THE FINANCIAL EXPRESS, Monday, November 26, 2001
Aditya Birla group pitches for picking stake in Dabhol project, Sourav Majumdar & Namrata Singh 

Similar story also appeared in the following publications:

THE INDIAN EXPRESS, Monday, November 26, 2001(carried only by the online edition)
Aditya Birla group pitches for Dabhol project, Sourav Majumdar &Namrata Singh 

THE ECONOMIC TIMES, Monday, November 26, 2001
AV Birla Group joins race for Enron stake, SABARINATH M & ANTO T JOSPEH 

BUSINESS STANDARD, Monday, November 26, 2001
Third bidder joins race for Dabhol, Tamal Bandyopadhyay & S Ravindran 
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THE FINANCIAL EXPRESS, Monday, November 26, 2001
Venue for DPC arbitration process shifts to Singapore, Sanjay Jog 
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THE HINDU BUSINESS LINE, Saturday, November 24, 2001
MSEB to skip DPC board meet 
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BUSINESS STANDARD, Monday, November 26, 2001
The Enron scandal
Enron's root problem was in its investment activities, says A V Rajwade
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THE ECONOMIC TIMES, Saturday, November 24, 2001
Hurry while stocks last
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THE FINANCIAL EXPRESS, Saturday, November 24, 2001
Dynegy has not informed Centre about Enron takeover: Minister
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THE TIMES OF INDIA, Monday, November 26, 2001
Enron bleeds again as Dynegy deal doubts grow 
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THE ECONOMIC TIMES, Monday, November 26, 2001
Enron avoids junk status, NEW YORK
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BUSINESS STANDARD, Monday, November 26, 2001
Devil in the details, Devangshu datta 
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THE ECONOMIC TIMES, Monday, November 26, 2001
Enron staff sue as pension savings evaporate 
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THE ECONOMIC TIMES, Sunday, November 25, 2001
Enron deal may be reworked 
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THE FINANCIAL EXPRESS, Sunday, November 25, 2001
Pune-based NGO wants limited role for Merc in setting MSEB tariff, Sanjay Jog 
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BUSINESS STANDARD, Monday, November 26, 2001
Maharashtra may have to pay Rs 60000 crore to MSEB: Godbole 
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THE ASIAN AGE, Saturday, November 24, 2001
BJP loan costs state Rs 6,000 cr, Olga Tellis 
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THE FINANCIAL EXPRESS, Monday, November 26, 2001
Aditya Birla group pitches for picking stake in Dabhol project, Sourav Majumdar & Namrata Singh 

 The Aditya Vikram Birla group is understood to have put in a statement of interest for the beleaguered 2,184-mw Dabhol power project. This has created a new twist to the Dabhol saga, which has been beset with uncertainties from the very beginning. The move comes close on the heels of the AV Birla group's decision last week to pick up Reliance Industries' over 10 per cent stake in construction and engineering major, Larsen & Toubro, for a consideration of Rs 766.50 crore. Industry sources conjecture that the Birlas might also be interested in jointly bidding for an 85-per cent stake in Dabhol Power Company (DPC) along with the Tatas. Tata group company Tata Power has already evinced a keen interest in bidding for the project, with the only other player in the fray being Mumbai's power utility major, BSES. 

Tata Power and BSES have already commissioned a due diligence study as a precursor to the bidding process. Birla group officials were unavailable for comment. Birla's interest in Dabhol has thrown up a fresh dimension to the DPC story even as it unfolds. The Birla group has a presence in the power sector with Rosa Power. The 567-mw Rosa Power project is a joint venture between the AV Birla group, which has a majority holding, and UK-based PowerGen. The possibility of a joint bid along with the Tatas, if it were to happen, would make this a second mega venture for the two major corporate groups in India. The two groups had last year struck a mega merger deal with the telecom venture, Birla-AT&T-Tata. However, it is not known as to which of the Birla group companies would be employed for the task of bidding for Dabhol. 

The 85 per cent stake in DPC under consideration includes the holdings of Enron Corporation, Bechtel Enterprises Inc. and General Electric, all US-based companies. MSEB, which is currently waging a legal battle with DPC over non-payment of dues, holds a 30-per cent stake in the 740-mw phase-I of the Dabhol project. The crux of the problem with the languishing project is unaffordable tariff rates, which the promoters are currently deliberating on as to how this could be reduced. The 1,444-mw phase-II of the project has been stalled midway. The bidding process for the stake under consideration would be critical with Enron, which was earlier demanding a price of $1.2 billion for exiting the project, agreeing to scale down the price demand by almost 30 per cent. Globally, parent Enron Corporation is being acquired by Houston-based Dynegy Inc. for $9 billion. 
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THE FINANCIAL EXPRESS, Monday, November 26, 2001
Venue for DPC arbitration process shifts to Singapore, Sanjay Jog 

The arbitration proceedings initiated by the Dabhol Power Company (DPC) against the Maharashtra government for non-payment of December bill of Rs 102 crore will now take place in Singapore instead of London. In view of the shifting of venue, a high-level team led by the state principal energy secretary VM Lal has flown to Singapore to hold talks with the arbitration tribunal for deciding future timetable to take up arbitration proceedings there. Official sources told The Financial Express that Mr Lal is accompanied by the state government solicitors Rafia Dada, Atual Harayani and Daraious Khambata. The state government team would hold talks with its arbitrator Quentin Loh, DPC's arbitrator Andrew John Rogers QC (formerly chief judge of the commercial division of the Supreme Court of New South Wales) and the arbitration tribunal head Lord Mustill. The meeting deserves special significance especially when the DPC has agreed for due diligence by the Tata Power and BSES after signing a separate confidentiality agreement with it. 

