COLUMN ONE : This Power Game Has High Stakes for India : Rocks and rhetoric fly as a U.S. consortium begins to build a huge utility plant. If newly elected officials scratch the project, billions in foreign investment may be jeopardized.

It was a business breakthrough akin to Ping-Pong diplomacy, a capitalist success as closely watched as the dishing up of the first Big Mac in Moscow.

On the last day of February, after 18 months of arduous negotiations, two government reviews and nine court cases, a U.S. consortium led by Houston-based Enron Corp. closed the deal on the construction of a 2,015-megawatt power plant near here.

The next day, earthmovers from Bechtel Corp. revved up their diesel engines and started flattening a palm-fringed seaside hilltop 100 miles south of Bombay to make room for General Electric-manufactured turbines.

A few days later, the unforeseen struck. Call it Indian democracy.

To the surprise of many, the Congress (I) Party was swept from office in Maharashtra--the country’s wealthiest state, home to 79 million people--and was succeeded by a Hindu nationalist coalition.

Taking charge of the Energy Ministry was Gopinath Munde of the victorious opposition party, Bharatiya Janata, or BJP. Munde had vowed during the campaign to “push Enron into the Arabian Sea.”

In this dispute, the stakes have become much bigger than whether a power station large enough to supply the needs of a U.S. city of 2 million people gets built or not. In the view of many Indians and Americans, the project’s fate will also do much to determine how much of the estimated $50 billion available annually for investment in Asia goes to India.

Melee Breaks Out

On May 12, hundreds of villagers swarmed over the bleak 1,500-acre bluff of ruddy, iron-rich laterite, seemingly intent on putting Munde’s campaign rhetoric into action.

According to Bechtel’s site director, James R. Reiney Jr., the rock-tossing protesters smashed windshields and headlights and beat up some workers, including a few of the score of foreigners employed by Bechtel and the Enron-controlled Dabhol Power Co.

The hard-hats defended themselves by hurling stones back at their assailants, Reiney said.

Balakrishna Chowgule, 35, a native of nearby Ranvi village, tells a different story: Dabhol employees threw the first rocks to disperse peaceful protesters.

“The power company has come and taken our land,” the barefoot Chowgule told a visitor inside his family’s modest, fly-infested wooden home. “If tomorrow they decide this area is good for a landing strip, then they are going to throw us from our homes. But if they try to force anything upon us, we will fight back.”

Work is continuing on the $920-million initial phase of the biggest single foreign investment project in India.

But Maharashtra’s new leaders claim that they have the right to spike it, and this month, after yet another government review, they may decide to do so.

“What we are experiencing here is every investor’s nightmare,” is how Rebecca Mark, chairwoman and chief executive of Enron Development Corp., summed up the latest twist in the long, and so far inconclusive, saga of the Dabhol power plant.

“We’re tired. Boy, are we tired,” the Missouri-born energy executive said, sighing as she relaxed at a New Delhi hotel one recent Friday before rushing off to lobby India’s power minister. “But we’ll fight to protect our interests.”

The Dabhol precedent is crucial. The government of Prime Minister P. V. Narasimha Rao, which in June, 1991, began the shift away from India’s old “permit raj”--de facto economic control by pen-wielding government bureaucrats--looks increasingly incapable of winning reelection in nationwide polls that must be held by next spring.

If Rao’s Congress Party loses and another party comes to power, the Dabhol dispute could be repeated, again and again, at the national level.

Project Is Litmus Test

Since the controversy flared, the British chancellor of the exchequer, Kenneth Clarke, and French business leaders have warned publicly that the Enron project’s fate is a litmus test of India’s ability to do business with Western companies.

In an unusual move, the U.S. Department of Energy has also issued a statement serving notice that deep-sixing the Dabhol contract would seriously jeopardize other private investment in India’s power sector.

“They [India’s and Maharashtra’s leaders] know the world is watching,” a U.S. diplomat said.

The project’s difficulties have only encouraged the decision by some foreign investors to take a wait-and-see attitude about India.

