BUSINESSWEEK ONLINE : FEBRUARY 12, 2001 ISSUE
COVER STORY Commentary: Enron Hasn't Made Many Friends in the Third World (int'l edition) Gutsy. Visionary. Relentless. Such epithets have served Enron Corp. well in recent years on Wall Street, where its success in pioneering the gas and electricity trading business has made it one of America's most admired corporations. Until the California power crisis drew attention to the difficulties of deregulation, Enron seemed to have few obstacles to double-digit growth. But mention Enron in India, and you're likely to trigger a tirade over the high costs of power from a controversial plant that opened in 1999. In Argentina, officials still complain about Enron's heavy-handed attempts to push a big gas pipeline project a decade ago. And in Mozambique, officials assert that the U.S. government threatened to cut off aid unless the African nation gave the energy giant rights to a promising natural gas field. ''It was nasty,'' recalls former Mozambique Natural Resources Minister John Kachamila of his dealings with Enron. It's impossible to get to the bottom of all these accusations. But it's still fair to ask the question: A decade later, what has Enron reaped from its once-frenetic Third World dealmaking? So far, not much. Its grand early '90s vision of high growth and big profits in emerging markets hasn't materialized. Many megaprojects, such as the Argentine pipeline, never got anywhere. Now, in their quest for higher returns, Enron executives say they would sell assets, such as its stake in India's giant Dabhol power plant, if the price is right. Not only has Dabhol been a draining experience--Enron has fended off 29 court cases over allegations such as bribery, which it firmly denies--but it is also no longer seen as a wise investment. ''We shouldn't be in there building $2 billion power plants,'' says President Jeffrey K. Skilling. ''Our cost of capital is too high to do that.'' Meanwhile, in countries where Enron still has long-term ambitions in fuel trading and broadband telecom access, it is working to repair its image with bureaucrats and communities. Enron's legacy exemplifies the painful lessons many multinationals have learned from their rush into complex developing nations. Like other Western companies new to global markets, Enron figured the high risks would pay off as long as it signed a contract and secured lucrative terms. FACING THE HEAT. To be fair to Enron, it was willing to take such risks in electricity-starved nations that were then shunned by private investors. It also faced the heat in countries where public subsidies meant local consumers had never had to pay market prices for utilities. And it's hardly the only multinational to prick local sensitivities or ensnare itself in bad projects. What makes Enron stand out is the barrage of similar-sounding criticism it has drawn in so many places. Economists and opposition politicians have complained of secretive negotiations, bullying tactics, unfair financial terms, and dubious economic benefits from Enron deals. When talks grew difficult, say officials from India, Argentina, and Mozambique, Enron staff was quick to bring in the U.S. embassy or enlist intervention from high officials in Washington, which rankled in countries still sensitive about Western colonialism. The Dabhol plant is a reminder of Enron's old ways. From the outset of the deal in 1992, critics, including the World Bank, said the estimated price of power, 7 cents per kilowatt hour, was too high. Today, the Maharashtra State Electricity Board, which contracted to buy 68% of the power, is in such bad financial shape that it can't meet its commitments, and Dabhol operates only at about one-third its capacity. The price of power has been 10 cents to 14 cents per unit. Enron says the weakened rupee, low capacity use, and the fluctuating cost of naphtha--the fuel stipulated by India--have combined to drive up prices. Indian critics blame a flawed contract. But as New Delhi presses Enron to renegotiate, Skilling is taking legal action to get the national government to honor its obligation to guarantee payments for the plant. ''We took a risk with shareholders' capital, and the [government] can't just tear up the contracts,'' he says. Enron may be legally right. But again, its image is in for a beating, especially given the billions that cash-strapped New Delhi must now spend to cope with a devastating earthquake. Enron does concede that it has learned from its Third World embarrassments. Near Dabhol, for example, it has built a hospital, a school, and a vocational training center, though Indians say those projects came after protests and litigation. Had it been more far-sighted in the 1990s, Enron now could be a standard-bearer for globalization--rather than a symbol of its excesses. By Mark L. Clifford and Pete Engardio Clifford and Engardio cover Asian business and international trade. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Enron's Power Play COVER IMAGE: Power Broker CHART: Enron Taps Volatile Energy Markets...To Dominate Power Sales... TABLE: The Enron Way TABLE: Is There Anything They Can't Trade? Enron's Big Wheel Has a Heavy Tread Derring-Do in the Corner Office RESUME: Jeffrey K. Skilling Commentary: Enron Hasn't Made Many Friends in the Third World (int'l edition) ONLINE EXTRA: Q&A with Enron's Skilling INTERACT E-Mail to Business Week Online

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