This was agreed at a three-day meeting convened by the financial institutions at Singapore from November 8. Mr Lal's meeting with the arbitration tribunal is also crucial as the London Court through its ex-parte order of October 10 has restrained the state government from filing any suit in the Indian courts or tribunals against the DPC. Sources said that the government through its arbitrator would make a strong plea that the arbitration proceedings should await the outcome of the arbitration process between the DPC and the MSEB in order to save both time and duplication. "This is in view of the fact that the parties are the same and the disputes emanate from the same set of facts and contractual obligations of the parties and the arbitrators named by both the parties for all the three arbitrations (DPC has served arbitration notices against the state government for latter's default in the implementation of state support agreement, supplemental state support agreement and state guarantee agreement) are the same," sources said. It must be noted here that the Maharashtra Electricity Regulatory Commission (MERC) has already restrained the DPC on May 29 from carrying out arbitration process against MSEB until the issue of MERC jurisdiction to adjudicate differences. 
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THE HINDU BUSINESS LINE, Saturday, November 24, 2001
MSEB to skip DPC board meet 

THE Maharashtra State Electricity Board (MSEB) has decided against attending the board meeting of Dabhol Power Company (DPC) to be held at London on November 30. The board will reportedly discuss issuing of the final termination notice (FTN). According to senior MSEB officials, the board is against the Enron-promoted DPC's proposal to grant the company's Managing Director rights to issue FTN according to his discretion. DPC has yet to approach its lenders for a go-ahead to issue the FTN, which will end the stint of the controversy-plagued 2,184-MW power company in the country. "The decision to issue final termination in turn means wiping out the very existence of the company. We believe that such an important decision should not be left to one person. The entire board of directors should vote on it,'' a senior MSEB official told Business Line. Another reason for the board's decision to not attend the meeting 
is that MSEB does not have voting rights despite being a 15 per cent stakeholder.
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BUSINESS STANDARD, Monday, November 26, 2001
The Enron scandal
Enron's root problem was in its investment activities, says A V Rajwade

Enron has always been recognised by other companies as best practice in risk management. It put in systems to manage risks on a real-time basis and had very strong management." - James Lam, founder of eRisk, a consulting firm. As an occasional teacher and more regularly a student of the subject of management of price risks, I have been an admirer of Enron's elaborate disclosure of its risk management practices. And yet, in a cascade of events over a period of just three weeks from mid-October, it lost two-thirds of its share value, became the subject of a US Securities Exchange Commission (SEC) investigation, and was taken over by a rival a third in size. (Latest reports create some doubt about whether this will go through.) What went wrong? No, the events had nothing to do with Dabhol. Indeed, if, for us in India, Enron will always be associated with the controversial power project, elsewhere it is likely become a case study for students of accounting, finance and general management. (On second thoughts, even its Indian adventures would make an excellent case study!) 

But first, a recount of what happened. After announcing on October 16, without much explanation or transparency, that it has taken a charge of $ 1.2 billion against equity, Enron's share price started tumbling. Apparently, the charge was the result of some financial transactions, and the SEC launched an investigation. The chief financial officer (CFO), who was directly involved with the transactions, the company's treasurer and a couple of other senior officials were sacked. Perhaps most damagingly, Enron revised its accounts from 1997 onwards, reducing profits by about $ 600 million and increasing debt by a somewhat similar amount. As a result, Enron's credit rating was downgraded. It seems the root problem was not in its basic business of power and gas trading, but in its investment activities controlled by the CFO. These comprised private equity, and Enron's share in each of the investee companies was kept artificially below 50 per cent to avoid consolidation of accounts. To this end, outside investors were brought in and assured of equity in Enron itself, should the value of the investee company(ies) fall below agreed threshold(s). 

All this was done to keep the losses in investments off-balance sheet, and mitigate their impact on reported profits. Many other US corporations including J P Morgan Chase, which had large private equity investments, have suffered on this score (see World Money October 15). Enron wanted to avoid this and, last year, paid its since-dismissed CFO $ 30 million for his creative accounting genius. Incidentally, those enamoured of US GAAP and its alleged superiority over the rest of the world should note that all these gimmicks were blessed by the company's auditors - one of the Big Five firms, which was paid $ 25 million as audit fees and $ 27 million for other services by Enron last year. The restatement of the accounts from 1997 onwards became necessary as the Enron management/board and the auditors were forced, on review, to admit that at least some of the transactions should have been on, rather than off, balance sheet. Details of all the transactions in question are yet to come out, but what has come out is bad enough. 