As of this spring, more than $3.3 billion in U.S. investment had been approved by Indian officials--but only 23% of the funds had actually been plowed into the country, according to U.S. Embassy experts.

As Dabhol’s future dangles in the wind, another U.S. investor in the power sector, CMS Energy Corp., has cautiously put negotiations on hold for two proposed plants in West Bengal state.

And in yet another Indian controversy affecting a U.S. corporate giant, DuPont Co. this month dropped its embattled effort to build a nylon plant in Goa and shifted work to another locale. In Goa in January, police opened fire on an anti-DuPont protest and killed a man.

‘A Deal Is a Deal’

Many influential Indians, including federal Power MinisP. Salve, concur with Enron’s view that “a deal is a deal.” Others take issue with controversial clauses in the project contract, such as one that allows Enron to supply the plant’s fuel from another Enron-owned facility in Qatar once the second bank of generators is built and the completed $2.8-billion facility switches to liquid natural gas.

Or they object to the “counter-guarantees” that commit India’s government to paying Enron for power generated if Maharashtra and its electricity board default. Or to the annual escalation fee programmed in for the price of power, which will start at 2.40 rupees, or about 7.8 cents, per kilowatt-hour in 1997. Or to any number of environmental, safety and social concerns.

Against such objections, Enron counterattacks with copious, faxed explanations and arguments. But it has not swayed all opponents in a land that was exploited for 350 years by the East India Co. and the British Empire, and where the memory of that history is still keen.

“We think canceling the project will send the right signals,” Jay Dubashi, economics adviser to the BJP, told a magazine. “It will demonstrate that we are not chumps who can be taken for a ride.”

To add to the irony--and to Mark’s outrage--Enron came to India in June, 1992, at the invitation of its government. That’s because India badly needs electricity--3,000 megawatts in additional capacity for Maharashtra industry alone, Enron estimates.

So the Dabhol project was given “fast track” treatment by India’s officials to get private foreign capital plowed into the generating of electricity. That meant waiving competitive bidding, a decision some Indians now see as prima facie evidence of skulduggery.

Enron also took the plunge without an Indian partner, an unusual move. When a deal was secure, Mark’s company took an 80% stake in the newly formed Dabhol Power Co. Two other Fortune 500 companies, GE and Bechtel, split the remainder.

That blue-chip American ownership was probably vital in securing the groundbreaking financing, including loans from the U.S. Export-Import Bank and Overseas Private Investment Corp.

“When we came in, a lot of people in the energy business thought it was a foolish move,” Mark recalled. “But we did everything the Indians told us to do.”

That may not have been enough. In fact, Dabhol’s travails may finally prove what India’s critics have maintained all along--that the country’s freewheeling, open system, querulous and opinionated press and highly stratified society make it an inherently risky place to do business.

Riskier, some maintain, than a Communist dictatorship.

“Sadly, India’s divisive system has led to violence, corruption, vote-rigging and coercion at the ballot box,” claimed one firm advocate of doing business with China, David K. P. Li, deputy chairman and chief executive of the Bank of East Asia Ltd. “This is not democracy.”

Most problematic for Enron, March’s election results caught it by surprise.

The Congress government of Chief Minister Sharad Pawar--with which the Americans argued, bargained and finally signed a deal--was swept from office.

The new leaders from the BJP and extreme right-wing Shiv Sena parties had not been courted by the Americans. Suspicious that Pawar and his cronies might have fleeced Enron for kickbacks and agreed to special terms in exchange, they ordered yet another government review of the deal.

Ominously for Enron, none other than Munde, the virulent critic of Dabhol and now a deputy chief minister, was put at the head of the three-member review committee.

Its report is expected at the end of the month. Optimists note that, at that time, the new chief minister, Manohar Joshi, is expected to be on a trip to Britain and North America to solicit new investment for Maharashtra. He is expected in Los Angeles on Tuesday.

“He’d hardly be likely to go there with an Enron albatross still around his neck,” the U.S. diplomat said.

Villagers ‘Uninformed’

The American entrepreneurs’ second failing was in public relations.

