People's Democracy

THE fall of Enron is one of the stories of the decade. Enron has now been bought by Dynegy, in which Chevron and Texaco hold major interests. The price paid is 9.1 billion dollars, one tenth of its market capitalisation of more than 90 billion dollars only a few months ago. It is now clear that Enron’s meteoric rise in the US stock market has been due to fraudulent practices and influence brokering.

Enron was a minor energy company from Texas only a few years back. It rode to glory on trading gas after the gas sector was de-regulated in the USA. It traded in oil, gas and LNG and instead of capital assets, puts its money in trading in oil and gas "futures" (betting on the what the future prices will be). It also calculated that electricity futures, after de-regulation would open a bonanza, similar to that it had received from gas de-regulation.

Enron initially made huge profits from California, prompting the Attorney General of California to demand that Kenneth Lay, the Enron CEO, be put behind bars. However, with the collapse of the electricity market in California and its slowing down in the other states in the USA, its trade in electricity became difficult to sustain. Once some of these deals unravelled and with its electricity trade in California being put under regulatory scrutiny, other unsavoury facts started surfacing. The key one is that Enron key officials had used their shareholders’ money and funnelled it to privately held companies. They had not reported these on their balance sheets for the last five years. Recently, they reported a 1.2 billion dollars reduction of their equity, admitting some of these losses. Immediately, the stock market downgraded Enron’s stocks and bonds, while the Stock Exchanges Commission, the US regulatory agency issued show cause notices.

Enron stock, which was riding at about 40 dollars at this time, plummeted to less than 8 dollars within weeks. Enron, as a trading entity, found that its trading partners were reluctant to trade with them, forcing them to look for immediate cash inflows. Finally, Dynegy stepped in to negotiate this deal, in which they will funnel in about 2 billion dollars to cash-strapped Enron and do a stock swap with Enron.

How did Enron build up its house of cards? It is now clear that the complex trading operations it ran out of Houston, Texas, required a large amount of influence peddling -- in terms of policies and decisions -- to make profits. It was these huge windfall profits that took its stocks to dizzying heights. Without large capital assets, any adverse trading environment would expose it as a company that was essentially hollow. Though Enron is close to the Republican establishment and George Bush, this was not sufficient for them to ride out what is increasingly now appearing to be a fraud on the shareholders.

It is now clear that the Dabhol project has all the hallmark of Enron’s usual practices. It was its influence and "education" that lead to the disastrous PPA in Maharashtra. As the accompanying article will show, its so-called equity in Dabhol is also based on similar "practices" that it has perpetrated in the US. Its exposure in the US should make us rethink on what global corporations mean by transparency and competition.

Patrick Smith, a well known journalist has written "Transparency —remember when that found a place among the big globalist themes? It’s a good one, too. Developing nations such as India have a long way to go, but genuine transparency in matters of policy and commercial conduct will prove of vital advantage to them once they achieve it.

But with emissaries such as Enron, the advanced industrial nations have nothing to teach on the subject. I’m not even going to put the word in the same paragraph with this company. Enron has already admitted that it misstated five years’ worth of financial reports, and we still can’t see into it sufficiently to conclude even that its restatements are accurate. "Clear as mud," as the Financial Times put it last weekend.

The message is clear. But are the neo-liberal market wallahs listening?