But this apart, a billion dollar hit for a company of the size ($ 300 billion) or cash flow ($ 3 billion) of Enron is, by itself, hardly a death warrant. But it turned out to be just that for Enron. Perhaps because it was too arrogant? Perhaps also because its accounts lacked transparency and their opaqueness ensured that investors' confidence was always somewhat fragile? But there are two other points worth noting: the professionalism of equity analysts and whether the event restores somewhat the balance between trading and producing. As for the first, the professional analysts were surely aware of the opaqueness of the accounts, but few questioned the management aggressively on the subject. 

Perhaps the stock was too glamorous and typified the spirit of the times - trading assets was what the "masters of the universe" did, not the boring old business of producing oil or power or cars. The Enron management itself was proud of the way it operated in its principal activity of trading in power and gas, with Skilling, the former CEO, claming that "we are on the side of angels. We are taking on the entrenched monopolies. We are bringing the benefits of choice and free markets to the world." (The quotation is from an interview in BusinessWeek, prior to Skilling's inglorious exit from Enron a couple of weeks before the bubble burst). 

For the analysts, there was also safety in numbers. Skilling claimed that "Enron's operations are built around the integration of modern financial technologies and physical technologies", bringing derivatives theory to trading in power and gas! Obviously, the fate of Long Term Capital Management has not led to more sober management of trading risks. Surely the role of "markets" should be to reduce the distance, and cost, between producer and consumer? One does feel that there is something perverse in a society that values, in terms of compensation, the trader (don't forget this is just a euphemism for the speculator) over the producer - whether in the bond, currency or power and gas markets. The markets and, indeed, greed obviously have a role to play, but surely the pendulum needs to swing a little bit to the left? 
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THE ECONOMIC TIMES, Saturday, November 24, 2001
Hurry while stocks last
BSES and Tata Power, the two companies which are interested in buying out Enron's stake in the troubled Dabhol Power Company (DPC), should hurry up and make their offers soon. Failing that, a consortium of financial institutions should get together to bid for the equity as a strategic investment, to be sold off when prospects improve. There is a clearance sale at Houston and India must rush while stocks last. Enron is in deep financial trouble at home, where debts of close to $700 million have to be paid soon. The Houston-based energy giant is struggling to put together credit worth $1 billion, but less than half has come through. A merger with Dynegy, a smaller rival, could also be in trouble. All of this means that Enron will be happy to see cash upfront, even at a substantial discount to the $1.1 billion valuation for DPC. Reports say that Indian FIs think $700 to $800 million is a reasonable price, but the payments would be staggered over five years or so. Given Enron's current cash crunch, it would be better to haggle for an even lower price, but agree to pay all the money upfront. 

Acquiring DPC for a fraction of its original equity value will mean that debt will also have to be restructured drastically - all lenders have to take drastic haircuts - otherwise gearing will swell beyond all reasonable proportion. With equity and debt written down, Dabhol power will become cheaper. That will be good news, but India should wait before declaring this a milestone of power reforms. It isn't. The fundamental problems that make power projects high risk investments remain unresolved. Jurisdiction is scattered between central and state governments, power pricing is politically determined, theft is rampant and state electricity boards (SEBs) are bankrupt. 

Private power producers may soon be allowed to sell electricity to non-SEB bulk buyers, but that won't solve basic political and administrative problems. The real reforms have to take place in the states, where nothing is happening. A lot of hullabaloo was made about power reforms in Orissa. Yet AES tried to opt out because its distribution company faced enormous resistance while collecting dues from consumers. A recent World Bank study shows reform claims by states like Andhra are mostly hollow: rural power supply is patchy, of poor quality and has failed to justify people's expectations. This must change. Otherwise, even at substantially lower cost, projects like Dabhol will make no sense. 
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THE FINANCIAL EXPRESS, Saturday, November 24, 2001
Dynegy has not informed Centre about Enron takeover: Minister
The union minister of state for power Jayavantiben Mehta on Friday said that the Dynegy Inc, which has recently launched the Enron acquisition process, has not yet formally informed the Centre about its decision. Ms Mehta after addressing a valedictory address at the three-day international conference on power sector organised by the India Tech Foundation told The Financial Express that though the Centre was aware of the Enron takeover by the Dynegy Inc, the Centre has not yet received any communication so far either from Enron or From Dynegy. Ms Mehta reiterated that the Centre was not at all interested to take over the distressed Dabhol project, neither the state-run National Thermal Power Corporation (NTPC) would made a bid for it. She admitted that the NTPC official attended the recently held Singapore meeting convened by the Indian Financial Institutions with the Dabhol Power Company, Tata Power and BSES to expedite the process of sale of Enron stakes in the Dabhol project. She made it clear again that NTPC would not take over the Dabhol project. Ms Mehta said that the Centre was committed for the capacity addition of one lakh megawatt by 2012 and added that the special secretary of the union ministry of power S Prabhakaran has recently submitted a report for achieving this target. Mr Prabhakaran's report has made various recommendations for the speedy development of various power projects for making available economical and quality power across the country by 2012. 

