|
|
Enron Mail |
THE TIMES OF INDIA Tuesday, June 05, 2001, http://www.timesofindia.com/today/05busi24.htm Enron India lenders meet in Singapore today The above article also appeared in the following newspaper: THE ECONOMIC TIMES Tuesday, June 05, 2001, http://www.economictimes.com/today/05infr04.htm Enron lenders to meet today in Singapore --------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA Tuesday, June 05, 2001, http://www.timesofindia.com/today/05busi15.htm FIs working hard to end DPC crisis=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Tuesday, June 05, 2001, http://www.economictimes.com/today/05infr01.htm Centre's Dabhol package to include sops to help cut tariff, Soma Banerjee= =20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Tuesday, June 05, 2001, http://www.economictimes.com/today/05infr02.htm India to respect global contracts: Prabhu=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA Tuesday, June 05, 2001, http://www.timesofindia.com/today/05busi22.htm Prabhu says power reforms enter new phase=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES http://www.economictimes.com/today/05pers01.htm Scrap the PPA with Dabhol?, Dr R K Pachauri=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Tuesday, June 05, 2001, http://www.economictimes.com/today/05pers02.htm Bring this sorry saga to end, Abhay Mehta=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Tuesday, June 05, 2001, http://www.economictimes.com/today/05pers03.htm MSEB is willing to wheel DPC power, Vinay Bansal=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Tuesday, June 05, 2001, http://www.financialexpress.com/fe20010605/corp13.h= tml Dabhol Block B not yet commissioned , Sanjay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA Tuesday, June 05, 2001, http://www.timesofindia.com/today/05indi23.htm Ask DPC to pack off, demands Patkar=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- FINANCIAL TIMES, Tuesday, 5 June 2001 http://news.ft.com/ft/gx.cgi/ftc?pagename=3DView&;c=3DArticle&cid=3DFT3WV7KG= KNC&live=3Dtrue&tagid=3DYYY9BSINKTM&useoverridetemplate=3DIXLZHNNP94C Enron 'frustrated' by India talks By Julie Earle in New York and Khozem Merchant in Bombay ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Tuesday, June 05, 2001, http://www.economictimes.com/today/05edit04.htm Power experts get it wrong, Sanjeev S Ahluwalia=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TELEGRAPH Singh Protest Puts Sonia In Bind On Enron , RASHEED KIDWAI New Delhi, June 3: http://www.telegraphindia.com/archive/1010604/index.htm ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA, Tuesday, June 05, 2001=20 Enron India lenders meet in Singapore today=20 Lenders to Enron Corp's troubled Dabhol Power Company begin a two-day meeti= ng in Singapore on Tuesday to try and settle differences over continued sup= port to a controversial $2.9 billion power project in India. Representative= s of some of the world's largest banks like Citibank, ABN AMRO, and Bank of= America, will be at the meeting. Indian lenders like the Industrial Develo= pment Bank of India, State Bank of India and ICICI will also participate. M= arket analysts speculate that the meeting will attempt to forge a joint sta= nd on supporting the project which now produces 740 MW of power and is slat= ed to increase it to 2,184 MW shortly in its second phase. But it comes aga= inst a backdrop of rising tension between Dabhol and the Indian state utili= ty, the Maharashtra State Electricity Board (MSEB), which is the sole buyer= of Dabhol's electricity.=20 Indian lenders, who have lent the bulk of the funds to the plant, want to c= ontinue supporting the project. But they are being opposed by offshore lend= ers who want to withdraw their loans. Loans of around $638 million of the o= ffshore lenders are covered by guarantees provided by Indian institutions. = The Indian lenders, fearing for their profitability if the foreign banks pu= ll the plug, plan to oppose any such move. But they have been forced on the= backfoot by MSEB's decision last week to stop buying power from Dabhol and= terminate its 1995 contract with the company under which it agreed to lift= the entire output.=20 The MSEB has complained that Dabhol produces costly power while Dabhol has = blamed MSEB for defaulting on payments worth $48 million. Last month, Dabho= l issued a preliminary notice to terminate its contract to sell power. It h= as also filed for arbitration in London. This provoked MSEB to haul Dabhol = before a local regulatory body, the Maharashtra State Electricity Regulator= y Commission (MERC), which issued a temporary order staying the arbitration= proceedings. The dispute has already affected India's image among foreign = investors.