One would have thought that the collapse of Enron, the crown jewel of the privatisation programme in the power sector, would have held some lessons for everyone concerned. Instead, projects like the privatised Maheshwar Power Project show how the tragedy is being compounded and exactly what is fuelling the privatisation of the power sector.

Maheshwar illustrates how privatisation is just a process of ‘briberisation’, the euphemism coined by this year’s Nobel laureate for Economics, Joseph Stiglitz. No one can understand this better than him. He was the chairman of Clinton’s Council of Economic Advisors, and also the chief economist for the World Bank till he had to quit in disgust after he saw how the WB/IMF-led structural adjustment programme had ruined the economies of the third world countries.

Maheshwar is one of the large dams proposed to be built on the Narmada river. It is a hydel project with a projected capacity of 400 MW. It will submerge the lands and homes of 61 villages and it has been estimated to affect over 50,000 persons. It was privatised and handed over to the S. Kumars (of shirting/suiting fame) in 1994. Though the project had received conditional environmental clearance many years ago, every independent appraisal made shows that almost every one of the conditions of clearance has been violated.

In the last four years, the project has been appraised by a team of the ministry of environment, rural development and water resources, by a task force of experts constituted by the Madhya Pradesh government, by the Tata Institute of Social Sciences, and lastly, by a team of international experts constituted by the development ministry of the German government.

Each of these independent expert bodies found that there was no land and no plan for the rehabilitation of the project- affected people, and that even basic and preliminary studies have not been done to assess the social and environmental impacts of the project. Clearly, for the promoters of the project as well as for much of the ruling establishment, the people, being mostly poor Dalits and tribals, are expendable. These projects are viewed only in terms of financial cash flows and profitability.

However, an analysis of these cold- blooded cash flows reveals that these projects are fundamentally flawed and will eventually implode like Enron. In 1994, before its privatisation, the cost of the Maheshwar project was estimated at Rs 465 crore. After privatisation, its estimated cost has increased almost five-fold to Rs 2,231 crore as of today. According to its project report, because of the seasonal availability of water, it will generate power at an average plant load factor of less than 25 per cent, out of which 80 per cent will be produced during the monsoon months when power will not be needed.

During the non-monsoon months, the project will generate power for only one and a half hours a day! The average cost of power from the project will exceed Rs 6 per unit at the dam site. Maheshwar power, during the period when it may be needed, will cost well over Rs 10 per unit. Remember, the Maharashtra State Electricity Board was unable to sell Enron power to neighbouring states for even Rs 3 per unit.

None of this has deterred the Madhya Pradesh Electricity Board from signing a power purchase agreement to purchase all the electricity from this project at this price. The board has even agreed to provide an escrow cover to the project under which the payments to the S. Kumars will have priority over all other payments (such as NTPC which is supplying power at 1/4th of the cost, and even the MPSEB’s workers salaries). Even the assets of the board would stand mortgaged to the company.

In the last four years, there has been a procession of foreign collaborators for this project who have come and gone, after the financial and social unviability of the project has been brought home to them by the relentless campaign of the Narmada Bachao Andolan. They include the US construction major Bechtel, the US power utility PacGen, the German power utilities, VEW Energie & Bayernwerk, and finally, another US power utility, Ogden. In fact, even the proposed equipment suppliers, Siemens and ABB, had to bow out because of the refusal of the German and Portuguese governments to provide the necessary guarantees.

The result of all this was that out of the total estimated Rs 2,231 crore cost of the project, the total private investment came to be limited to S. Kumars equity of Rs 136 crore (about 6 per cent of the cost of the project). Normally, a project like this would be abandoned by the public and the private sector for cold-blooded financial reasons. Amazingly, though almost no work has been done on the project, the S. Kumars claim to have already spent around Rs 500 crore on the project.

Not surprisingly, most of these funds have been drawn from Indian financial institutions such as IFCI and PFC. Though the project does not have the statutory Central Electricity Authority clearance for the escalated cost of Rs 2,231 crore; though the lending of more than 90 per cent of the funds to a privatised power project violates the norms of lending of public financial institutions; though this defeats the object of privatisation of the project which was to use private funds for the project; though the S. Kumars have yet to pay the MP government and the NVDA more than Rs 50 crore spent by the authorities on the project, even seven years after it was privatised (as noted by the CAG in the reports); though IFCI’s own project appraisal implicates the S. Kumars for siphoning out money borrowed from financial institutions for the project. Why then do the financial institutions still continue to lend more money for the project?

There are no prizes for guessing why Stiglitz characterises ‘privatisation’ as ‘briberisation’ and Advani in an earlier avatar (before the BJP and the Shiv Sena’s spectacular turnaround on Enron), called it “loot through liberalisation”. And Enron and Maheshwar are by no means exceptions to the rule. They are the rules which are fundamental to the programme of privatisation of the power sector.

Far from reducing corruption, privatisation in the power sector has promoted corruption to a whole new realm. Far from bringing in more private funds in the sector, it has in fact led to increased public sector spending per MW of additional capacity. Though this may appear paradoxical, it is fundamental to the whole process.

The power sector by its nature must have monopolistic suppliers and public regulators. In a country where a large section of public authorities are corrupt, if you introduce private players whose only goal is to maximise profit, you are increasing the scope and incentive for corruption. This is because the easiest way for a private player to increase his profits is to corrupt the public institutions which are supposed to regulate, finance and adjudicate. Privatisation of the power sector, therefore, is an alliance between the power brokers in the government and the business elite who profit at the expense of the consumers and the public exchequer.

The fact is that infrastructure sectors like power, telecom, roads and oil are not structured to perform fairly or justly in a free market. Being natural monopolies or oligopolies, they need regulation. If you are privatising because the government and the public sector are corrupt, then the chances are that much of the regulatory and watchdog institutions will also be corrupt. Unfortunately, there are no shortcuts here to deal with corruption. The only way forward, however hard, is to improve the accountability of public institutions including the public sector.

Almost every third world country which has gone through the structural adjustment programme has had this experience. Notice how fast even the mighty Soviet economy collapsed after it was opened up to multinational private companies. True, the Soviet economy was in bad shape and there was considerable corruption even before perestroika. But the entry of private multinationals in the country led to a quantum jump in corruption which quickly destroyed whatever was left of the economy.

The privatisation of the infrastructure sector will destroy the public financial system and the economy of the country. However, it will greatly benefit, in the short run, the big private players and those who control the institutions of the ruling establishment. It is they who share in the loot and plunder of public funds and resources.

It is not surprising that they and the mainstream press they control continue to extol the virtues of the privatisation programme. More reforms, more projects like Maheshwar, spell for India a future like that of Argentina’s.

(The writer is a Senior Public Interest Lawyer in the Supreme Court)