Dynegy denies going back on buyout 
The Dynegy Inc has scoffed at the reports of not going ahead with the acquisition of Enron in the wake of dip in the Enron share prices. "We are encouraged by Enron Corp's report on Wednesday that it has closed the remaining $450 million credit facility secured by the assets of Northern Natural Gas Pipeline and has received a commitment from its lead bank to extend the $690 million note payable obligation described in Enron's recent 10-Q filing. We are continuing our confirmatory due deligence and working to accelerate the regulatory approvals required to complete the merger in accordance with the previously announced agreement," said the Dynergy Inc spokesperson John Sousa. 
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THE TIMES OF INDIA, Monday, November 26, 2001
Enron bleeds again as Dynegy deal doubts grow 

A long weekend of work faced Dynegy and proposed acquisition Enron, whose worsening stock woes on Friday whipped up fear that the deal could be renegotiated or collapse entirely. Houston-based Dynegy and its advisers were expected to spend the long holiday weekend reviewing larger cross-town rival Enron's complex books, as both parties race against the decline in Enron's stock to complete the thorough financial examinations a merger requires. Enron shares ended down more than 5 per cent, or 27 cents, to $4.74 at the close of abbreviated Friday trading on the New York Stock Exchange. Dynegy shares closed up 64 cents, or 1.61 per cent, to $40.40.

Dynegy on November 9 agreed to pay about $9 billion in stock for Enron. But, after falling 45 per cent by Friday's close amid fears it could run out of cash before the deal closes, Enron's market capitalization is only about $4.03 billion. At Dynegy's current stock price, its offer for Enron is worth about $10.85 a share -- more than twice Enron's current share price. Executives and advisers from both companies are in the final stages of the review, known as due diligence, sources familiar with the matter said. The sources said renegotiations had not been discussed as of Friday afternoon, and that such discussions could not occur until the due diligence review is finished. But should it turn up any more unpleasant surprises that qualify as a "material adverse change" in Enron's business, the likelihood increases of Dynegy invoking escape clauses or renegotiating, analysts and observers say. "You've got to believe there is that possibility. There is a 90 per cent spread on the deal," said one analyst. "There's unquestionably continued malaise in Enron's core business and Dynegy has left itself open to renegotiate with Enron." UBS Warburg analyst Ron Barone on Wednesday wrote in a research report that the likelihood was "soaring" that Dynegy might discover a material adverse change. Enron spokeswoman Karen Denne said that, to her knowledge, Dynegy was not renegotiating the terms of the acquisition. She repeated that Enron was working on obtaining an additional $500 million to $1 billion in private equity funding to help shore up the balance sheet. Dynegy spokesman John Sousa said due diligence was continuing and said the company remains optimistic about the merger.

TRADERS FEARING RENEGOTIATION

Enron's recent admission that lower volumes at its trading business -- the crown jewel of Enron that Dynegy most covets -- could cause low fourth-quarter earnings raises the possibility that the trading business is losing its profitability. Continued losses there would remove a key attraction for Dynegy. Electricity traders said the latest developments are making it seem more likely that Dynegy will renegotiate the deal or back out entirely, a move they said would leave Enron vulnerable to creditors and a possible bankruptcy. This week rating agency Fitch Investors said that if Dynegy stepped away from the merger, Enron's credit situation seemed untenable and a bankruptcy filing was highly possible. Traders, speaking on condition on anonymity, said they expected Dynegy to scramble over the weekend to narrow the growing share price gap. Enron's depleted market value and the shrinking volume in its EnronOnline trading system makes it more likely Dynegy could pull out, traders said.

Meanwhile, energy traders reiterated that they would shy away from long-term deals with Enron unless they received substantial assurances the company's credit rating would soon improve. Enron's bonds on Friday were again talked at junk-bond levels, but even lower than before. Enron's 6.4 per cent notes maturing in 2006 and its 6.75 per cent notes were bid Friday at 57 cents on the dollar, down from a respective 62 and 60 cents on Wednesday, according to a trader. The notes yield to maturity a respective 21.5 per cent and 17 per cent. Its 20-year zero-coupon convertible bonds fell about 1 cent on the dollar to just over 33 cents.

Enron is hovering at the edge of investment-grade as the three main credit trading agencies consider whether to cut them again, and some observers wonder how Enron has avoided it. "A bond trading in the 50s has nothing to do with an investment-grade security," said Scott Smith, a principal at Wells Capital Management in San Francisco, where he invests $6 billion in debt and does not own Enron.
( REUTERS )
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THE ECONOMIC TIMES, Monday, November 26, 2001
Enron avoids junk status, NEW YORK

It is rare that holding onto investment-grade credit ratings means as much to a company as it does now to beleaguered energy trader Enron, and some observers are wondering why a cut to junk status is taking so long. "The sum of all knowledge is in the valuation of the stock and the bonds," said Scott Smith, a principal at Wells Capital Management in San Francisco, where he invests $6 billion in debt, and does not own Enron. "A bond trading in the 50s has nothing to do with an investment-grade security." Enron's 6.4 per cent notes maturing in 2006 and 6.75 per cent notes were bid Friday at 57 cents on the dollar, down from a respective 62 and 60 cents on Wednesday, a trader said. The notes yield to maturity 21.5 per cent and 17 per cent.