=20 Last week, global rating agency Moody's expressed concern over slippage in = the Indian government's reform programme and cited the Enron's dispute as a= n example that the country may be losing credibility with foreign investors= . "The dispute indicates that India's government may not be willing to live= up to its contractual obligations. As a consequence, this would further de= ter foreign direct investment from coming into the country," Moody's said. = Union Power Minister Suresh Prabhu tried to dispel those fears in an interv= iew with Reuters on Sunday. "India is always in favour of making sure that = international contracts are respected," he said. "There is no need for conc= ern." (Reuters) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA, Tuesday, June 05, 2001=20 FIs working hard to end DPC crisis=20 The representatives of Indian financial institutions on Sunday left for Sin= gapore to attend the two-day lenders' meeting beginning June 5 in a last di= tch effort to defuse the escalated financial crisis between the Maharashtra= State Electricity Board (MSEB) and Enron-promoted Dabhol Power Company (DP= C). The FIs team is led by Industrial Development Bank of India (IDBI) exec= utive director R S Agarwal, who is also DPC board member. The group also co= mprises representatives of State Bank of India and ICICI.=20 The domestic lenders would update their foreign counterparts about the curr= ent imbroglio and legal tangles including MSEB's petition filed in Maharash= tra Electricity Regulatory Commission (MERC) and the board's simultaneous d= ecision to stop drawing DPC power from May 29 noon. ``One thing worrying th= e Indian FIs is the foreign lenders' probable decision to encash their secu= rities, which runs into more than Rs 2,500 crore'' a senior state official = said here. ``I think, the divide between the domestic and foreign lenders w= ill widen on this issue. The former are desperately trying to save their gu= arantees from being encashed'', he added.=20 Last week, IDBI acting chairman and managing director S K Chakrabarti had s= aid the total exposure of Indian lenders was Rs 6,600 crore. IDBI's exposur= e was Rs 2,158 crore including guarantees worth Rs 1,528 crore and rupee lo= ans of Rs 630 crore, he had said. FIs had last evening, held a meeting with= MSEB, trying to comprehend the state electricity board's views and stand o= n resolving the crisis before embarking on the visit to Singapore. ``MSEB h= as firmly told us that it will be able to draw power from DPC's first phase= only at a renegotiated lesser price and it wanted the Centre to take over = phase II'', FI sources said. The foreign lenders have already taken a tough= stance on the issue and had also approved the preliminary termination noti= ce in the April 23 meeting held in London, the sources added.=20 Prime Minister Atal Bihari Vajpayee is understood to have asked Union power= minister Suresh Prabhu in a meeting between them on June 1 in Delhi to pur= sue the sale of power to deficit states as part of efforts to help DPC. Gov= ernment sources had said sale of power to other states had emerged as the o= nly option for Centre to help the troubled project as purchase of power by = central utilities was not possible. The success of central initiative would= also hinge on the stance taken by Maharashtra government and MSEB on the i= ssue, the sources had added. (PTI) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, June 05, 2001=20 Centre's Dabhol package to include sops to help cut tariff, Soma Banerjee= =20 =20 THE Centre's new pack for the Enron power project is expected to include fi= scal sops and financial concessions so as to reduce the tariff. On its part= the state electricity board will have to commit itself to a time bound ref= orm programme. The new package which is being worked out by the power minis= try in consultation with the finance ministry is expected to take about two= to three months time sources said. According to power minister Suresh Prab= hu, he has been in discussion with Prime Minister Atal Bihari Vajpayee on t= he developments and their consequences. "PM too is with us on the view take= n till now. We all are committed to seeing that the project works and we wi= ll play our role as a facilitator whenever it is required." The Centre's re= cent move to direct CEA to work out a contingency plan for the sale of powe= r from Dabhol to other consumers has come as a big comfort to the lenders. = "Lenders who are the majority stake holders with a debt equity ratio of 70:= 30 are the worst hit in such a scenario. They would want the project saved = and are not really interested in termination and arbitration proceedings. T= he Centre's move has helped them gain confidence that a solution will be fo= und." Among the the financial breaks that are being considered are a cut in= the bank interest rates. This would be the second cut in bank rate .DPC to= o would be required to lower its internal rate of return to reduce the tari= ffs sufficiently.