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washingtonpost.com
White House Aided Enron In Dispute
By Dana Milbank and Paul Blustein
Washington Post Staff Writers
Saturday, January 19, 2002; Page A01
The White House coordinated a multi-front 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 Cheney's conversation with an Indian official and were 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 L. Lay talked by phone with Treasury Secretary Paul H. O'Neill about the company's dire finances.
The documents released yesterday provided new details about Bush administration efforts to aid Enron, the once highflying 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 plant 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 helped finance the project. OPIC provided $160 million in loans and $180 million in risk insurance; the Export-Import Bank lent the project $300 million. The agencies say such projects create U.S. jobs and exports.
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 acute lack of progress in this matter has forced Dabhol to rise to the highest levels of the United States government," OPIC President Peter Watson said in a Nov. 6 message to a top Vajpayee aide, Brajesh Mishra. "I ask that you give this matter serious and immediate attention."
The documents do not make clear whether the Bush administration was pressuring India to release Enron from the project or to reach another settlement.
Fleischer said the administration's actions had nothing to do with Enron's political contributions. He noted that the Clinton administration had acted in a similar manner on Dabhol.
Indeed, according to the Center for Public Integrity, Lay accompanied Clinton's commerce secretary, Ronald H. Brown, on a trip to India in 1995. In 1994, Enron executive Rodney L. Gray joined Brown on a trip to Russia.
Clinton administration officials said they felt obliged to champion Enron's cause because Maharashtra state had effectively reneged on its contractual obligations to pay for the plant's output.
"There is an appropriate role for the U.S. government to step in on behalf of U.S. companies when foreign governments are treating them unfairly," said David Rothkopf, deputy undersecretary of commerce for international trade in the first Clinton term. "Enron, just like any other company, was entitled to that support."
By last summer, documents show, the National Security Council was intimately involved in discussions about the plant. A June 28, 2001, e-mail from an NSC staffer announced there was "good news" regarding Enron and Cheney: "The Veep mentioned ENRON in his meeting with Sonia Gandhi" -- the president of India's opposition Congress Party.
Also that week, an unnamed government staffer noted that he would "ask the Indians" if Enron chairman Lay "is invited to the dinner" with OPIC's Watson.
A July 30 government memo, labeled as a "Confidential Business Communication," was distributed to members of the "Dabhol Working Group." It noted that earlier in the month, Lay visited India and met with various officials. It said State Department official Christina B. Rocca had met with a senior aide to the Indian prime minister.
The memo also noted possible plans to "broaden the advocacy" related to the power plant. That plan called for solving problems related to the plant "in a diplomatically correct manner." The memo suggested enlisting the aid of Ambassador-designate Robert D. Blackwell, the World Bank, the U.S. Embassy in New Delhi, the State Department and the Indian Embassy in Washington.
A Nov. 1 government e-mail indicated that talking points had been prepared for Bush in his meeting with Vajpayee. They were never used.
An intragovernmental e-mail sent on the afternoon of Nov. 8, and labeled "Importance: High," said, "President Bush can not talk about Dabhol as was already mentioned." The e-mail -- released by OPIC officials after they deleted the sender's and recipients' names -- also said that Bush's top economic adviser, Lawrence B. Lindsey, "was advised that he could not discuss Dabhol."
Lindsey had earned $100,000 as an Enron consultant in 1999 and 2000. The e-mail, released under the Freedom of Information Act, was first reported yesterday by the New York Daily News.
A Nov. 9 e-mail said that national security adviser Condoleezza Rice chose not to discuss Dabhol in her meeting with Mishra. Enron shares had fallen to $8.63 that day, and the company filed for bankruptcy law protection on Dec. 2.
Fleischer said Lindsey did not get involved because the White House counsel warned of a possible conflict of interest. Bush did not get involved because "it was a matter of not rising up to his level," Fleischer said.
The Dabhol plant first ran into serious trouble in 1995 when a new Indian state government canceled the agreement between the plant and the state electricity board. Construction resumed after massive political wrangling and litigation in Indian courts.
Among the plant's most influential advocates was Frank Wisner, who was then ambassador to India. Wisner sparked a furor when he joined the board of an Enron-controlled company after retiring from the Foreign Service in 1997.
Early in 2001, the state board stopped buying power from the plant, saying the cost was too high. Enron soon began trying to sell its interest.
Enron's bankruptcy leaves OPIC exposed to more than $1 billion in risks related to projects sponsored by the energy giant, according to an internal OPIC report. That represents a sizable chunk of the agency's portfolio of $15.2 billion.
Enron and its partners in the Dabhol project are seeking compensation from OPIC for potential losses. But even if OPIC has to pay them, it can seek redress from the Indian government.
Staff writers Joe Stephens and James V. Grimaldi and researcher Lucy Shackelford contributed to this report.
© 2002 The Washington Post Company