Meanwhile, Enron's shares have sunk 94 per cent this year. Since October 16, when it released third-quarter results, which it has since revised downward, its shares have fallen 86 per cent, and its bonds by nearly half. Houston-based Enron, which is trying to merge with smaller cross-town rival Dynegy, has been rocked this year by accounting problems, earnings restatements, a federal investigation and a top management shuffle. Its advisers were expected this weekend to pore over the company's books, which could lead to a renegotiation of the merger, sources familiar with the matter said. Moody's Investors Service and Standard & Poor's have cut its senior unsecured debt ratings twice in the last month to their current Baa3" and "BBB-minus," their lowest investment grades. Fitch has cut its equivalent rating to "BBB-minus," and all three agencies have warned of more possible cuts.

The stakes could hardly be higher. 

A downgrade to "junk" status could imperil Enron's trading business, force it to pay off as much as $3.9 billion of debt issued mostly by two trusts, and possibly force it to seek bankruptcy protection, analysts said. Enron said in a securities filing it recently had less than $2 billion of available cash and credit lines. S&P said on Tuesday that Enron faces "liquidity issues," but enjoys an "alignment of interests" with its banks and a near-term financial position that "is expected to be sufficient" to allow the Dynegy merger. Fitch, meanwhile, said on Wednesday that "our present 'BBB-minus' rating rests on the merger possibility and continued support of the lending banks." If Dynegy walks away, it said, "Enron's credit situation seems untenable with a bankruptcy filing highly possible."

Enron said on Monday it had $9.15 billion of obligations due through next year, and a $690 million note that could come due next Tuesday. It later said it got a three-week reprieve. Sean Egan, managing director of Egan-Jones Ratings in Philadelphia, likened Enron's ratings situation to those of California's two largest utilities, Pacific Gas & Electric and Southern California Edison . Despite investor unease, those utilities kept their investment-grade ratings only until they defaulted on debt in January, as California's power crisis worsened. On November 8, a day before the Dynegy merger was announced, senior officials from Enron's lead banks -- William Harrison, chief executive of J.P. Morgan Chase, and Michael Carpenter, who runs Citigroup's investment banking arm -- met with Moody's to help allay that agency's concerns, a person familiar with the meeting said. 

A day later, Moody's, which issued no statement on Enron this week, downgraded the company's senior unsecured debt rating, but only to its current "Baa3." "Pressure is coming from the investment banks, which have a vested interest in seeing the Dynegy deal go through," said Egan, whose agency rates Enron's debt "BB," its second-highest junk grade. "Investment banking fees will be substantial." Companies pay for Moody's and S&P ratings, which they need to obtain financing. Egan said his agency receives no such payments. Citigroup and JP Morgan declined to comment. Moody's and S&P did not immediately return phone calls. Fitch was not immediately available for comment. Dynegy and Enron on Wednesday, however, reaffirmed their commitment to the merger. Wells Capital's Smith isn't sure what to expect. "Enron will remain definitively investment grade if the merger as billed goes through, but there are half a dozen things that could go wrong," he said. "Obviously, the equity markets are telling you it's very skeptical the merger will go through, and the bond market is following its lead."( REUTERS )
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BUSINESS STANDARD, Monday, November 26, 2001
Devil in the details, Devangshu datta 

Looking at the market now, it's almost as though September 11 never happened. The indices are back above September 12 trading levels,local investors are trading enthusiastically, volume and price recovery is evident across the board. Maybe this is because Kabul has fallen and Kandahar is within a week of collapse. But the USSR had control of every Afghan population centre within 24 hours of the 1979 airlift invasion. It already had a puppet regime in place. The Red Army withdrew after eight more years of bitter fighting and 35,000 casualties! It would thus take a historical ignoramus to assume that this war will end with the capture of Kandahar. Other signals are even more disquieting. Every FII appears to be in the process of either pulling out totally or cutting back on its Indian presence. There could be several reasons. The US slowdown has been cited, so has Enron. Whatever the reasons, it is an amazing turnaround of sentiment, given that 2001 began with the FIIs pumping in money. There could be pressure on Indian reserves in the next fiscal and that could have prompted the currency downgrade. The market revival is a little puzzling when one examines details. ICE stocks that have delivered poor Q2 results have moved up sharply whereas ICE stocks that have delivered decent results have not. There are strong rumours that operators are trying to ramp up prices, lure in smalltimers and offload the K-10 stocks they've held since March. 