=20 The other thing which the Centre is trying to see is to work on a reduced c= ustoms duty on LNG. With the budget already doing away with the 16 per cent= CVD on LNG, the fuel which would have otherwise have been costlier will no= w be relatively cheaper. The third fiscal break involves the state governme= nt. The negotiating committee is trying to explore the possibilities of cut= ting down the incidence of sales tax. Power Grid Corporation of India has a= lready begun the exercise of working on the transmission links and accordin= g to sources, the export of power can start in the near future provided the= states are willing to work out their financial mechanisms. Justifying the = move against buying out the plant by NTPC, the power minister said: "If NTP= C were to defend every plant that is in trouble it would mean the end of re= forms in the states. Moreover you would soon turn NTPC into a sick company.= "=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, June 05, 2001=20 India to respect global contracts: Prabhu=20 =20 INDIA is in favour of ensuring international contracts are respected, Union= power minister Suresh Prabhu said as investors' fears grow over a squabble= between US energy giant Enron and the Maharashtra State Electricity Board.= The row was sparked late last year when MSEB defaulted on payments of $48 = million to Dabhol Power Company, 65 per cent owned by Houston-based Enron. = Prabhu said it was obvious investors saw some question-marks over Enron's $= 2.9-billion power plant, which is India's largest private foreign investmen= t. Enron is building the plant, but the dispute with the MSEB, has threaten= ed to derail the 2,184-mw power project. "We have to address those concerns= adequately because the Government of India is always in favour of making s= ure that international contracts are respected in the process of assuring a= ll the foreign investors that there is no need for concern," Prabhu said.= =20 Signs emerged last week that investors were souring on India.=20 Global rating agency Fitch last Thursday revised India's sovereign rating o= utlook to negative from stable, citing concerns over fiscal policy, privati= sation and deterioration in the country's foreign investment climate. Compe= ting agency Moody's said on Friday it saw slippage in the Indian government= 's reform effort, but declined to say whether a ratings change could be exp= ected, while Standard & Poor's said it was worried about the size of the bu= dget deficit. Asked if he felt the Enron row had deterred investors, Prabhu= said: "This is one single issue. We must deal with it in the manner in whi= ch it is possible in a given situation." "There is a negotiation going on. = The central government has a representative on the negotiating committee an= d I am sure that the only way in which commercial disputes can be settled i= s through negotiations." Prabhu was referring to a panel set up last month = by the Maharashtra government to renegotiate the tariffs charged by the 2,1= 84-mw Dabhol power project.=20 The MSEB, which agreed in 1995 to buy the plant's entire output, says the p= ower is too costly and has defaulted on $48 million in power payments. Dabh= ol issued a notice last month to cancel its power purchase deal, a move man= y investors fear could be the first step towards getting out of the project= entirely. "The phase in which we are right now ... is the phase in which s= ome independent power producers have already contracted certain obligations= which we will definitely like to uphold, which should be honoured," Prabhu= added. "Because in India contracts are very important. Sanctity of contrac= ts should be kept." (Reuters) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA, Tuesday, June 05, 2001=20 Prabhu says power reforms enter new phase=20 India's reforms of its sputtering power sector have entered a new phase, wi= th plans afoot to free up private supply, overhaul debt-ridden state utilit= ies and recraft tariffs, Power Minister Suresh Prabhu told Reuters. With in= vestors' fears fanned by a squabble between U.S. energy giant Enron Corp an= d a local utility, Prabhu said in an interview late on Sunday that India is= standing behind international contracts. "Sanctity of contracts has to be = kept," Prabhu said.=20 The row began late last year when the utility in Maharashtra defaulted on p= ayments of $48 million to Dabhol Power Company, 65 percent owned by Enron. = The 2,184 MW power project is India's largest foreign investment, at $2.9 b= illion. Prabhu has vowed to take Indian reforms in a new direction. "Absolu= tely," he said in reply to a question whether India's reforms have entered = a different phase. The Power Ministry will now also focus on power distribu= tion, he added, besides its early preoccupation with generation needs. "In = India unfortunately for the last 10 years...reforms policy was skewed in fa= vour of generation," he said. "We never really realised that distribution i= s the more important part of the process." Prabhu added, "We have now decid= ed we will make enough structural changes in distribution so that at the en= d of distribution enough investment is made."