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Enron Mail |
Vince,
Please find below a note I had prepared for Wade Cline who is meeting with a representative of the Prime Minister's office tomorrow. I think you may find these points useful. Additionally, I am attaching a copy of a small presentation I made, Saturday in Mumbai on roadblocks in the power sector with special reference to wat needs to be done to start Trading (& its benefits). I have been working with the Henwood team that arrived today, and I think a good part of the data is now in place. I will be arranging meeting with some officicals from the transmission side and gather any additional data there too. Krishan got in last night (I conveyed your best wishes to him). We will hopefully have a useful day with Henwood folks tomorrow. I look forward to being in Houston, possibly by the end of the coming week. Hope you and the team are doing well!! Regards, Sandeep. ---------------------- Forwarded by Sandeep Kohli/ENRON_DEVELOPMENT on 01/15/2001 01:17 AM --------------------------- Sandeep Kohli 01/15/2001 01:17 AM To: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Points for Singh Meet Wade, Please find below a brief note on what I feel your tack should be with N.K.Singh (who is supposed to be a hard negotiator). I am assuming here that this will be more of an introductory meeting where both sides are feeling out the other. The two meetings I had arranged over the weekend, would hopefully, have given you a better idea of the thinking of at least these two people o the issue. Incidentally, in the Indian system, the Governor of any state is a Central government nominee. He is the eyes and ears of the Central govt. in the state. Please see Basak's meeting in that light. The message he takes will likely go directly to the PMO in Delhi. I will therefore be working closely to convey the right impression. For N.K.Singh clearly there are three things you would try to convey: A description of the problem, Some of the resultant consequences if it is not solved soon enough, and Conveying the fact that there are win-win solutions well within the GoI's power to implement, that would in fact enhance his reputation and the country's as one that lives up to its reputation I would be careful to make the point that we are NOT going to give up any value, but are willing to be accomodative to MSEB, GoM, and GoI needs, either through financial re-engineering, or through getting direct access to the market in some areas. This will also fly well with Enron management that is more comfortable with market risks than political. Describing the Problem DPC has a PPA, backed by GoI & GoM guarantees for one of the most high profile projects in the world (World's largest gas fired power plant, India's first LNG terminal, gateway to providing clean reliable energy for all of western India, development of Konkan) With coming of Phase II (due end-2001) cost of power from Dabhol will be more competitive than any other liquid fuel fired plant (low heat rates, larger turbines, spreading of infrastructure costs over a larger base, use of LNG as fuel) (Our average tariff at 90% despatch is Rs. 4.02/kWh for Phase I. This goes down to Rs. 3.30 - 3.70/kWh with coming in of Phase II. Compare this with NTPC's own Kayamkulam plant having a tariff of Rs.3.32 - 4.01for same range of crude prices ($21-28/barrel). Hence DPC power is competitive, our standards of performance are higher, penalties for non-performance are greater, and as a private player, our place in the waterfall seems to be lower (quote the fact that while we have been delayed in payment by 45-60 days, MSEB has made all of its other payment commitments). However, monthly outflows could be as much as Rs. 450 Cr./month; MSEB's monthy collections not improving - are in the range of Rs. 900 Cr./month MSEB, and GoM clearly do not have the resources, in the short run (3-5 yrs.) to meet these obligations; hence Central intervention is needed. In a grid of 13000 MW (Maharashtra grid size), absorbing an additional 1440 MW (Phase II) at one go is difficult; however if we take Western Region, grid size is 42000 MW. Clearly absorbing all the power in that framework is much easier. To this if we add Northern and Southern grids, we can probably evacuate out another 500-700 MW through the interconnects. Hence, there is definitely value in looking at this issue at a national level. Additionally, it is not just solvable at that level, but actually answers to the crying need for power in the country, and hence is a boon for the govt., and should be treated as such. Consequences of Not Solving the Problem We can call upon the sovereign guarantee, which will cover our partial payments. However, this would almost definitely lead to a deterioration of the country's credit rating - put back incoming investments into the Petroleum sector (where private participation program is about to be unveiled in 25 O&G blocks), telecom sector (where a new policy has been announced months ago, and where foreign companies are looking favorably at investing). It is likely to put India on the backlist of many international banks, including export credit agencies of US, Japan, and Belgium (an EEC member). It would bring to the knees many prominent Indian banks (Indian lenders to the project include IDBI, ICICI, SBI, to metion just a few) Would completely stop any new investment into the power sector, where there is urgent need for funding (especially te new initiatives in transmission) There is a timeline for solving this, since our project is coming before year-end 2001, and hence we cannot wait for the slow pace of reform to take place at the SEB and state level. Win-Win Solutions Exist Northern region is power starved, south needs power badly. Hence it is a boon to have this power made available in the timeframe. With Central govt. intevention, it is possible to solve th problem to everyone's mutual benefit. 1440 MW (incremental Phase II) is only 3.4% of the capacity existing in the Western Region, and can be easily absorbed. Win-Win Solutions exist by: Restructuring some of the guarantees Adding some central govt entity (including those from the petroleum sector - IOC or GAIL, interested due to LNG trml.) to the equity mix at par Back-ending tariff and other financial re-engineering solutions that could involve Indian banks taking a greater share of the debt. et. etc. Bottom Line: Time is of essence; we need to get someone to negotiate with. Please use your good offices to quickly form a representative group that includes Central, State govt., and SEB representatives so that we can work on the solution. Without active participation from PM's office, we are likely to waste precious time bouncing between the SEB, GoM, and various Ministries of GoI. Hope this helps. Regards, Sandeep.
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