Though Enron’s team gained an envied reputation for its skill at impressing and charming politicians and bureaucrats in Bombay and New Delhi, it failed totally to allay the fears of people living on the Konkan coastal strip about the plant’s impact on their livelihoods, or even lives.

In fact, villagers claim, the masterminds of the Dabhol deal never even tried.

“The most important thing is that we were kept in the dark about the whole project till about a year back, when people from the [government] collector’s office came for a survey,” said retired railway worker Gunaji Kamhre, 60. “Why was that so, when we will be the ones directly affected?”

Local BJP lawmaker Vinay Natu, 31, is dead set against the project and was swept into the state assembly on an anti-Enron landslide.

These days, however, the bulldozers and rock drills are still working, although just half the labor force of 2,000 have dared return to their jobs since the rock-throwing melee.

Two hundred police have been assigned to guard the hard-hats, who have moved 7 million cubic feet of rock and soil. Some residents believe that what they are seeing now indicates that the BJP-Shiv Sena government has done a deal with the goras-- the pale people.

In the end, Maharashtra’s leaders may choose to ignore the BJP’s campaign rhetoric, since canceling the plant could entail big penalties.

Mark claims that up to $300 million has already been expended and that the company could recover up to the entire first-phase price--$920 million--through arbitration in a British court.

In the villages nearest the plant--Ranvi, Anjanvel, Veldur and Katalwadi--such concerns mean nothing. People shrug when reminded that local power shortages are so severe that the closest town, Guhagar, is routinely blacked out on Mondays.

“What would anyone do with electricity when there will be no house to live in?” asked Manohor Murlidhar, 32, a police auxiliary.

Local farmers worry that their mango, cashew, betel nut and rice crops will be harmed by emissions from the plant, which will burn diesel oil at first.

Ecological Concerns

Water will be sluiced from Dabhol’s turbines into the Arabian Sea, and many of the area’s 2,500 fishermen are concerned that the heated water, and muck stirred up during construction, will decimate the pomfret, scallop and shrimp populations that dwell in the placid waters near the mouth of the Vashishti River.

Probably worst of all, in the minds of people who are illiterate or semiliterate--and very vulnerable to exploitation by activists or politicians--the gas that will ultimately fire Dabhol’s turbines is no different from another gas, highly toxic methyl isocyanate, that leaked from a Union Carbide plant in central India in December, 1984, and ultimately killed 4,000 people.

“If something similar to what happened at Bhopal happens here, who will be responsible?” Kamhre asked.

Enron proudly claims that not a house nor mango tree is being relocated to build the plant. But villagers are furious at having agricultural land expropriated by the Maharashtra Industrial Development Corp.

Twenty thousand rupees, about $650, is being paid per acre, a good sum by Indian standards. But as many as three-quarters of the villagers have refused the compensation. They want their land.

“If we don’t sell, they say they’ll take it anyway,” said Balchan R. Jambhale, 31, who works in a pharmaceutical plant in Bombay.

Dabhol’s first 695-megawatt bank of turbines is supposed to be generating power by Dec. 1, 1997. To make sure the deadline is met, Enron is placing advertisements in the Indian press to point out the larger issues at stake, and it is furiously trying to better its image in the Konkan, where Dabhol officials admit that in the past they concentrated on winning over the sarpanches , or village headmen, rather than ordinary residents.

To show off its good side, the company has repainted the primary health care center in Guhagar and donated $34,000 to create a blood bank. A water main for Dabhol is being laid that will supply the villages with a year-round supply of drinking water.

“At the end of the day, things will be all right,” said Commerce Minister Palaniappan Chidambaram.

But at the site, laborers such as Mubarak Ansari, 20, are afraid to go too close to the villages for fear of being showered with rocks.

When a cow--an animal particularly venerated by Hindus--fell into a construction ditch, Dabhol officials spent half a day trying to find a veterinarian to care for it.

“Otherwise,” said Vrinda Walavelkar, Dabhol Power Co.’s senior communications representative, “it would have been said we injured the cow.”