=20 A chartered accountant, Prabhu hails from the verdant regions of India's we= stern coastal strand, and chaired a co-operative bank that was one of the c= ountry's largest, in terms of deposits, before his foray into politics. An = errant lock of hair straying across his forehead, Prabhu eschews the Indian= politician's traditional uniform of starched white handspun cotton for the= shirtsleeves and trousers preferred by the professionals who have entered = government, and whom local media call "technocrats". Prabhu said India has = decided to allow private producers to sell power direct to consumers, lifti= ng curbs that have hobbled the country's decade-old reform effort.=20 He said the question of power affordability had spurred him to ask India's = states to permit third-party sales of power, which analysts have called a s= tumbling-block for foreign investment. "They cannot force a generator to se= ll power only to the SEBs, and that's a major change we are trying to make,= " Prabhu said, referring to the states. SEBs or state electricity boards ar= e owned by the state governments, and supply power to most of India. India = estimates that 100,000 MW of fresh capacity will have to be installed over = the next 12 years to meet its power needs. Most of the $200 billion in fund= s that will be required will have to come from foreign private investment. = But India's spotty reform record over the last decade has made investors wa= ry. Bureaucratic procedures, legal delays and political wrangling have held= up reform moves.=20 Last week global rating agency Fitch revised India's sovereign rating outlo= ok to negative from stable, citing fiscal concerns, the slow pace of privat= isation and deterioration in the country's foreign investment climate. Comp= eting agency Moody's sees signs of slippage in the reforms, and Standard & = Poor's has expressed worries over India's budget deficit. Prabhu said he wa= nts to overhaul state power utilities by introducing standard accounting po= licies, cutting transmission and distribution losses to 15 percent, and tac= kling crushing debt, thus helping to lure foreign investment into the secto= r. The poor financial health of the utilities, expected to run up combined = losses of about $6 billion in the 2001/02 fiscal year, has proved a hurdle = in efforts to draw private investment.=20 Prabhu said an expert panel examining ways to restructure SEB finances -- l= ooking at technical, commercial and tariff issues -- is expected to report = within a few weeks. "For the first time we will be preparing commercial dat= a which is internationally accepted. We will be preparing technical data wh= ich is internationally appreciable. And thirdly, we'll be creating an infor= mation base which will be created by experts and then made available to the= states," he said. The utilities' transmission and distribution losses run = to up to 25 percent of the electricity they generate, compared to a figure = of about eight percent internationally, he said.=20 Prabhu wants to trim this to about 15 percent within two or three years. "I= n the case of India, I am willing to accept a figure of 14 percent to 15 pe= rcent, because to bring it below that will be technically feasible but Othe= r steps to tone up power generation include attempts to link the eastern re= gion with the rest of India, efforts to boost plant load factors through mo= dernisation of equipment, and to persuade people to use energy more efficie= ntly. Prabhu said he is building political will to support these moves thro= ugh a programme to tell consumers why they can no longer get power cheap, o= r even free, as many did in the past. (Reuters)=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, June 05, 2001=20 Scrap the PPA with Dabhol?, Dr R K Pachauri=20 IT is unfortunate that the Dabhol project is in such a terrible mess. This = is clearly the result of serious lapses and mistakes on the part of all the= stakeholders. But I would not agree with those who are clamouring for the = termination of the PPA by the Maharashtra government. It could very well ha= ppen that we are left with no choice in the end but to cancel the contract,= but this if at all should be a legal decision and not a business decision.= The fact of the matter is that we have a large facility established on Ind= ian soil, which we must find ways to use for the benefit of the country.