THAT with an eye on unconscionable profit, the multinational power companies, worldwide, have no consideration either for the consumer or economic development is proved beyond doubt when we look at the experience of either California in the United States or of Maharashtra in India.

It would be worthwhile going into these interesting experiences in other countries following deregulation of power sector. In particular, it would be of interest to track the behavioural pattern of the multinational power companies- Enron included - in the context of deregulation.

The experience of California is recent as well as glaring. There have been other such fiasco's earlier. In his article in New York Times dated August 25, 2000, Gregory Palast traces the origin of "California’s electricity market plague" as he calls it to Daniel Fessler, the president of the state’s Public Utilities Commission in the early 1990s and his "infatuation with one of Margaret Thatcher’s free-market ventures: the troubled England-Wales Power Pool."

Palast goes on to narrate: "How strange, Britons pay about 70 per cent more for electricity than Americans. That’s hardly a surprise, as each day around tea time, when England’s usage peaks, a small clique of power plant owners take over the electricity auction, bidding up prices by 200 to 2000 per cent."

While deregulating, the California utilities were made to assure they would not indulge in price gouging, if the limits on profits were removed. The promise did not last long. Palast further writes that "five giant international electricity sellers – all new to California – imported the techniques they had learnt in Britain: ‘stacking,’ ‘cramming,’ ‘phantom scheduling’ and other maneuvers designed to manipulate the bidding process and in a single month produce profits once permitted for an entire year."

Let us look at the sequence of events: In 1996, Governor Pete Wilson signed legislation opening California’s electricity sector to market competition. The legislation provided that till the distribution utilities divested themselves of power generation plants, there would be a cap in the rates they would charge the consumers. This was to be finished by 2002. In 1999, San Diego Gas & Electric became the first utility to deregulate the price they would charge the consumers. Within a year the rate charged to the consumers tripled. The wholesale electricity market, cartelized and manipulated by a few producers, jacked up the prices, which the utilities promptly passed on to the consumers. In order to manipulate the prices, artificial scarcity conditions were also created.

The failure of the policy of deregulation and separation of distribution and production is clear from California’s example. The fact that the utilities distributing power were asked to cap prices they charged the consumers while no such ceiling of the price of electricity supplied in the wholesale market by the giant producers was enforced, could only be explained in terms of the financial and political clout wielded by the latter. Without controlling the wholesale rates how could the retail prices for the consumers be controlled? This is precisely the issue before the people in India too.

Deregulation of power had disastrous consequences not only in San Diego but also all around the state, which suffered from chronic deficiency in supply. Apart from the consumers for whom the electricity bill skyrocketed, the distributing utilities too were badly hit; after all they could not pass on higher tariff to the consumers beyond a point.

On May 22, 2000, the manager of the State Power Grid, the California Independent System Operator, declared Stage Two alert (one of the 36 stages), as the reserves dropped below 5 per cent. By June 15 San Francisco experienced rolling blackouts. By August 2, the present Governor Gray Davis was forced to call for investigation for ‘possible price manipulation’ in the wholesale electricity market.

The public outcry became so loud that on September 7, the State Regulators who swore by deregulation, threw in the towel and approved a cap on power rates for three years for San Diego customers.

By December 7, power reserves fell below 1.5 per cent warranting first Stage Three Emergency and call for conservation efforts. So much so, the Federal Energy Regulatory Commission had to take note of the crisis, but not before Southern California Edison (of Edison International), one of the utilities in distress sued the FERC for failing to ensure that wholesale electricity was sold at reasonable rates. Edison has since filed for bankruptcy, not being able to meet its debts. The other utility too, namely Pacific Gas and Electric, is also facing bankruptcy and is entangled in legal proceedings. The two together ran up loses in excess of 11 billion dollars (a pointer no doubt to MSEB in India, if it does not solve the muddle with DBC/ Enron).

Early this year, a state of energy emergency was declared in California, facing as it did chronic power shortage and burgeoning energy prices. The government had exhausted whole of its 400 million dollars emergency electricity fund to buy power, as the utilities could no longer do so. On January 16 this year, California passed an emergency legislation allowing the state to step in if needed, to sell electricity directly to some 24 million customers. As per this, the government decided to float bonds for 10 billion dollars in order to maintain power supply. This was done to protect the interests of consumers in the face of two of the biggest of California’s utilities facing bankruptcy (New York Times, January 17, 2001). In other words, the State is intervening in a big way.

It is common knowledge that the big companies generating power enjoyed political patronage. All of them resorted to increase of prices by as much as five times. Their profits naturally increased manifold. Some of these giant companies, mostly from Texas, bought the plants, sold by the utilities when deregulation was enforced in California, at cheap rates. Using their political clout they also prevented others from entering the field.

