White House helped Enron in India dispute
$2.3 billion was at stake weeks before bankruptcy
Published Saturday, January 19, 2002, in the Akron Beacon Journal.
BY DANA MILBANK
and Paul Blustein
The Washington Post
WASHINGTON: The White House coordinated a multifront effort
last year to help Enron Corp. settle a dispute with the Indian
government, which the energy company hoped would deliver
$2.3 billion as it was running out of cash in the weeks before
declaring bankruptcy.
According to government records released yesterday,
President Bush's National Security Council led a ``working
group'' with officials from various Cabinet agencies to resolve
Enron's troubles over a power plant venture. Enron, facing
nonpayment by its Indian government customer, wanted to sell
its interest for $2.3 billion.
The administration's efforts -- which included Vice President
Dick Cheney's conversation with an Indian official, and was to
involve a personal appeal by Bush to Indian Prime Minister Atal
Bihari Vajpayee -- appeared to end on Nov. 8. That's the day
Enron filed documents with the Securities and Exchange
Commission revising its financial statements to account for
$586 million in losses. It's also the day Enron Chairman
Kenneth. LAYLay talked by phone with Treasury Secretary Paul
O'Neill about the company's dire finances.
The documents released yesterday provided new details about
Bush administration efforts to aid Enron, the once high-flying
company that filed for bankruptcy law protection in December
and now faces Justice Department and congressional
investigations. The India episode demonstrates the ability of
Enron -- once one of the nation's most aggressive and
innovative firms, and one of the biggest political donors -- to
command the attention, and sometimes the intervention, of the
nation's highest government officials.
The Bush administration intensified government actions just as
Enron's financial problems grew severe and the power plan
venture reached a moment of crisis. Those efforts stopped
when the scope of Enron's spectacular collapse was becoming
known worldwide.
Administration officials say their efforts were appropriate and
unremarkable, intended primarily to protect U.S. taxpayers'
$640 million interest in the troubled Dabhol power plant. The
Clinton administration, starting in the mid-1990s, also had
backed Enron in its dispute with Indian officials.
White House Press Secretary Ari Fleischer said yesterday: ``It's
not uncommon for leaders of the United States, no matter what
party they are, to help make certain that if contracts are to be
awarded overseas, they're given to Americans. There's a lot of
competition.''
But Jon Sohn, the international policy analyst for the
environmental group Friends of the Earth, said Enron received
more government help with its projects than other companies --
under both the Clinton and Bush administrations.
The group calculated that Enron received $2.4 billion for its
overseas energy projects between 1992 and 2000 from the
Overseas Private Investment Corp. and the Export-Import Bank
of the United States in the form of loans, insurance and
guarantees.
``We maintain that the U.S. government was involved because it
was Enron, which happened on so many of their projects,'' Sohn
said.
The $3 billion power plant, located south of Bombay, was built
as India began to open its heavily state-run economy and allow
foreign firms greater investment opportunities. The nation's
biggest foreign investment by far, the plant was highly
controversial from the start. It drew opposition from
environmentalists, Indian nationalists and even the World Bank.
The project is ``not economically viable,'' Heinz Vergin, the
World Bank's country director for India, wrote in April 1993,
rejecting a request for a bank loan. But some U.S.
taxpayer-financed institutions still helped finance the project.
Enron sought to sell its 65 percent interest in the Dabhol plant
after years of squabbling with the plant's lone customer, the
Maharashtra State Electricity Board. In a Sept. 14 letter to
Vajpayee, Lay said he wanted $1.2 billion for the cost of the
company's investment and $1.1 billion for the purchase of
offshore lenders' debt.
The $2.3 billion total, he wrote, ``strikes me as exceptionally
reasonable when compared to the size of our legal claim,''
which Enron had put at $4 billion to $5 billion.
When Lay wrote the letter, Enron's stock had plunged to $32.76,
from a high of $90 in August 2000. The drop left Enron
scrambling for cash to keep its far-flung businesses afloat.
At that same time, the administration working group was trying
to resolve the dispute between Enron and India.
The documents do not make clear whether the Bush
administration was pressuring India to release Enron from the
project or to reach another settlement.
Also yesterday, a Sept. 26 e-mail chat with concerned
employees revealed that Enron's Lay called the company's
slumping stock price ``an incredible bargain'' and said the
upcoming financial report for the third quarter ``is looking great.''
Enron's accounting practices were legal and proper, he added.
Lay's testimonial to Enron employees came a little more than a
month after he received warnings from Enron Vice President
Sherron Watkins of a potential accounting scandal at the energy
company -- and then called for a review of Watkins's charges by
Enron's law firm.
Less than a month after the e-mail exchange, Enron jolted
investors by reporting a $638 million quarterly loss and the first
of an increasingly devastating series of changes to its financial
statements.
Lay bought millions in stock himself in August, although it isn't
known whether he later sold it.
His e-mail exchange frames a critical issue for Enron and for
Lay himself, as he prepares for Senate testimony Feb. 4 on his
company's collapse: How much of Enron's financial erosion was
clear to him in mid-September, when he was urging employees
to keep buying the stock?
Lay's upbeat advice to employees in September was
``unconscionable,'' said Eli Gottesdiener, an attorney
representing Enron employees who are suing the company.
``He is essentially sending people off the cliff.''
An Enron spokesman declined to discuss Lay's comments to
employees. Lay's attorney Earl Silbert said Lay was in Houston,
concentrating on running Enron.
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