=20 I have not seen the plant at all, but from all accounts that I have heard e= ven from those who regard the whole project as a big mistake, this is a ver= y well engineered plant. To harp on the termination of the contract would b= e like cutting your nose to spite your face. At no time must the action of = the MSEB, the Maharashtra government or the government of India be-or even = appear to be- arbitrary or spiteful.=20 The Dabhol officials have signaled their willingness to renegotiate the con= tract, and we must therefore go through the process with an open mind but w= ith our position clearly specified, namely that of getting a fair deal for = the consumer of Dabhol power. I believe the contract can be renegotiated an= d a reasonable tariff hammered out between the parties to the contract, and= I also believe that the re-negotiations should be conducted directly betwe= en the parties themselves, unencumbered by any group or committee that may = have analysed the project. The road map for renegotiating the deal has been= provided by the Committee set up to review the project in the report it ha= s submitted to the Maharashtra government. The rest is a matter of give and= take based on how much each stakeholder is willing to concede.=20 The various measures outlined in the report clearly indicate the impact tha= t these would have on the tariff. If all these are followed and the sales t= o other customers facilitated such that the plant runs at full capacity, th= e tariff would come down substantially. Maharashtra cannot at this stage ab= sorb the power produced from the two phases of the project, and therefore o= ther parts of the country would need to be supplied the bulk of the output = from this plant. The central and the state governments must facilitate this= as part of renegotiated deal, which of course would involve a major shift = in the position of the promoters of the project in several ways detailed in= the report.=20 For all practical purposes, sales of power by IPPs are unrestricted, and ca= n involve more than one state. In the case of Dabhol, however, it was belie= ved at the stage of project design that all the power would be absorbed by = one state. There are today the so called mega power projects where power fr= om a particular project will be sold to more than one state. But I believe = there is a case for greater flexibility in the policy in this regard and ge= tting the Power Trading Corporation divested of its monopoly power as the o= nly trader for interstate supplies of power from IPPs.=20 One important feature of the Dabhol project is the large LNG facility and r= elated infrastructure that has been established. The answer to the question= whether this should be treated as part of the power project depends on the= fact whether these facilities are fully dedicated to the production of pow= er or have a large surplus capacity. In the case of Dabhol the latter happe= ns to be the case. Hence it makes both business sense and sound legal logic= to separate the two.=20 There is no reason why the entire LNG infrastructure, which has capacity fa= r beyond the needs of the power project, should not be separated as a disti= nctly different profit centre. This would bring down the cost of power gene= rated significantly, and make the whole deal neat and transparent. This wou= ld be in the nation's and the consumer's interest.=20 (The writer is director-general, TERI) -=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, June 05, 2001=20 Bring this sorry saga to end, Abhay Mehta=20 MUCH ado about nothing - that's what I think of the Dabhol controversy. I a= m frankly perplexed at the hype and the ado being made on the Dabhol issue.= If after eight years, basic issues have not come through even trivially, t= hen this country is doomed anyway. To reiterate the fundamental issues are:= =20 a) What is signed is a contract simpliciter between two parties: A contract= ing party (Enron) has agreed to sell another (MSEB) a commodity (electricit= y) for a price (US$ 0.0872 a unit) in a fixed quantity (1728 crore units) f= or a period of time (20 years) ie. MSEB is liable for $1.4 billion plus (Rs= 6,500 crore plus) a year, year on year for the next twenty years. These pa= yments are indexed to just about all possible economic indices. The rise in= payments in rupee terms is minimally 12 per cent a year.=20 b) It is not, repeat not, a foreign investment: one would have hoped that b= y now, if this nation has even a vestige of economic sense, the basic calcu= lation of the net foreign investment would be public.=20 The substantial over capitalisation (over 60-70 per cent), the direct lendi= ng by Indian FI's (about 55 per cent of the over-capitalised capital costs)= , the indirect lending (guarantees to by Indian FI's to foreign FI's- about= 18 per cent of project costs) and MSEB's own equity investments implies th= at all the money is Indian. The net effective investment on Enron's part is= close to zero or even negative.