Given these presumptions, the profit-guarantee and terms being offered to Enron were seen as a signal of India's commitment to making the country an attractive and reliable host to foreign investment, and opposition to the Enron project was even presented as anti-national by some advocates of reform. These arguments were, of course, those advanced publicly. But there was also a larger reform agenda hidden behind the case being advanced in favour of the Enron project.
 
It was widely accepted then and is accepted even now that much needs to be done to improve the functioning of the State Electricity Boards. Inadequate investments, poor maintenance and huge transmission losses plague most SEBs. For the reformists, however, what was most galling was the fact that for these and other reasons, such as the need to price electricity keeping in mind other developmental and distributional objectives, the SEBs were burdened with financial losses. Their prime problem was to ensure that these losses were wiped out, independent of the means by which that occurred. Combined with their obsession with attracting foreign investment at any cost, this resulted in a specific power reform programme. Privatisation, consequent to the break-up of the electricity boards into generation, distribution and transmission segments, as well as freedom to set prices were seen as the essential ingredients of such a programme. An unstated presumption was that if the SEBs were required to buy power from private providers at ‘economic' prices and bound by legal guarantees to meet the financial commitments involved, they would be forced to raise tariffs to cover ‘costs'. Thus, projects commissioned on terms like those offered to Enron were seen as a means of forcing the state governments to dismember the SEBs and to change their pricing practices in keeping with the reform agenda.
 
What was missed in this perception was the fact that in a democratic polity, policies to restructure the power sector can be pushed through only if all stakeholders find them reasonable. In state after state, the efforts to push through World Bank-inspired reforms in the power sector have proved difficult if not impossible to implement. Agricultural consumers are unwilling to accept higher charges when huge subsidies and tax concessions are handed over to industry. Domestic consumers see power as a facility that the state must provide at reasonable prices to all. And many among the rich who believe even the present rates are unreasonable find ingenious methods of bypassng the metering system. This makes nonsense of the the effort to use private enterprise in general and foreign investment in particular as the excuse to increase tariffs to levels that could cover up the problems in the present system.
 
Using the Enron-type strategy in the name of reform only compounds the problem. It is obvious to all that there are no markets working here nor is their any reduction in the fiscal burden. Enron's profitability is being protected by a government guarantee. And implementing that guarantee for a high cost project like DPC is only increasing the fiscal burden on the State.
 
The Enron episode has in fact proved that the reform programme undertaken on the grounds that subsidies need to be eliminated and the fiscal burden on the government reduced is a complete farce. Vivek Monteiro, the Secretary of the Maharashtra State Committee of the Centre of Indian Trade Unions has been quick to point out that in the name of eliminating subsidies the government has ended up providing a huge subsidy to Enron. The PPA requires the government to find the resources to pay DPC. Even assuming demand is equal to that supplied by DPC at 90 per cent capacity utilization, and the price per unit is at Rs.3.25 per unit, distribution and transmission losses would alone take the price to Rs. 4.25 a unit. Taking account of the fact that the average price recovered per unit sold by the MSEB works out to only Rs. 2, the government has to provide the MSEB with and additional Rs.2.25 per unit to meet its dues to the DPC. Since, just putting in place a project commissioned on the Enron terms has proved inadequate to either reduces distribution and transmission losses or raise the tariff, the subsidy remains in place, though it accrues not to the MSEB but to Enron whose profits are protected. In Monteiro's view if Dabhol Phase II is commissioned the subsidy amount needed to protect DPC's dollar profits would work out to more than the total agricultural subsidy.
 
In sum, an initiative that was launched as part of the ideology of reform has ended by defeating the grounds on which the reform process is commonly advocated. The question that remains is why the subsidy that is finally being paid is being offered to Enron. It is known that among the major creditors who have lent Enron huge sums on the strength of the government's guarantee are a host of Indian banks and financial institutions. If a similar credible guarantee had been provided to an Indian firm, it could have accessed the same sources to earn similar profits, which may not have been repatriated abroad in equal measure. What benefit the policy has offered in terms of attracting foreign investors who could deliver more than India corporates to the country is by no means clear. And the fact that the policy has only worsened the crisis in the power sector and elsewhere in the economy has even begun to affect the credibility of the sovereign guarantee that the government has offered. As noted earlier, creditors have sat up and started questioning the feasibility of Phase II.
 
But the crisis cannot be easily resolved. What is damaging is that the manipulative advocates of reform have carried the process to an extent where redressing the obvious blunder could prove costly. Under the prevailing terms and conditions, if the government opts to pull back its commitment to backing Dabhol Phase II and purchasing all the power it generates, it would have to pay compensation to the tune of Rs. 35,000 crore. Reforms are irreversible, even if disastrous, only because those who devise them ensure that they can be reversed only at prohibitive costs. If the ideal capitalism that the advocates of reform celebrate actually ruled, all those who backed the project, including the "disinterested" economists who defended it, would have been penalized. Unfortunately, it does not.