanding. 
  • The residents of the affected villages, along with Non-Governmental Organisations, started protesting against the Enron Power Project as there was a lack of transparency concerning the land acquisition. Some of these protests were led by noted environmentalists such as Medha Patkar and some by local academics and social workers.
  • These demonstrations met with resistance from Enron’s contractors and the police, which were armed, and they spared no effort to beat up protestors and arbitrarily arrest the protestors. 
  • Although Enron, a US-based company, was aware that the United Nations had made consistent attempts to educate multinationals to ensure that their business activities do not contribute to human rights violations, Enron chose otherwise.

“There can be little question that the company and the police have operated in tandem against the protestors. The Dabhol Power Corporation pays the state forces that committed human rights violations; it provided other material support to these forces, and it failed to act on credible allegations that its contractors were engaged in criminal activity that rose to the level of human rights violations due to the failure of the state to investigate the crimes” – According to Human Rights Watch.

  • Human Rights Watch believed that the Dabhol Power Corporation – and its parent companies Enron, General Electric and Bechtel are complicit in human rights violations by the Maharashtra state government.
  • A police raid was also witnessed, which physically abused the villagers and led to their property destruction. The Supreme Court of India later held that this police raid was unconstitutional.

The Illegal Land Acquisition Process

The Project was expected to displace around 2000 people directly and 92,000 people in an indirect way. This displacement was to occur in the agricultural villages of Aareygaon, Katalwadi, Nagewadi, Pawarsarkari, Ranavi, Borbatlewadi and other fishing villages. The source of livelihood of these communities was fishing and agriculture. Their relocation would have been a cumbersome process. The company was under the legal obligation to post a notice within the newspapers stating that it had been constructing a power plant related to which the corporation would attend to any inquiries, complaints or considerations for a two-month amount following the notice’s publication. This complied with the Electricity Act, 1948. The notification was revealed in the local newspapers. Upon the expiry of the two-month, the corporation sent a letter to the government of Maharashtra’s secretary of Energy, confirming that Enron had not received any objections in response to its notice within the native newspapers. 

Through this statement, Enron concealed that they had received 34 queries, complaints from Non-Governmental Organisations, Journalists, government officials, and the residents whose lands had been acquired.

Problems associated with the Project: Miscellaneous 

Allegations on the State Government

At the state level in Maharashtra, the Dabhol power project award to Enron without a competitive bidding process led to allegations of corruption by the Shiv Sena–BJP combination, a significant opposition political party. The Shiv Sena–BJP combination gained substantial political mileage out of it. It used the Dabhol Power Company project as a major election campaign issue with support from several opposition parties and NGOs.

Questions by The Indian Media

The Indian Press questioned the MOU for its lack of transparency, the absence of competitive bidding, and the haste with the govt signed by the government. A series of newspaper articles and discussions followed within the public forum with a growing belief that corruption had competed for a task.

Review by the World Bank

Enron and the Government of Maharashtra were looking forward to the World Bank to fund the Dabhol Power project, and so, the World Bank was approached by them for the fulfillingment of the purpose. The World Bank concluded after the review of the Power Plant Project :

  1. That the Indian Government did not provide the overall economic justification. 

The World Bank shed light on the fact that the MOU needed MSEB to pay Dabhol light company in sixty days. However, the corporation had no limitations on the actual supply of electricity, mercantilism fuel, construction or finance. It implied that MSEB would need to pay Dabhol power company for electricity at a prescribed rate despite whether or not the electricity was available.

  1. The world bank believed that the project was in favour of Enron. 
  2. The World Bank turned down the request from the Government of India and Enron for funding the project. They thought that the Enron project was ‘not economically viable.’

Review by the Central Electricity Authority (CEA)

CEA – A government body to oversee the implementation of the Indian Electricity Supply Act, 1948.

  1. Their experts pointed out that the MOU did not provide specific project costs as required under Indian law. 
  2. The MOU did not specify when the 20-year contract would begin, and when the electricity would be available, or when the agreement was considered to have been signed.

Critical Analysis

The whole problem seeds from the fact that there are no International Laws that make it mandatory for a corporation to respect Human Rights. 

  • The United Nations Committee on Transitional Corporations developed a Code of Conduct that placed responsibility on the companies to respect Human Rights and not infringe them throughout their functioning and existence. 
  • The moral minimum of the ‘Code of Conduct’ was to respect the United Nations Declaration of Human Rights. What was lacking here was the legal obligation. The Code of Conduct was merely an initiative to express expectations from the corporations to respect human rights and follow the bare minimum procedures. 
  • The world expects that once security forces square measure is referred to as in by a corporation to protect company assets and workers in neutral demonstrations and protests, the protection forces shall not use unreasonable force. Suppose the protection forces use unjustified methods to manage and quell unbiased demonstrations and objections to the point that it infringes upon a citizen’s fundamental rights (as enshrined within the UN’s Universal Declaration of Human Rights). In that case, it shall be considered excessive use of force by the protection forces and indirectly by the corporation referred to. As a result, the corporation can bear the responsibility for the actions of these security forces. Therefore, if once a corporation faces stakeholder demonstrations and protests (that might or might not be violent) and also the company involves security forces to guard its property and lives of employees, etc.
  • The corporate in question becomes virtuously to blame for excesses (if any) committed by the protection forces on the protestors. Many of the excesses committed on India’s stakeholders vary from severe beatings, illegal detention, arbitrary arrests, bulldozing of homes, and indiscriminate firing on unarmed protestors. Therefore, Human Rights Watch has thought-about these incidents as human rights violations committed on behalf of Enron by the protection forces.

Enron faced allegations of corruption and bribery in the media and from various stakeholder groups. These allegations find credence because the security forces’ decisions and actions, the political and administrative structures in India, appeared to consistently favour Enron’s interests rather than demonstrate a balanced view.

Recommendations

  1. There needs to be a law to impose a legal obligation on foreign direct investors or corporations to protect people’s fundamental rights.
  2. Earning profits through exploitation should not be an option. 
  3. The United Nations needs to work more towards the goal. It cannot be merely expected for people to follow the code of conduct. The need of the hour is a legal obligation. 

Conclusion

Enron’s motive made it very difficult for the local people of Dabhol, who had no backing to stand up for themselves except file complaints and queries. The project continuously witnessed logistical and financial difficulties because of a lack of transparency and corruption. It could not complete the project because of their bankruptcy in the USA and non-cooperation on the villagers’ part. This, along with the default, led to the demise of the company in the USA.

References


LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…

LEAVE A REPLY