=20 c) There is no set of economic circumstances (growth rates, industry off-ta= ke) or even political (MSEB "reforms") that will allow the purchase of this= power. The basic premise that there are buyers for outrageously expensive = base-load power is itself fundamentally flawed.=20 Even in the most power deficient state, there is no shortage of power in th= e night. However the Enron meter keeps on ticking: in fact at the rate of U= S $ 0.184 million an hour, hour upon hour for 21.6 hours a day. There is no= scope for payments of this magnitude even in ideal circumstances.=20 d) There is little scope for 're-negotiations' in an economically acceptabl= e manner. All the current talk (reduction of FI's interest rates, 'sharing = of burden' etc.) is largely of no consequence.=20 The fundamental issue remains the same - over-capitalisation, forex linkage= s (on the fuel LNG, etc.) and the profit margins (well in excess of those a= llowed by law - of the order of 60 per cent even on notional equity). Enron= has stated in unequivocal terms that these are issues that are not open to= negotiations of any kind.=20 e) It does not matter if Enron leaves. Given, the above, big deal. That thi= s country is unable to do what Croatia, Pakistan and Indonesia have done, r= eflects on India not on Enron.=20 f) The only signal that would go out would be positive one - to quote the q= uintessential epitome of right wing, free market thought - The Economist, w= hich wrote, at the time of the first cancellation, about "the India that ca= n say no".=20 g) It is more than possible to terminate the contract without any liabiliti= es in either political ('sanctity of contract') or economic ('termination l= iabilities').=20 Even currently, Enron is in severe breach of its contractual obligations. I= n any case, the condition precedent to the sanctity of the contract - the n= ecessary clearances (the CEA's techno-economic clearance) are not in place = and even an admittedly illegal "technical" clearance addressed to Enron sta= tes that construction on phase 2 shall not begin until GOM/MSEB ensure comp= lete absorption of power. This condition has not even been met for phase 1,= never mind going ahead with phase 2. Enron went ahead on it's own risk des= pite being aware of the lacunae.=20 Other more substantive issues (a fraudulent tariff clearance) as well actio= n under the Prevention of Corruption Act (Section 13 (i) d) against public = servants unknown wherein the act of actually giving or taking money is not = to be proved - simply that a private party benefited at the expense of the = public exchequer (gratuitous largesse to private parties). Jayalalitha (in = the Tansi case) as well as the recent cases in the Doordarshan case come un= der this section.=20 These are avenues that ought to be pursed to bring this sorry saga to the e= nd it deserves.=20 (The writer is author of Power Play - a book on the Enron saga) -=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, June 05, 2001=20 MSEB is willing to wheel DPC power, Vinay Bansal=20 UNDER the power purchase agreement, the DPC undertook to construct and oper= ate a baseload power station at Dabhol. At all material times, it was repre= sented to the Board that DPC would build, maintain and operate a state-of-t= he-art power station for Phase-I with a nominal baseload capacity of 670 mw= . It was represented that the power plant will have certain dynamic paramet= ers. One of the key parameters was the plant capacity to ramp up upto 100 p= er cent load within three hours.=20 Relying upon these representations the MSEB consented to the PPA. Since the= commissioning of the Phase I plant in May '99, the DPC has been billing MS= EB for capacity payments based on the rated base-load capacity for each ava= ilability period. Until January 2001, the ramp up capacity had not come int= o question, nor was MSEB told that it was materially different from that st= ated in the contract. On January 28, '01 however, MSEB asked for 657 mw in = three hours to meet an urgent requirement. The DPC, however, could deliver = only 156 mw. There were similar defaults in February and March '01 which en= titled MSEB to rebate as per the PPA. The DPC, however, refused to pay the = rebate. Instead, in its letters, while admitting that the actual performanc= e does not conform to the contract, it has disputed MSEB's rebate claim.=20 The Board gave sufficient opportunities to resolve the issue but DPC starte= d pressurising the Board for making payments for December 2000 and January = 2001which had been adjusted against rebate that it had failed to pay. Then = it invoked guarantees of the state and central governments. Notices of arbi= tration were served. Another notice declaring Political Force Majeure was f= ollowed by instructions to our banks to activate escrow accounts. Finally, = the DPC issued two Preliminary Termination Notices on May 19, 01.