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If you
had to name a single company that could serve as a symbol of international
capitalism in the 1990s, this would probably be the one. The giant
multinational corporation Enron grew from being essentially
a gas
pipeline company in the 1980s, into the world's single largest energy
trader, accounting for around 25 per cent of energy trade in both US and
European markets. Last year, Enron was ranked 16th on the Global Fortune
500 and 8th on the US Fortune 500.
By then, Enron had grown into a multisector service corporation with five
major divisions: Enron 'Transportation Services' specialised in the
company's traditional natural gas pipeline operations. Enron 'Energy
Services' was the company's retail arm for the sale of natural gas and
electricity to both commercial and industrial users. Enron 'Wholesale
Services', which is also the main shareholder in the infamous Dabhol Power
Company in Maharashtra, currently delivers more than two times the
natural gas and electrical power volumes as its nearest competitor. Enron
'Online Services' is a commodity trading system. It provides the largest
eCommerce site in the world, dwarfing all other energy marketing web sites
combined. Enron 'Broadband Services' streamlines media applications and
"customizes" bandwidth solutions on the Internet.
But of course there was even more in the story of Enron, and that is what
makes it so symbolic. It exemplified two important tendencies in
contemporary capitalism : the urge – and remarkable ability – to
commercialise almost all aspects of human life; and the use of lobbying
and access to political power to influence national and international
policies to its own advantage.
Surveys conducted by the business magazine Fortune have named Enron the
most innovative company in America for six years in a row. One of the
reasons was that it was largely responsible for the notion that anything
could be commoditised. In fact Enron pioneered the use of the Internet to
buy and sell natural gas and electric power supplies for utilities and
industrial power users and helping them to hedge against fluctuations in
power prices. But in addition, the company has been buying and selling a
giddying range of products, from pulp and paper to petrochemicals and
plastics to water, and including weird products like clean air credits
that power utilities could purchase to "meet" pollution emission limits.
The increasingly popular market perception was that Enron could initiate
trade in anything : the weather, bandwidth, even (ironically, now)
bankruptcy. This led the eCommerce wing alone to transact tens of billions
of dollars of business last year.
The other important characteristic of Enron was its significant political
clout, which made it the envy of other large corporations. This clout did
not come cheaply : Enron – and its Chairman Kenneth Lay – invested huge
amounts in terms of direct donations and other contributions, especially
(but not exclusively) to the Republican Party in the US. Enron and its
executives were the single largest contributors to the Presidential
ambitions of George W. Bush. Kenneth Lay personally gave at least $1
million in soft money to Bush's political campaigns, and organised a
Republican fundraiser that topped all previous records by bringing in
$21.3 million in one night.
When Bush was governor of Texas, Lay served on his Governor's Business
Council, and he was a key energy adviser during the presidential campaign.
As the Bush Administration formed its controversial energy plan, which
favoured the oil and gas industry, Lay was one of the business executives
called in to advise. Some benefits have been direct : thus the Enron
Methanol plant in Pasadena, Texas won special concessions from then
Governor Bush, which allowed the company to pollute without a permit, as
well as giving it immunity from prosecution for violating some
environmental standards.
The company also had close ties with US Senator Phil Gramm of Texas, a
Republican on the powerful Senate Banking Committee. Gramm's wife, Wendy,
joined Enron's board of directors after a five-year term as chairwoman of
the US Commodity Futures Trading Commission, which played a role in
deregulating energy markets that Enron dominated until its recent
financial crisis.
Enron has benefited from these links not only in terms of US domestic
energy policy, but also in its international activities. Thus the
Overseas Private Investment Corporation (OPIC), which provides political
risk coverage and financial support to US companies investing abroad,
provided financing or insurance coverage worth almost $300 million for
Enron's foreign projects in 2000. Enron received $200 million in political
risk insurance for the Dabhol project in 1996, and $200 million in
insurance in 1999 for its Bolivian project.
