News

Asia Panelist Accuses Enron of Human Rights Abuses

The director of the Business and Human Rights Program at Human Rights Watch (HRW) accused Enron of human rights violations in his comments on a recent panel at the Asia Business Conference hosted at HBS. Arvind Ganesan detailed reports of violations dating back to 1997 that relate to the Dabhol power plant in India, owned by a subsidiary of Enron.
That same power plant is the primary subject of investigation by Rep. Henry Waxman, ranking member of the House Committee on Government Reform, into the records of the Cheney Energy Task Force.

Ganesan and HRW issued a report of the human rights violations in a 1999 report, “The Enron Corporation: Corporate Complicity in Human Rights Violations.” In his remarks at HBS and in the report, Ganesan outlines the origins of the $3 billion power plant built by Enron in the western state of Maharashtra in India.

He said the plant was critical to Enron’s strategy in the region, but the World Bank refused to fund the development effort because its own assessment found the plant to be “economically infeasible” and would lead to excessively high power costs for the state of Maharashtra.

“Economically Infeasible” for Whom?
A February 3, 2002 article in YellowTimes.org (www.yellowtimes.org) by India-based columnist Ullas Sharma reported that the World Bank proposed changing the plant design from a liquefied natural gas (LNG) design to a cheaper coal-based design, but Enron refused the change. Reports Sharma, “For Enron, the LNG fired plant was very important” because “they had a LNG processing unit worth $4 billion in Qatar (under the Enron Development Corporation) and they wanted a captive market for it.” Sharma said Enron planned similar plants in China, Turkey, and Brazil.
When the World Bank refused development financing in 1992, Enron turned to Bank of America, ABN Amro, and a group of Indian banks for $635 million in initial financing. The U.S. government through its Overseas Private Investment Corporation (OPIC) and Export-Import Bank (Ex-Im Bank), institutions funded by U.S. taxpayers, provided almost $400 million in loan guarantees and political risk insurance.

The terms of the original deal sparked controversy in India and raised suspicions of corruption. The opposition parties in India used the Dabhol plant as an election issue, and won elections in 1995, after which they cancelled the power plant contract.

In 1996, however, Enron purportedly renegotiated the contract, and according to Ganesan’s remarks, the new government that was elected in opposition to the plan agreed to a project twice as large as the previous government.

With such a defeat and serious concerns about the environmental, land use, and social impacts of the project, local residents in Maharashtra brought lawsuits against Enron and the government but saw them later dismissed. In the words of one public interest representative, “It was hard to find a lawyer because Enron had retained or briefed all major lawyers in Bombay and Delhi!” reported Sharma.

Organized Resistance & Repercussions Begin
Production of the plant proceeded, and local opposition groups grew along with their environmental and social concerns. Some community leaders began to organize opposition and peaceful demonstrations. With the financial stakes high, HRW alleges that the Indian and U.S. governments with Enron supported an oppressive police regime to quell rising protests in the region.

The HRW report details over nine instances of police arrests and beatings that it says qualify as human rights violations. Ganesan also commented on the systematic targeting of Enron opponents by local Indian police.
In one example, Ganesan told listeners of a 1997 police “invasion of a fishing village,” where the police “arbitrarily beat and arrested dozens of villagers.” Among those arrested was the wife of a prominent Enron opponent in the village, Sadhana Bhalekar. Ganesan said the police broke down her door and pulled her out of the shower into the streets, where they beat and arrested her.

Also troubling to HRW was the payment arrangement between Enron and the Indian government whereby local police were paid directly by Enron, though they remained officially under government control. However reports at the time indicated that the government of India felt “intimidated” by Enron and strong U.S. threats of sanctions and suffered relations if the project were halted.
E
very Ex-Im transaction over $10 million requires the U.S. State Department to conduct a human rights impact assessment, and an assessment for the Dabhol plant was required because Enron received almost $300 million in loan guarantees. However, a 1978 law prevents any denial of a transaction unless the President of the United States or the Secretary of State deems the denial necessary for the national interest.
The review was conducted in 1997 by the U.S. Embassy in India under Ambassador Frank Wisner, who also warned the Indian government that “cancellation of the [Dabhol] deal could jeopardize foreign investment in the country,” a threat India took seriously, according to the HRW report.
The report also quotes a top Indian Power Ministry official who says Wisner’s remarks “speak volumes for Enron’s ability to rope powerful people in to help their cause…The Indian government was clearly intimidated by Enron’s clout.”