=20 In the opinion of MSEB, its rebate claims are valid and its consent to the = PPA was caused by material misrepresentation. We were advised by our lawyer= s that the agreement is void and/or voidable at our option. Accordingly, th= e Board issued a notice to DPC on May 23 rescinding the contract. To avoid = inconvenience to all concerned, the Board made a very reasonable offer to t= he DPC, which was without prejudice, to continue purchase of power at old t= erms till the disputes are resolved, provided such payments were later adju= sted on the basis of determination by a competent forum.=20 But the DPC responded that the Board could not have its cake and eat too; h= aving rescinded the contract, if it continued to buy power, it would be tak= en as affirmation to hold the contract valid. Therefore, we stopped drawing= power from the noon of May 29. MSEB has been up-to-date in payments of its= monthly dues including the two bills adjusted against the rebate. For thei= r latest bill also, the Board sent the cheque 'under protest' on the due da= te, the May 25, but the DPC refused to take delivery.=20 Notwithstanding these differences, without prejudice to our respective stan= ds, both DPC and MSEB are seeking an amicable solution to the issue in the = forum provided by the Godbole committee. The average price of supply of DPC= power to MSEB in the last two years has been about Rs 5.60 per unit. We dr= ew less last year because of MERC restrictions on drawal of this expensive = power and the rate for the last twelve months has climbed up to Rs 8.08 per= unit. Since the prevailing consumer tariffs are much lower, without prejud= ice to our notice rescinding the contract, negotiations are continuing in t= he Godbole committee to reduce the DPC tariff to acceptable levels. Even to= day, the DPC is free to sell power to anyone outside the state but it is un= willing to become a merchant generator.=20 MSEB is willing to wheel DPC power. If, however, IPPs are allowed to sell p= ower within the Board's area, they will naturally choose the most profitabl= e customers, namely the HT industrial consumers. Figures show that our tari= ff structure is so distorted that the Board subsidises 9 out of 10 consumer= s. (1.18 crore customers are subsidised out of 1.30 crore). If the 10th con= sumer is taken away from the Board, its losses will mount further.=20 (The writer is chairman, Maharashtra SEB. As told to Girish Kuber.) -=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Tuesday, June 05, 2001=20 Dabhol Block B not yet commissioned , Sanjay Jog UNCERTAINTY looms large over the commissioning of Block B (722 mw) of Dabho= l phase-II by the Dabhol Power Company (DPC) in view of Maharashtra State E= lectricity Board's (MSEB) decision to rescind power purchase agreement (PPA= ) and suspend power purchase since May 29 noon.The DPC, which had planned t= o commission the block b on June 7, was tight lipped and declined to commen= t at this point of time. "We have nothing to offer," replied DPC spokesman = on Monday, on the eve of Dabhol lenders meeting in Singapore. Further, the fate of performance test to be carried out by DPC in the prese= nce of MSEB officials also hangs in the balance as the company has already = suspended the test runs.According to section 5.1 of power purchase agreemen= t, "DPC shall, at least seven days before hand, give MSEB notice of and sha= ll invite MSEB's representatives to attend any performance tests, but the f= ailure of such representatives to amend will not result in the postponement= or failure of any such tests and any tests conducted in relation to the en= try into commercial services of the liquified natural gas facility. MSEB sh= all pay DPC the commissioning charges specified in schedule 10, part VIII i= n respect of such active energy." However, MSEB soures told The Financial Express that it has not received an= y notice from DPC on carrying out performance test. These sources said that= even if DPC conducts performance test, MSEB would not join it on the groun= ds that it has not only rescinded the PPA but also taken up the matter with= the Maharashtra Electricity Regulatory Commission (Merc). "The matter is s= ubjudice and thus we will not like to be present during performance test. T= he possibility of DPC going in for an expert test cannot be ruled out," sou= rces added. The performance test is unavoidable to avoid misdeclaration and deliver pow= er within 180 minutes from a cold start.MSEB recalled that DPC had conducte= d performance tests in May 1999 prior to "entry into commercial service" of= Dabhol phase-I since May 13. The company had tested the nominal baseload c= apacity of the phase-I plant and found that it was 658.56 instead of 670 mw= , a position later accepted by DPC and MSEB. Thereafter, the rated baseload capacity was fixed at 658.56 mw for each hou= r called an "availability period."