Old economy movements could more credibly be ascribed to value-buying. But even here, a lot of action is based on rumour mongering. Some MNC is about to make an open offer, somebody else is going to divest a loss making division. That sort of thing seems a little pronounced at the moment. Undoubtedly there are value-based buys available. But value based buying requires the strictest adherence to discipline and it's interesting to apply standard parameters to the market as a whole. The Nifty is trading at a price-earnings ratio of 14 plus, it has a price book value ratio of 2.25 and a dividend yield of 1.6 per cent at current rates. This is an economy where returns of approximately 6.7 per cent are safely available from short-term debt and inflation is around 5.5 per cent to 6 per cent. Long term debt returns range up to about 11 per cent for the savvy trader and around 9.5 per cent for the passive investor. 

A value investor would thus look to see if his projections suggested the following: First that EPS growth will beat at least 15 per cent, second that the P-BV is historically low and returns from capital gains plus dividend yield would beat 15 per cent over the next year. Assuming constant inflation, and adjusting for dividend, the Nifty would have to improve by 12 per cent to 15 per cent to meet the capital gains target. Overall EPS growth beating 15 per cent looks doubtful. P-BV is on the low side. A further index improvement of 15 per cent also looks a stretch. Broad-based buying thus seems a 50-50 shot unless the investor waits much longer. 
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THE ECONOMIC TIMES, Monday, November 26, 2001
Enron staff sue as pension savings evaporate 

AFTER climbing utility poles in all kinds of weather for 35 years, Roy Rinard was hoping to retire in a few years, but that was before the collapse in Enron's stock price devoured his retirement savings. "I'm basically wiped out," said Rinard, 54, who works for Portland General Electric, an Oregon utility company acquired by the Houston-based energy trading giant in 1997. "I'm right back to ground zero and I'll have to go on working as long as I can," said Rinard, who suffers from arthritis and a lung condition that leaves him short of breath. Encouraged by Enron's then-strong performance and the company's bullish view of its future prospects, Rinard moved all of the money invested in his 401(k) retirement account into Enron stock earlier this year.But it proved to be a costly decision as the value of his account fell from $470,000 a year ago to around $40,000 today. Rinard now hopes a lawsuit filed in US District Court in Houston will recover at least some of his money. The suit, filed on behalf of Enron employees by Seattle-based law firm Hagens Berman, alleges that Enron breached its fiduciary duty by encouraging its employees to invest heavily in Enron stock without warning them of the risks of doing so.

Enron's stock, which peaked at $90 in August 2000, closed at $4.74 on Friday, after falling sharply in recent weeks amid a series of damaging financial disclosures. A broadly similar suit filed by the Keller Rohrback law firm, also Seattle based, alleges that another Enron employee, Pamela Tittle, lost $140,000 on Enron stock held in her retirement account. According to that suit, the Enron retirement savings plan had assets worth $2.1 billion at the end of last year, including $1.3 billion, or 62 per cent of the total, in Enron stock.

DOUBTS EMERGE ABOUT DYNEGY DEAL

Enron, a former Wall Street favorite, agreed to be bought out earlier this month by smaller energy trading rival Dynegy Inc., but continuing problems at Enron have caused some analysts to question whether the deal will be completed. Doubts have also been expressed about a planned sale of Portland General to Northwest Natural Gas. Hagens Berman plans to seek class-action status for its suit and says 21,000 Enron employees could be eligible to join it. The suit alleges that Enron "locked down" 401(k) retirement accounts on October 17, preventing employees from changing the investments they held in their accounts until November 19.

During that period Enron reported its first quarterly loss in four years and took a charge of $1.2 billion against stockholders' equity as a result of off-balance-sheet deals that would later come under investigation by US regulators. In that time, Enron shares fell from $30.72 at the close of trading October 16 to $11.69 on November 19. Enron spokeswoman Karen Denne said employees' access to the accounts was blocked as part of a previously planned change in the administration of the retirement plan and that the measure was in effect from October 26. to November 19.Steve Lacey, a 45-year-old emergency repair dispatcher who has worked for Portland General Electric for 21 years, said the measure came at a time when bad news about Enron was flying thick and fast, driving the stock price down at a dizzying pace. "We couldn't take our money out of Enron stock into another portfolio. Basically they had us locked down to where we had no say over our own future," he said.

Lacey declined to quantify his own losses but said he and many of his colleagues had invested most of their retirement funds in Enron stock because it had performed better in the past than the other investments available under the Enron plan. Denne said Enron employees were normally able to choose among 18 different investment options, but Enron's matching contributions were always made in the form of its own stock. Lacey said he felt sorry for older colleagues at Portland General who had suffered a heavy financial blow just before they were due to retire, adding that he was only beginning to realize how serious the consequences could be for himself. "My goal was to have an extremely comfortable retirement and that may be a little clouded now," he said.( REUTERS )
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THE ECONOMIC TIMES, Sunday, November 25, 2001
Enron deal may be reworked 

