The exit of Cogentrix from Karnataka.
Desmond Fernandes and Leo Saldanha discuss the Mangalore Power Corporation controversy in terms of the politics of liberalization and corruption.

Deep Politics, Liberalisation and Corruption: The Mangalore Power Corporation Controversy Desmond Fernandes Lecturer, Institute of Tourism & Development Studies De Montfort University, UK dfer@dmu.ac.uk and Leo Saldanha Co-ordinator, Environmental Support Group Bangalore, India esg@bgl.vsnl.net.in Citation: Fernandes D and Saldanha L, 'Deep Politics, Liberalisation and Corruption: The Mangalore Power Corporation Controversy', 2000(1) Law, Social Justice and Global Development (LGD). Click here for the original paper, published on Jan 10, 2001

Abstract: This paper examines the arduous political and legal struggle against the Cogentrix power plant in Dakshina Kannada district in Karnataka, India. Using the key concept of 'deep politics', links are drawn between the decade long liberalisation policy in India and corruption.

The avowed need for liberalisation, specifically in the Indian power sector, is analysed in an elaborate manner by examining the economic aspects of generation, transmission and distribution of power in India, prior to and post liberalisation. Drawing upon the experiences with Enron, the case of Cogentrix is followed from the time of its arrival in India, the many highs and lows in the struggle against the project, the casualties to the project, through to its hard fought exit.

The political and legal detail in terms of events, procedures, arguments in and outside of court are meant to emphasise the notion of deep politics. By pitting the ideology of liberalisation against the political systems in India, notions of good governance are examined to suggest that deep politics is the current reality.

February 2001

[Published with the permission of Leo Saldanha of the Environment Support Group, Bangalore]

Excerpts from the paper
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...Bhupal Singh has concluded that the reform [liberalization] agenda has failed to achieve the stated aims. The 40 Private Sector projects awarded through the competitive bidding route, (and) 100 projects through the negotiated route, were expected to create an additional capacity of 20,000 MW with attract investment of Rs. 65,000 crores. However in reality construction has started only on about 3,500 MW additional capacity in the private sector (Singh, 1997). The counter-guarantee had been given by the Government of India (favouring) fast track projects initially, since according to the credit rating of the country was supposed to be quite low.

The fact (however) is that a number of foreign countries with advanced power technology were willing to back up their country's equipment manufacturers initially to promote the sale of equipment to India despite its so called poor credit rating. However, personal visits abroad by vested interests (individuals who were in positions of power) during the liberalisation phase made foreign companies more aggressive and assertive putting (India) on the defensive. Therefore a disadvantageous scenario (has) emerged (resulting in) most of the fast-track projects (coming up) through negotiations rather than through competitive bidding. The likely (adverse) impact of forex commitments of allowing repatriation of profits (due to) sovereign counter guarantees on India's meagre financial resources struck the formulators of this policy quite late[6].

Further most of the private power projects have been dragging as the proposals have run into controversy that have led to delays mainly because of lack of transparency. Unforeseen hurdles have been encountered because either experts were not consulted in advance (and/or) people with flimsy knowledge (were placed in high positions and) were made to append their signatures here and there with a view to offload the responsibility of the bureaucracy and politicians (Singh, 1997).

V Ranganathan, Professor of Economics at the Indian Institute of Management (IIM), Bangalore, has also detailed the way in which these reforms in power sector in India are being driven by a shortage of Government finance. He contends that to a large extent, the reforms driven through external influence. These external influences can take the form of conditionalities attached to institutional and other funding and consequently force-fed. One consequence of this has been the blurring of the distinction between ends and means; privatisation which should be regarded as a means to achieve the end of competition, is in our context resorted to as an end in itself, resulting in a public monopoly being replaced by a private monopoly. Further it needs to be understood, that privatisation alone without scope for competition, need not deliver improved results. However, regrettably, even in areas such as generation where competition is possible, we have not attempted the right steps. We assure a guaranteed load, and a guaranteed return for each specific location and for each specific fuel, thereby protecting inefficiency and providing super-normal profits to the private IPP.

From the process of reform it can be inferred that there is a certain lack of confidence in the reform process even in the bureaucracy itself. At best, it is done, as a means to get World Bank or ADB (Asian Development Bank) loans, because, like Charlamagne who commandeered 'Baptism or total annihilation', these organisations say privatisation or no loans. This reticence and inability to deal effectively with the various aspects of privatisation and reforms in the worst case scenario can actually transfer the consumers' surplus to the producer (Ranganathan, 1997).