More significantly, the company emerged as a major player in influencing
the ongoing GATS (General Agreement on Trade in Services) negotiations at
the World Trade Organisation. The aim has been to expand the scope of the
rules to include all public services, ranging from health care and
education to energy, water and transportation services. These would push
for commercialising and privatising all forms of services and utilities,
implying a drastic restructuring of the role of government regarding
public access to essential social services across the world. As a leading
member of the US Coalition of Service Industries (UCSI), Enron was
becoming a prime example of how large multinational corporations can not
only influence, but actually determine, global trade rules at the WTO.
The company inevitably created controversy. In India the Dabhol power
project, of which Enron was an 80 per cent shareholder until the Indian
government recently purchased 30 per cent shares, was highly controversial
from even before its inception. There is sufficient evidence that Enron
used its now well-honed skills in terms of lobbying and influencing
decision makers to receive terms that proved to be not only excessively
generous for itself but actually unsustainable, such that the Maharashtra
State Electricity Board had to stop buying power from Dabhol. Amnesty
International and Human Rights Watch have both criticised Enron for
colluding with police who brutally suppressed protests at the Dabhol power
plant.
In Bolivia, the company has been involved in major environmental damage,
with its involvement in the Cuiabá Integrated Energy Project. Last year an
oil pipeline erupted and dumped an estimated 10,000 barrels of refined
crude oil and gasoline into the Desaguadero River, which supports several
indigenous communities. Local people were deprived of food and livelihood,
and had to march to the capital to protest before any help was provided.
Enron was even able to reap huge profits from the California energy
crisis. When sudden energy shortages translated into massive cost
increases, major suppliers of commercial and industrial energy like Enron
raked in huge profits, in Enron’s case around $377 million. Enron
officials have argued that the market should be even more deregulated, to
allow 'demand' and 'supply' forces to resolve the ongoing energy crisis in
California.
The combination of aggressively innovative trading practices and huge
lobbying clout made Enron the darling of Wall Street. It was one of the
highest performers on the share market, especially because it supposedly
straddled both "old economy" and "new economy" interests. Last year the
share price rose to a peak of more than $90 per share.
The fall of such a huge and powerful company has been
relatively swift. The sheer rapidity and scale of its recent growth now
appears to have been accompanied by
heavy and unsustainable
borrowing and willingness to fudge its financial statements. In late
October 2001, the company disclosed that it had shifted billions of
dollars in debt off its balance sheet and into an array of complex
partnerships. When the Securities and Exchange Commission investigated,
Enron restated five years of earnings, wiping out nearly $600 million in
profit.
As a result, Enron was teetering close to insolvency when Dynegy, a
smaller Texan energy company, agreed to acquire it for $9 billion plus
the assumption of $13 billion in debt. However, when Enron subsequently
disclosed even more debts and dubious financial dealings, Dynegy backed
down from its offer. Credit rating agencies downgraded Enron’s debt to
junk status. Energy trading companies reduced dealings with the firm, and
some forced Enron to pay higher prices for natural gas and other products
or required it to post large cash deposits to back trades. Enron shares
fell by 85 per cent on a single day (Wednesday 28 November) to close at 61
cents per share, setting a New York Stock Exchange record for large
trading volume in a single stock.
At the time of writing, the company is teetering on the brink of
bankruptcy. With $62 billion in assets as of September 30, it would be the
biggest American company ever to go bankrupt. In consequence, not only are
the holdings of investors, including big mutual funds, almost wiped out,
but the fate of more then 21,000 employees is in doubt.
This will certainly have repercussions in India as well. The resolution of
the Dabhol Power Company dispute would never have been easy and
uncomplicated, but now it will be further delayed as the parent company’s
existence is in doubt. Meanwhile, delays would increase the losses of DPC
as interest costs mount since the plant is sitting idle, shut down since
June. The Industrial Development Bank of India, State Bank of India, ICICI
and other Indian financial institutions have lent directly or guaranteed
loans totalling Rs. 6204 crore ($1.4 billion) to Dabhol. All these loans
are now in question, and the profitability of these financial institutions
also would be affected.
Enron was more than a large multinational company. It was
in fact a symbol of , and for some even a model for, economic activity
across the world including in India. It may be too much to hope that its
collapse will come to symbolise the disintegration of the type of
capitalism Enron came to represent. But it must surely lead to a deeper
questioning of the economic system which can generate this scenario.
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