LONG weekend of work faced Dynegy and proposed acquisition Enron, whose worsening stock woes on Friday whipped up fear that the deal could be renegotiated or collapse entirely. Houston-based Dynegy and its advisers were expected to spend the long holiday weekend reviewing larger cross-town rival Enron's complex books, as both parties race against the decline in Enron's stock to complete the thorough financial examinations a merger requires. Enron shares ended down more than 5 per cent, or 27 cents, to $4.74 at the close of abbreviated Friday trading on the New York Stock Exchange. Dynegy shares closed up 64 cents, or 1.61 per cent, to $40.40. Dynegy on November 9 agreed to pay about $9 billion in stock for Enron. But, after falling 45 per cent by Friday's close amid fears it could run out of cash before the deal closes, Enron's market capitalisation is only about $4.03 billion. At Dynegy's current stock price, its offer for Enron is worth about $10.85 a share - more than twice Enron's current share price. Executives from both companies are in the final stages of the review, sources said. They added that renegotiations had not been discussed as of Friday, and that such discussions could not occur until the due diligence is finished. But should it turn up any more unpleasant surprises in Enron's business, the likelihood increases of Dynegy invoking escape clauses, analysts and observers said.
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THE FINANCIAL EXPRESS, Sunday, November 25, 2001
Pune-based NGO wants limited role for Merc in setting MSEB tariff, Sanjay Jog 

The Pune-based non-governmental organisation (NGO) Prayas alongwith Mumbai Grahak Panchayat, Mahratta Chamber of Commerce and Akhil Bharatiya Grahak Panchayat have jointly appealed to the Maharashtra Electricity Regulatory Commission (Merc) that the Maharashtra government should not be accorded special privileges and its role in the determination of tariff of Maharashtra State Electricity Board (MSEB) should be limited. These organisations have pointed out that unless the state government was prepared to compensate MSEB in the manner determined by Merc, it has no authority to interfere in the tariff determination process. "Though under section 39 of the Electricity Regulatory Commission Act (ERCA), the state government has the authority to issue policy directives to the State Electricity Regulatory Commission (Serc), section 29 clearly specifies that the Serc has to determine the tariff and also specifies certain guidelines for the same," organisation said. These organisations have observed that guidelines for determining tariff do not include any "policy directive" from the state government. Commenting on the state government's affidavit suggesting reduction in the 19 per cent tariff hike proposed by MSEB for 2001-02, they have called upon Merc not to accept any variation in tariff proposed by the state government as "policy directive." 

These organisations have expressed surprise over the state government's submission that there was a difference between the government and MSEB. They have also questioned the state government's request that the Merc should take an appropriate steps in order to ensure agreement between state government and MSEB. These organisations, also, have made it clear that the tariff determination was under the exclusive domain of Merc and it has to give an order based only on the evidence that comes before it through various affidavits and submissions. "The ERCA does not allow any other role or mechanism for Merc or any other party in the context of tariff revision. As such, we request Merc from taking any steps to help MSEB and the state government reach an agreement. This aspect be left to the state government and MSEB," they added. Sources said that the state government is likely to make a fresh affidavit on giving policy directives to the Merc as well as providing compensation to the MSEB by November 28. 
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BUSINESS STANDARD, Monday, November 26, 2001
Maharashtra may have to pay Rs 60000 crore to MSEB: Godbole 

Maharashtra may have to pay a whopping Rs 60,000 crore to the Maharashtra State Electricity Board (MSEB) if it fails to resolve the Enron imbroglio amicably, Madhav Godbole, chairman of the energy review committee, has said. Godbole blamed the inefficiencies of state-run undertakings for the Enron crisis and said the only way to avoid a recurrence was to privatise MSEB. Politicians and the employees' union would oppose privatisation of MSEB, but its dismal performance and growing transmission and distribution losses have left little option but to go for privatisation in a phased manner, Godbole said. He urged the people to mount pressure on the state government on the issue and stressed it was necessary to avoid such disasters. 

Delivering the second E F Schumacher memorial lecture here, instituted by Nagpur University in association with Dr Padmakar Sapre, Godbole painted a very gloomy picture of Maharashtra's economy, noting that the state was on the verge of bankruptcy owing to "suicidal policies followed by successive governments." Speaking on 'financial management of Maharashtra: problems and perspectives,' Godbole stressed the need to introduce stringent policies to get over the messy financial situation. He advocated re-introduction of zero-based budgeting and fixing priority, so as to curb unnecessary expenditure. Godbole said, despite ten years of economic liberalisation, very little has changed. Fiscal deficit in 1990-91 was 9.49 per cent, and it remains where it was. Revenue deficit had gone up from 4.2 per cent to 6.2 per cent in 2000-2001. 

The public sector savings have touched an all-time low of 1.2 per cent and consumption expenditure was on the rise. Godbole pointed out that 58 per cent of the state budget was spent on wages and 23 per cent on payment of interest leaving very little for capital investment. He claimed that Maharashtra was doling out Rs 18,000 crore as subsidies under various heads and has become the highest subsidy-providing state in the country. When Central assistance was dwindling due to the new formula of allocation from a Central pool, states such as Maharashtra would receive a lesser share in coming years, he said. 

He came down heavily on the misuse of state funds by co-operative societies and charged that a promoter had to invest only 2 per cent amount while the rest was made good by the state government. Heavy spending on higher education must be stopped forthwith, he said, adding that the society must learn to take care of such sectors by itself without burdening the state. The money thus saved should instead be diverted towards primary education, he said. Godbole pointed out that the annual budget was irrelevant because of increasing off-budget transactions, which were out of public scrutiny. He said, due to overall mismanagement, the state government was forced to resort to go for overdrafts for a period of 37 days in 2000-2001. 

