Investors wary in wake of Enron plant revival
Investors wary in wake of Enron plant revival
By Clarence Fernandez
BOMBAY (Reuter): The revival of Enron Corp's multibillion
dollar power plant in western India has rescued the country's
largest foreign investment project but leaves as many
uncertainties for investors as it resolves.
Analysts said on Tuesday the end of the tug-of-war between the
government of western Maharashtra state and the U.S.
multinational over the giant power project was unlikely to
trigger new capital inflows into the country, with investors
remaining wary ahead of general elections in April.
"Everybody more or less knew it was going to go through," said
Iain Allison, head of research at securities house Marlin
Partners. "And when it finally did it was a total damp squib as
far as foreign investment is concerned."
Caught in a tussle for nearly a year between Indian political
parties, the 2,450 MW project -- scrapped last August as too
costly -- is the country's single largest foreign investment at
over $2.0 billion.
The Maharashtra government, headed by a right-wing coalition
of the Bharatiya Janata Party (BJP) and the Shiva Sena, canceled
the project soon after it came to power. The project had been
approved by the previous state government, headed by the Congress
party.
The state administration said on Monday the deal was being
resurrected after Enron cut costs and the price it would charge
per unit of electricity generated.
Investors have watched the on-again, off-again, on-again saga
closely as a pointer to the success of India's reform program,
but when the project won final approval on Monday, many were
clearly tired.
"The decision will have absolutely no impact," said David
Kadarauch, head of research at broking firm Jardine Fleming India
Ltd. "Most foreign investors understood at a very early stage
that Enron was purely a political game."
Analysts said the Maharashtra government had used the issue to
show that although it was bent on extracting the best deal for
the consumer, it did not oppose foreign investment.
"We were opposed to the earlier agreement, and got it
canceled, but worked with equal dedication to get a world class
competitive deal from Enron," BJP leader Atal Behari Vajpayee
said at a recent meeting with Indian business leaders.
"The new deal, I am confident, will be the benchmark for
future power projects," he said.
But the revised Enron deal also set a dangerous precedent,
said Paul McKenzie, head of research of Credit Lyonnais
Securities. It showed state governments could tear up contracts
signed and sealed by predecessor governments, he said.
"India needs to be careful. Once signed and sealed, contracts
should not be reopened," he said.
Others saw the impact as limited.
"I don't think India got seriously hurt. There is no question
of too much turn-around. It is a clear positive step," said
industrialist Rahul Bajaj.
Analysts took the view that going ahead with the Enron project
was the most pragmatic step for both parties.
"In the grand scheme of things it's a small positive," said
McKenzie. "There's a fair amount of foreign investment waiting in
the wings. But the elections represent uncertainty to the
investor and they will delay investment coming to India."
The BJP and the Congress are seen as the main contenders for
power in the April elections, and analysts say it is unlikely
either will win a clear majority.
Inflows of investment could be delayed still longer if the
polls had no certain result, the analysts said.
"Foreign investment as a whole has taken a beating," said a
director of one of India's largest private sector power firms,
who did not want to be identified.