When HRW questioned Amb. Wisner about the human rights violations and protests, HRW says he replied, “I don’t know anything about the protests…” Soon after, Frank Wisner was named to the board of directors of an Enron subsidiary in 1997, a few months after leaving his post in India.

Eventually, the cost of power produced from the plant far exceeded Enron’s estimations and more closely matched the original 1992 estimates of The World Bank. Ganesan and other published reports said the energy became too expensive for the state of Maharashtra, and in 2001, the state stopped buying energy from the Dabhol plant. India’s debt rating was summarily reduced, and the matter went into complicated litigation, with Enron seeking payment from India even while it sought insurance payouts from U.S. taxpayers, said Ganesan.

Recent comments from the U.S. ambassador to India indicate a chilling in economic relations. On January 28, Amb. Robert Blackwill criticized Indian economic reforms and said, “The Dabhol dispute feeds a chronic perception among the overseas investing community that India may not be ready for big-time international investment. The long-term repercussions could be profound.”

Campaign Contributions & The Cheney Records
The Dabhol plant was most recently in the news after U.S. Rep. Waxman’s congressional committee and the Congressional General Accounting Office both subpoenaed Vice President Dick Cheney’s Energy Task Force records. According to Rep. Waxman, the final report in May contained a provision that directed the U.S. to help India increase its oil and natural gas output, a provision that Waxman says was not in a March draft, before Cheney met with then Enron CEO Kenneth Lay on April 17. Cheney denies adding the provision on Enron’s behalf.

In addition to Rep. Waxman’s subpoena, the Congressional General Accounting Office has said it will sue Cheney to gain access to his records, and private groups including watchdogs Judicial Watch and the Sierra Club have already filed suit.

In June, when Vice President Cheney visited with the Indian opposition leader Sonia Gandhi, The New York Daily News reported that Cheney raised the issue that Enron was trying to sell its interest in the Dabhol plant, this at a time when Enron was desperate to contain its losses prior to its bankruptcy only months later.

And in 1996 when the Indian government delayed approval of the Dabhol plant, Time Magazine reported January 28 that “White House counselor Mack McLarty instructed the U.S. ambassador in New Delhi to monitor it and gave regular progress reports to Enron chairman Ken Lay.”

Time continued, “Four days before the project rec
eived its final O.K., Enron gave $100,000 to the Democratic National Committee.” In the same article, Time noted that Enron gave President Bush over $700,000 in political donations over the years, and $6 million in campaign contributions to politicians over the past 12 years.

Human Rights Record: Financial Performance Indicator?
In his closing remarks at the Asia Business Conference panel, Ganesan said he thought it was reasonable to look at a corporation’s human rights record as an indicator of its financial performance. He emphasized the critical role that multilateral international agreements through such bodies as the UN play in allowing the inspection and enforcement of human rights, but he also said enforcement efforts often fall short, especially in developing nations where bottom-line interests tend to dominate.
Ganesan implied corporations such as Enron that are in desperate conditions may turn to oppression of opponents with the aid of the U.S. government as an insurance device to protect against losses. He encouraged rigorous enforcement of existing international standards by all governments, and he suggested that corporations perform “social audits” and report annually on the social impacts of their operations around the world.

Panel moderator Margaret Blair, Visiting Georgetown Professor of Law, closed with, “We’ve seen recently how difficult it is to put in place effective rules to account for hard assets, so these problems [of social impact accounting] are going to require enormously creative and energetic minds, and I’m sure all of you here are up for the challenge.”

February 11, 2002
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