Godbole said populist schemes such as the monopoly cotton procurement scheme (MCPS) had no place in a globalised economy and its rising losses were a matter of great worry. He criticised the state government for delinking cotton price from the prevailing market price and stated that the basic purpose behind MCPS had been lost in the race for reaping electoral gains. Godbole strongly advocate enactment of a 'Budgetary and Financial State Management Act' to check unnecessary expenditure and fiscal discipline. He criticised the state government for extending loan counter-guarantees to various undertakings under its control. 

Till date, the state government had extended counter-guarantees for loans worth Rs 2.34 lakh crore, he said. "This was done when the total annual receipts of the state were merely Rs 35,000 crore," he said. Godbole advocated downsizing of the government and a ban on fresh recruitment. An attractive voluntary retirement scheme (VRS) should be offered to employees and contract-system be introduced, he said. He also supported the concept of contributory pension for employees and pointed out that under the present scheme, the state government was burdened with paying a sum of Rs. 2600 crore to five lakh pensioners. A state expenditure commission must be set up immediately for reviewing of expenses incurred by the state on permanent basis, Godbole suggested. Nagpur University vice-chancellor Arun Satputaley presided over the function. 
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THE ASIAN AGE, Saturday, November 24, 2001
BJP loan costs state Rs 6,000 cr, Olga Tellis 
Maharashtra is still reeling financially from the three major actions of its predecessor government. One, it ran up debts of Rs 40,000 crores in five years; two, it formally permitted the second phase of the Dabhol power project after declaring that it would throw Dabhol Phase 1 into the Arabian Sea; and three, it hurriedly announced the implementation of the Fifth Pay Commission award. Maharashtra is paying Rs 6,000 crores in annual interest on bonds and loans that the predecessor Sena-BJP government accumulated during its five-year rule. Senior Congressman and Cabinet minister for labour Satish Chaturvedi said the Congress ruled the state for 35 of the 41 years that the state has been in existence. During these 35 years, the total debt built up by Congress governments was about Rs 15,000 crores. As against this, the Sena-BJP in five years borrowed merrily and issued bonds for approximately Rs 45,000 crores. So its successor Democratic Front government, led by the Sonia Gandhi and Sharad Pawar Congress respectively, is paying a crippling Rs 6,000 crores interest annually within specified time limits. Speaking to The Asian Age, Mr Chaturvedi said that at stake is more than Maharashtra's prestige as the favoured industrial destination of the country for the rest of the world because, if the state falls back on its interest payments, it will also restrict its capacity to borrow. 

Maharashtra's annual budget is Rs 16,000 crores. Out of this, Rs 6,000 crores goes straight away as interest payment. The second burden left behind by the Sena-BJP is the permission given to Enron to go ahead with phase two of the Dabhol power project, besides increasing the total capacity of the plant. This phase two will impose an annual encumbrance of Rs 6,000 crores, whether or not the state uses the power. The state, as the senior minister says, "absolutely cannot survive this financial burden that will be imposed when phase two of Dabhol comes on stream." The state does not want the project but the financial institutions led by IDBI, who are caught in a trap, would want the project to be completed so they don't have any liabilities that will arise with the lenders if the project is scrapped. IDBI has stood guarantee for Rs 5,500 crores. Additionally, if the state loses the arbitration proceedings currently on in London, the claims on it will be around Rs 500 crores. 

The third and equally devastating financial burden is the acceptance of the Fifth Pay Commission award which the Sena-BJP government announced shortly before its term ended. Paying just 50 per cent of the DA has cost the government around Rs 250 crores to Rs 300 crores. The government has not paid the workers' bonus as it would have cost Rs 750 crores and this does not include the pensions, which would run into several hundred crores. Maharashtra is among the three states that have accepted the Fifth Pay Commission, the others being Tamil Nadu and Gujarat. The state also has a problem meeting commitments given to cotton growers who dominate the Vidarbha region. The loss to the government in the monopoly purchase of cotton is said to be around Rs 800 crores. 

The Centre has announced a support price of Rs 1,800 per quintal while the state is committed to purchase cotton at Rs 2,300 per quintal. The price of cotton in the market is Rs 1,400 for imported cotton. There are about 22-lakh to 23-lakh bales of cotton lying in the market yard. If the government disposes of this cotton at the market price, it will lose Rs 350 crores. So the government has to arrange for Rs 3,500 crores for the cotton monopoly scheme. The state is also in a Catch-22 situation as far as the state-run textile mills are concerned. The government is currently spending Rs 20 lakhs per day running nine textile mills. Two mills out of these have now been shut and the workers given VRS, which cost the government around Rs 20 crores to Rs 30 crores. If they are to close down the seven others, they will have to arrange finance of Rs 250 crores. So their dilemma is whether to continue to pay Rs 20 lakhs a day or get this lumpsum of Rs 250 crores and close the mills at one go.