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Enron Faces Calls for Big Changes in Indian Power Project --- Maharashtra
State Panel Wants Debt Moratorium And Other Concessions The Wall Street Journal, 04/13/01 Utility owes Enron $570 million Houston Chronicle, 04/13/01 Texas energy company owed hundreds of millions in California Associated Press Newswires, 04/13/01 Up & down and all around, its a merry dance alright The Economic Times, 04/13/01 Power sale: Godbole wants DPC freed Business Standard, 04/13/01 Brief: India to renegotiate Enron power prices Houston Chronicle, 04/13/01 Enron Owed $570 Million by Pacific Gas & Electric, Paper Says Bloomberg, 04/12/01 International Enron Faces Calls for Big Changes in Indian Power Project --- Maharashtra State Panel Wants Debt Moratorium And Other Concessions By Daniel Pearl Staff Reporter of The Wall Street Journal 04/13/2001 The Wall Street Journal A8 (Copyright © 2001, Dow Jones & Company, Inc.) BOMBAY, India -- A government panel called for sweeping changes in a contract to supply power from Enron Corp.'s landmark Indian energy project to the industrial state of Maharashtra, warning that the changes would require "significant financial sacrifices" for the project's financial backers. Maharashtra, which faces a cash crunch and hasn't been able to pay its bills for electricity generation, created the panel. The recommendations, released yesterday, are likely to serve as the state's initial bargaining position as it seeks to reopen a power-supply contract that one Maharashtra government reached with Enron-led Dabhol Power Co. in 1993 and another renegotiated in 1996. Enron has indicated it is willing to reopen the contract yet again. The $3 billion project has been watched closely by U.S. officials, since Dabhol is India's largest foreign investment to date, and the U.S. Export-Import Bank is a major lender. Yesterday's report slams the Dabhol contracts as based on "extremely questionable assumptions" about oil prices, foreign-exchange rates and the state's demand for power. With a second phase expected to bring the project to 2,184 megawatts of capacity shortly, the report concludes, the state couldn't afford to sell power from Dabhol at the levels needed to make the project economical, even if the state's electricity board made years' worth of distribution reforms overnight. The 200-page report recommends converting the project's dollar-based equity and debt to Indian rupees, reducing Dabhol's return on equity to 16% from as much as 39% and putting a moratorium on debt payments until the state can afford to buy more of the plant's power. The five-member panel, which included a top Indian banker and several energy specialists, also suggested the project's liquefied-natural-gas facility sell gas to others. Dabhol is the sole user of the gas, which is shipped from the Arabian Gulf, and Maharashtra is responsible for paying for most of it no matter how much is used. A Dabhol spokesman said the company hasn't seen a copy of the report and declined to comment. Dabhol has disputed the 39% figure, and denied that its power rates are unusually high. The power project's lenders, meanwhile, are expected to meet next week to convey their views to Enron. One official of a lending bank said lenders are more concerned with the power company's immediate difficulties getting paid than with the prospects of having to renegotiate terms, though any new contract would need to be approved unanimously. Dabhol's lenders include the Japanese government, the Industrial Development Bank of India, ICICI Ltd. and scores of other Indian and international banks. Enron holds 65% of Dabhol's equity, with Bechtel Group Inc., General Electric Co. and the state electricity board splitting the rest. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. April 13, 2001 Houston Chronicle Utility owes Enron $570 million California's PG&E in bankruptcy By MICHAEL DAVIS Copyright 2001 Houston Chronicle Enron Corp. is owed $570 million by bankrupt utility Pacific Gas & Electric Co., the Houston company has disclosed in a letter to the utility's bankruptcy trustee. Other Houston companies have said they are owed large amounts, but Enron's disclosure was the first indication to Wall Street that the bankrupt utility owes the Houston company such a substantial amount, said M. Carol Coale, energy analyst with Prudential Securities in Houston. "They told the investment community that their California receivables were not material and that they were fully reserved against them," Coale said. Even so, "This is not going to be received favorably." This disclosure came as Enron became one of the companies named late Wednesday to the creditors' committee for San Francisco-based Pacific Gas & Electric's Chapter 11 bankruptcy. The committee represents the parties with the largest claims in a bankruptcy case. A letter to the trustee overseeing the case disclosing how much Enron is owed was part of Enron's effort to secure a seat on the committee appointed by U.S. Trustee Linda Stanley, a Justice Department official. Mark Palmer, an Enron spokesman in Houston, declined to comment Thursday on what Enron is owed. He said Enron has taken adequate reserves to protect its balance sheet against any outstanding debts owed it by Pacific Gas & Electric. Enron's shares closed Thursday at $57.30, down $1.21 per share. The stock markets are closed today in observance of Good Friday. Pacific Gas & Electric filed for bankruptcy protection one week ago, listing assets of more than $24 billion and debts of $18 billion, including more than $9 billion in uncollected costs for power purchases. The utility's creditor list is so long and varied that creditors are expected to form numerous subgroups based on the types of claims they hold against the company. The case is expected to take months, if not years, to settle. It is the largest utility bankruptcy ever filed and the third largest business bankruptcy in U.S. history, based on assets, behind Texaco in 1987 and Financial Corporation of America in 1998. Pacific Gas & Electric sells electricity and natural gas to the San Francisco and Northern California areas. The company said it filed Chapter 11 because negotiations with California over how to resolve the state's power crisis were going nowhere. Enron is scheduled to make its first-quarter earnings report on Tuesday. Enron is expected to report 45 cents per share for the quarter, up from 40 cents per share in the first quarter of last year, according to earnings estimates compiled by First Call/Thomson Financial in Boston. "We are still confident that we will earn $1.70 to $1.75 per share for the year," Palmer said. He would not specify how much Enron has reserved to cover Pacific Gas & Electric's debt. The prevailing wisdom had been that Enron's exposure in California was minimal because it does not own power plants there. Companies such as Reliant Energy and Dynegy, which own power plants in California, have been forced to sell power with no guarantee of payment. Although Enron is one of the larger creditors of Pacific Gas & Electric, others are owed substantially more. The largest unsecured creditor is Bank of New York, with a $2.2 billion claim. The California Power Exchange, which once served as the marketplace for power sales in the state's deregulated power markets, holds a claim against Pacific Gas & Electric of $1.9 billion. The Power Exchange filed for bankruptcy prior to Pacific Gas & Electric's filing. Enron was dealt another setback in California earlier this week when a federal judge ordered the company to keep supplying low-cost power to California's state university systems after Enron tried to shift responsibility for buying the school's power to the state's troubled utilities. The school systems argued that if Enron were allowed to dump them as "direct access" customers who receive power bought and resold directly by the company, they would lose the ability to manage their power most efficiently, which could cost the taxpayers of California millions. Enron said it would file an emergency appeal to the 9th U.S. Circuit Court of Appeals in San Francisco to overturn U.S. District Judge Phyllis Hamilton's ruling in the lawsuit brought by the California State University and University of California systems. Enron said it is honoring all terms of the contracts, but the company added that it believes it has the legal right to shift the school systems back into the hands of the utilities, a spokeswoman said. Texas energy company owed hundreds of millions in California 04/13/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - Texas-based-Enron Corp.'s executives say financially troubled utility Pacific Gas & Electric Co. owes them $570 million, according to a letter to the utility's bankruptcy trustee. Enron's disclosure was the first indication to Wall Street that the West coast utility owes the Houston company such a substantial amount, an energy analyst said. "They told the investment community that their California receivables were not material and that they were fully reserved against them," M. Carol Coale, energy analyst with Prudential Securities in Houston, told the Houston Chronicle in Friday's editions. "This is not going to be received favorably." Enron late Wednesday became one of the companies named to the creditors' committee for San Francisco-based Pacific Gas & Electric's Chapter 11 bankruptcy. The committee represents the parties with the largest claims in a bankruptcy case. Mark Palmer, an Enron spokesman in Houston, said the company has taken adequate reserves to protect its balance sheet against any outstanding debts owed it by Pacific Gas & Electric. Enron officials used the letter to the trustee overseeing the case disclosing how much Enron is owed as part of Enron's effort to secure a seat on the committee appointed by U.S. Trustee Linda Stanley, a Justice Department official. A week ago, Pacific Gas & Electric filed for bankruptcy protection. The company listed assets of more than $24 billion and debts of $18 billion, including more than $9 billion in uncollected costs for power purchases. Officials of Pacific Gas & Electric, who sell electricity and natural gas to the San Francisco and Northern California areas, say they sought Chapter 11 bankruptcy protection because negotiations with California over how to resolve the state's power crisis were going nowhere. The case is the largest utility bankruptcy ever filed and the third largest business bankruptcy in U.S. history, based on assets, behind Texaco in 1987 and Financial Corporation of America in 1998, officials said. Enron, scheduled to make its first-quarter earnings report on Tuesday, was expected to report 45 cents per share for the quarter, up from 40 cents per share in the first quarter of last year, according to earnings estimates compiled by First Call/Thomson Financial in Boston. Earlier this week, Enron was dealt another setback in California when a federal judge ordered the company to keep supplying low-cost power to California's state university systems after Enron tried to shift responsibility for buying the school's power to the state's troubled utilities. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Up & down and all around, its a merry dance alright Girish Kuber 04/13/2001 The Economic Times Copyright (C) 2001 The Economic Times; Source: World Reporter (TM) MUMBAI IT COULD be a classic case for management students to study. In a span of just eight years the Enron controversy has repeated itself with a reversal of roles. First it was the Sharad Pawar-led Congress government that went all out to persuade the US energy major to set up shop in Maharashtra. The general election that followed changed Pawars fortunes. A Sena-BJP government came to power but not before painting Enron black thanks to its Rs 64 crore expenditure on `education that had become an election issue back then. So the first thing that the Sena-BJP government did after assuming power was to scrap the Enron project. Subsequently the `review committee headed by Kirit Parikh, Professor Emeritus, IGIDR, once a bitter critic of Enron, came up with a new look power purchase agreement. The new PPA cobbled together phase I and II of the Dabhol Power Company. The next election was in 1999. By this time Pawar had deserted the Congress. The Sena-BJP alliance bit the dust at the hustings and a paralysed Congress was forced to join hands with Sharad Pawar. All for the sake of a power-sharing arrangement in the state. By this time Enrons partner, the Maharashtra State Electricty Board, had weakened further and it wanted the state government to help it pay Enrons bills. The equally bankrupt state government was obviously unable to spare the funds. The situation was perfectly ripe to rake up the Enron controversy. Once again. Whats more, it seemed politically correct too. The Vilasrao Deshmukh government did exactly this. It installed Vinay Bansal, a no-nonsense bureaucrat known for taking on ministers, as MSEB chairman to give the Enron dispute some much needed credibility. Bansal caught Enron napping when it failed to supply electricity as per the MSEBs demand. MSEB invoked the PPA clause and slapped Rs 402 crore penalty on the American utility. This provided the trigger for the fight which was waiting to happen. Meanwhile, the state governments review committee led by Madhav Godbole submitted its report and recommended a renegotiation of the project. Interestingly, this committee too had Parikh as a member. His inclusion had raised many eyebrows and N D Patil, convenor of the ruling coalition in the state criticised Parikh for his flip-flop on the project. In the end, Parikh kept himself away from the committee. The committee has observed that the then political leadership had shown ``great haste for signing the current PPA. It noted that even the cost of constructing a jetty at Dabhol has been included in the cost of power by the DPC. The committee wants to delink dollar-rupee equation for tariff to lower the bill. A large chunk of the loans taken by Enron have a bigger foreign currency component and the committee wants the Indian currency component in these loans to be increased. Interestingly, Enron has preferred to remain silent on the Godbole committee report. It has already invoked the political force majeure clause, has invoked the state and Centre guarantee and even announced its decision to go in for arbitration. The next twist in this longdrawn-out tale depends on Enrons reaction to the report. However, experts feel that the Dabhol case clearly highlights some of the major failures in past decision-making in the power sector. Firstly, before inviting IPPs, necessary reforms like setting up of independent regulatory bodies should have been in place. The problem of realisation of dues from defaulting customers and poor maintenance of transmission and distribution systems require that reform should begin at the distribution end, so that any supplier of power has the assurance that dues will be collected and payments effected for power sold. There is also need to correct the imbalance in terms of base-load versus peak-load power capacity. The SEBs supply power to farmers and domestic users at ridiculously subsidised prices. Moreover, many customers do not pay their bills and like other SEBs, MSEB too is unable to initiate action to collect these dues. The T&D losses too, which include pilferage of power, have gone up substantially in recent years. In this situation, the more MSEB purchases from Dabhol the more it loses through subsidies and T&D. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Power sale: Godbole wants DPC freed Renni Abraham MUMBAI 04/13/2001 Business Standard 1 Copyright © Business Standard The Madhav Godbole committee has recommended to the Maharashtra government that the Enron-promoted Dabhol Power Company should be allowed to sell power to entities other than the Maharashtra State Electricity Board (MSEB). It has also recommended that the tariff should be benchmarked to the lowest cost of supply of power from gas-based projects elsewhere, and restructured into a two-part tariff. "The committee recommends that the DPC tariff be re-defined using principles contained in the government of India guidelines and the availability-based tariff order of the Central Electricity Regulatory Commission, to convert it into a two-part tariff but limit equity return substantially," the report says. Further, the committee has recommended that the equity returns for the redefined DPC tariff be defined in rupee terms, rather than in dollar terms. It has also suggested that the escrow agreement with DPC should be scrapped, as the current agreement "would soon give rise to a situation where virtually all of MSEB's revenues would be escrowed to meet DPC's payments, leaving little for wages and fuel, let alone additional power purchase." The report, "Energy review, Maharashtra and the DPC issue," was submitted to the state legislature on Thursday by minister for energy Padmasinh Patil. Business Standard obtained a copy of the 198-page report. Godbole panel suggestions The second part of the report will focus on the future course of action for reforms in the state energy sector. It is to be submitted to the state government on May 10. The first report recommends that DPC be allowed to sell power if it designates a certain capacity for sale outside the MSEB system and "the fixed charges on account of MSEB are reduced in proportion to this designated capacity." Alternatively, if DPC felt it has prospects of earning better return if it had the contractual freedom to sell power to other parties directly, it could do so only if it agreed to relieve MSEB of all its contractual obligations relating to the power plant, the committee said. The committee said that only benchmarking of the tariff against lowest gas based power projects elsewhere would make third party sale to other states and the power trading corporation possible. Otherwise negotiations with DPC will prove futile, the report states. Significantly, the committee has argued that in view of the un-sustainability of the DPC project, the power major should forego a portion of the return on its equity to make the project viable.In other words it wants the current rate of return of equity of 16 per cent to be lowered. "The maturity of the debt of DPC should be increased preferably to 15 years, with an initial moratorium of five years. An indicative interest rate for such debt could be 12 per cent (in rupee terms which would be around six per cent in dollar terms). In case such maturity is not possible for foreign loans, the foreign debt should be converted to rupee debt and restructured accordingly. Concomitantly, the equity may be restructured into deferred preference capital so that the impact on tariff is felt only in later years," the report said. It also makes a case for separating Enron's LNG project from DPC. As a separate facility, the gas could be marketed to other buyers of gas distinct from power projects. "That such buyers exist is demonstrated by Enron's own MetGas initiative and by Petronet's larger project plans. It is critical that costs of this facility be distributed over its entire capacity and not just over the amount sold to the power plant, as is currently the case. The facility's capital costs should also be reflected in the fuel charge, not as take or pay, but only in proportion to the extent of fuel re-gasified for power generation, compared to the total re-gasificatio capacity," it noted. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. April 13, 2001, 12:53AM Briefs: City and state India to renegotiate Enron power prices BOMBAY, India -- A government-appointed committee recommended renegotiating a power supply agreement with U.S. energy giant Enron Corp. to lower prices being charged to a western Indian state. The panel also called for reform of a state power utility that defaulted on payments to Enron, which is based in Houston. State government ministers have been critical of Dabhol Power Co., Enron's Indian subsidiary, saying the power supplied by the 2-year old plant is "unaffordable." Enron Owed $570 Million by Pacific Gas & Electric, Paper Says 2001-04-12 23:01 (New York) Houston, April 12 (Bloomberg) -- Pacific Gas & Electric Co., the bankrupt subsidiary of Pacific Gas & Electric Corp., owes Enron Corp. $570 million, the Houston Chronicle reported on its web site, citing a letter from Enron to a bankruptcy trustee. Enron, a Houston-based electricity and natural gas marketer, disclosed the amount to secure a seat on the creditors' committee for the San Francisco-based utility, the report said. The $570 million was more than Enron previously indicated it was owed, the paper said, citing Carol Coale, a Prudential Securities analyst. Pacific Gas & Electric filed for bankruptcy protection last Friday after incurring more than $9 billion in debt buying electricity at soaring prices and selling it at capped rates. The Bank of New York is the utility's largest unsecured creditor, owed $2.2 billion, the Houston Chronicle said. Four power generation companies asked a bankruptcy judge yesterday to excuse them from supply contracts with the utility, saying the agreements could push them to financial ruin.
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