Enron is a colossus bestriding the waterways of energy trading and like the Colossus of old; it looks like it is about to vanish from the corporate landscape.
Indeed, to continue the aquatic metaphors, they are awash in mega-debt and a solemn lesson in honesty and good housekeeping is about to be learnt by other aspiring corporates who may think the end justifies the means.
Questions of what may have contributed to this impending demise are manifold. Did California’s price controls on Enron during a time of rising energy prices strain the hidden debt further? How much exposure did Enron have in the derivatives market? Is this the LCTM story all over again as a player in those energy markets but with virtual insider knowledge as a distributor of large supplier of energy? How foolish was it to practically run your own fractional reserve banking system in energy trading but without the inflationary deposit guarantee schemes of real banks?
The more I look at this the more I see the debt debacles of such Nasdaqites as Lucent and Nortel not being unique to this current economic fin siecle.
Let’s hope not, but with billions of dollars potentially in the realm of defaultdom and with the Federal Reserve spigot already in full flow, one wonders again if this is the much spoken of but never seen catalyst, which plunges the Western economy into monetary crisis. The easy money shakedown continues and it is a wonder to behold such multi-billion dollar behemoths crashing into their self-dug graves. The free market favours the brave but punishes the foolhardy.
Did I say free market? Of course, our idealistic entity does not exist in an age of State interventionism but it still walks through the world like some spirit shackled in ball and chain awaiting the curse to be lifted from its feet. Nevertheless, a handicapped free market can still clean up the mess left by Enron as companies like Dynegy hover over the carcass.
And in Enron’s case, there is also the ugly sister of State interventionism. Her name is State favouritism and behind the various big deals that Enron struck across the globe, we see a decidedly suspicious trail leading back to swelling party donations and backhanders.
Consider Ron Brown, President Clinton’s Commerce Secretary. The allegation loudly made was that corporations had to “pay to play” to get a seat on his plane as he embarked on visits to foreign governments promoting American business. It was, of course, very useful if your company was in on these delegations and cutting the deals for big third world projects. At the very least one would have enlarged their business contacts and possibly gained the promise of foreign tax breaks.
Enron accompanied our secretary on a trade mission to India in 1995. They came out with three contracts worth a total of about $2.5 billion. When Enron accompanied Brown to Russia in 1994, they got a deal to develop a market for Russian gas in Europe. Who needs the free market when you have a personal, symbiotic relationship with politicians?
Well, customers do and this is perfectly exemplified in the aforementioned Indian contract, which included building a power station at Dabhol.
The New York Times reported in 1995 that the U.S. ambassador “constantly cajoled” Indian officials over the contract and that Enron was also helped by the CIA, which provided privileged information on competing contractors.
All this is denied, but six years on and we see the fruits of an uncompetitive bid beginning to unravel over disputes of high prices being charged by Enron (who have a 65% stake in the plant). Enron had signalled their intention to pull out, now they have no choice and the Indian banks are left nursing unpaid $1.4 billion loans. Sin in haste, repent at leisure.
After Enron signed a deal in 1995 to supply a 900-km gas pipeline in Mozambique, the country’s natural resource minister was reported as saying: “Enron was forever playing games with us and the embassy forever threatening to withdraw aid. Everyone was saying that we would not sign the deal because I wanted a percentage, when all I wanted was a better deal for the state.” (From a report in the 1995 Houston Chronicle).
Implicated were Anthony Lake, President Bill Clinton’s National Security Adviser, the U.S. Agency for International Development (USAID), and the U.S. Embassy in Maputo, who put pressure on the government to sign with Enron.
In 1993 Enron won a contract to build a 105-megawatt, diesel-fired power plant in the Philippines that critics said would cost the Philippine National Power Corporation (NPC) eight cents a kilowatt hour – 20 percent more than NPC charged consumers. The controversy led to resignations in 1993 of all seven members of the NPC board.
Needless to say, Enron have made large contributions to the Democratic Party coffers. Interesting to also note that Ron Brown was the former chairman of the Democratic Party who at the same time worked as a highly recognised deal-making lobbyist for Patton, Boggs and Blow. Some things do not seem to change.
Finally, even the present incumbent at the White House is not left untainted by this scandal, if reports are to be believed. Kenneth Lay, Enron chief, was also a friend of the Bush family and a major contributor to the Republican party and hosted the Republican national convention in Houston in 1992.
In 1994, the Nation magazine alleged that Dubya phoned Argentina’s public works minister in 1988 to ask him to award Enron a contract to build a natural gas pipeline. The minister is alleged to have said, “I felt pressured. It was not proper for him to make that kind of call.” Enron went on to to get the contract and George W. Bush later denied he made the phone call. To this we could add several stories of the Bush family and Enron.
So, am I somehow standing shoulder to shoulder with reds and greens in decrying corporate capitalism? No I am not, and let us not forget that they would be even more interventionist than the current powers that be. When things get scandalous, the usual holler goes up of “Dirty capitalism!” and they are off to the next World Trade Summit to shake a few fences and hug a few trees. Why, even Soviet Communism was nothing more that State Capitalism we are told!
We know bad money drives out good money and Statism is the perfect foil for companies not wishing their products to be found wanting by the searching beam of the free market. Just as State interventionism distorts market prices, so does State favouritism if it means more dollars for the political propaganda machine.
Should corporates be banned from donating to political parties? No, just ban government departments of trade, industry and commerce and you’ll soon see the corporate dollar vanish from the party-begging bowl.
Let them prove their own worth in the free market and discard the Statist crutch.
December 3 , 2001