The Boston Globe reported that Enron contributed 500,000 dollars to George W Bush’s presidential campaign. Other members of the cartel also figure in the list of campaign contributors. It is hardly surprising therefore that Bush has rejected the demand for a cap on wholesale price of power in the wake of California crisis. (Business Line, May 24, 2001)

There is a public outcry against these notorious price racketeers, who have benefited the most out of the free market economy. Drastic measures are being demanded. The repugnance even among the American political class is such that the California governor at one stage threatened to "seize the assets" of "the price-gougers". He declared that the state’s deregulation experiment was a "dangerous and colossal failure." He proposed strong state intervention by building state-owned power plants as a lever to prevent price hikes and protect consumer interests.

Attorney General of Minnesota warned his state against such "sweeping deregulation without building more power plants in the state." Outraged politicians and public men have demanded investigation on price manipulation, calling these companies "pirates and price gougers." Some have filed lawsuits.

California’s Attorney General Bill Lockyer went so far as to suggest that "a stay in jail would be just right for Kenneth Lay, the head of the Enron Corporation, the nation’s largest electricity trader." (New York Times, June 1, 2001)

There is growing awareness in the US against essential services such as power and gas being deregulated. They have understood the true meaning of free market. Some have even demanded government monopoly as being the natural alternative.

American /California’s example is not the only one. Instances are aplenty where the so-called free market has shown scant mercy to the ordinary people and national development.

Before Maharashtra and entire India is trapped into the California model, the bluff of Enron must be called. This can be done only by building a strong public opinion. The government has not learnt anything from experience and is persisting with free market economy in a reckless way. Protection for the people and consumers cannot come without state intervention in crucial sectors. This is required more in Indian conditions.

Commonsense and national interests dictate that there is no alternative to terminating the contract with Enron’s Dhabol Power Company (DPC). DPC itself is threatening precisely this but from its own stand point. It is threatening to drag the Maharashtra State Electricity Board and the Maharashtra state government to the International Court of Arbitration in London. It has no use for the Maharashtra Electricity Regulatory Commission. ‘Friends’ of Enron threateningly refer to the compensatory damages payable by MSEB and the government as huge. They are also asking what the international community, particularly the investors would think! They are not worried about the consumers or the country’s economy.

There is of course the termination fee of 300 million dollars besides Rs 1,800 crore as penalty payable by the central government. There is also the debt component to be reckoned with. As against this, as per the Power Purchase Agreement, a fixed amount of Rs 90 crore per month is payable whether power is purchased or not; this is due to the commitment to pay for 90 per cent of the power produced in Phase I. In respect of Phase II, the MSEB has to pay over Rs 6,000 crore per year. There is no way the cash strapped MSEB can pay this, unless it increases the power tariff across the board and makes power out of reach for a major section of the population.

It is no secret that globally, Enron’s focus has shifted from power to trading in petroleum and gas. This, therefore aggravates its intransigence. Still there is a clumsy attempt to build public opinion in the favour of Enron by its Indian lobbyists. Sharad Pawar during whose chief ministership this deal was concluded, went so far as to accuse the present state government appointed renegotiation panel chief Dr Madhav Godbole of being "too negative".

Be that as it may, it would be useful to go into some aspects of the deal as it was originally negotiated by the Congress government and then renegotiated by the BJP-Shiv Sena combine government.

The first phase negotiated in 1992 by Sharad Pawar government was for generation of 748 MW. The second phase concluded by the successor BJP-Shiv Sena government was for almost double that capacity amounting to 1444 MW. The thirteen-day wonder of the BJP-led central government in its first advent hurriedly gave the approval. The high cost inbuilt into the agreement, the foreign exchange component of the return on investment and the guaranteed return of 16 per cent with the provision of counter guarantee by the central government are all well known. Much has been written on these aspects including in these columns.

The Godbole committee too has brought to light many infirmities in the agreement. For one, it says categorically that ‘the tariff was manipulated and was shown to be within the central government’s guidelines.’ The committee further found "this combination of circumstances to be beyond the realm of coincidence." Some of the glaring examples of omissions and commissions as pointed out by the committee are:

Irrational defence of the agreement is matched by irrational comments in some sections of the media that negotiators from the Indian side were not well versed with the niceties of international collaboration negotiations. The flaw is certainly not with the skill of the negotiators but with the political policy of liberalisation pursued by the state and central governments and also their known laxity on matters of public probity. This requires to be gone into in all seriousness, besides reviewing the whole gamut of the policy of globalisation and liberalisation.

It is very much clear that the government is abdicating its responsibility in the name of globalisation, liberalisation and privatisation. The government must be halted in its destructive path. United struggles are the only way.