=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TIMES OF INDIA, Tuesday, June 05, 2001=20 Ask DPC to pack off, demands Patkar=20 The leader of Narmada Bachao Andolan Medha Patkar on Monday demanded that E= nron's Dabhol Power Company be asked to pack off from India without any com= pensation and a judicial inquiry be instituted on all aspects of the agreem= ent with DPC. Addressing a press conference here, she alleged that there wa= s large-scale violation of the rules by the company, adding "it will be in = the interest of Maharashtra if the company is asked to leave India."=20 Patkar said that some politicians with vested interests were trying to scut= tle any attempt to institute a judicial enquiry fearing their own exposure = in the deal. Instead of having a project like DPC it would be much better i= f the Maharashtra State Electricity Board (MSEB) takes steps to increase it= s power generation capacity and contain transmission losses due to theft, t= he NBA leader said. Patkar also demanded that the central water policy be d= rafted as per the recommendations of the report of the world commission of = dams. "Big dams do not not yield any projected results whether it is to sol= ve the drinking water problem or help in increasing the foodgrain productio= n, but only create rehabilitation problems," she added. Patkar also critici= sed the Maharashtra government for "diverting large amount of water to suga= rcane crops at the cost of other crops." (PTI)=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- FINANCIAL TIMES, Tuesday, 5 June 2001 http://news.ft.com/ft/gx.cgi/ftc?pagename=3DView&;c=3DArticle&cid=3DFT3WV7KG= KNC&live=3Dtrue&tagid=3DYYY9BSINKTM&useoverridetemplate=3DIXLZHNNP94C Enron 'frustrated' by India talks By Julie Earle in New York and Khozem Merchant in Bombay Enron, the US energy group, says it is becoming "increasingly frustrated" w= ith its negotiations with the Maharashtra state government agencies in Indi= a. The group denied reports that it was renegotiating the contract and the = tariff between its Indian arm, the Dabhol Power Company, and its sole custo= mer, Maharashtra State Electricity Board (MSEB). "That is not true," said a= n Enron spokesman at the weekend. "Why would we renegotiate with counter pa= rties? They are trying to imply a contract that was in place for eight year= s and operating for two years does not exist." The denial came as Indian an= d foreign banks prepared to try to bridge their differences over sustaining= support for Dabhol's $2.9bn power project near Bombay, which has been supp= lying the Maharashtra utility.=20 A two-day meeting in Singapore starting on Tuesday will aim to stake out co= mmon ground, which lenders hope will remove the uncertainty dogging the con= troversial 2,184MW power project. The Indian utility owes Dabhol $45m but i= s demanding in turn a greater sum in rebates for what it describes as the U= S company's failure to meet technical thresholds. Foreign lenders have stop= ped disbursing loans to the 1,444MW second phase of the project, which is d= ue for completio n soon. The 740MW first phase was commissioned in May 1999= . ABN Amro and Bank of America are some of the foreign banks that will thra= sh out the issues with State Bank of India, Industrial Development Bank of = India and ICICI.=20 People close to the talks say the situation has "worsened" since the last l= enders' meeting in April, when Dabhol received authorisation to quit the pr= oject. Dabhol has since issued a pre-termination notice, signalling its int= ent to withdraw in six months if a solution is not found. MSEB has responde= d to the threat by abandoning its power purchase contract with the company = and has refused to draw any more power. Dabhol has not generated any power = in the last six days. MSEB's decision to stop lifting power alarmed Indian = banks, whose exposure of funded loans and guarantees to the project totals = about $66bn, about 70 per cent of the total debt raised to finance the proj= ect. Foreign banks raised the balance of about $600m. "There are difference= s [between the banks], even among the foreign ones. Each has a different ap= petite for risk. But I would not characterise it as a rift," said one parti= cipant in Tuesday's meeting.=20 Despite the tense atmosphere, power industry executives say there is an inc= reasing realisation that the banks and Dabhol must resolve their difficulti= es "because this project is too big to fail". Suresh Prabhu, India's power = minister, intervened last week, calling on the country's top power authorit= y to look at how Dabhol's 2184MW of power might be exported to power-defici= ent states elsewhere in India. The dispute has alarmed foreign investors an= d rating agencies. Last week, Fitch, the international rating agency, adjus= ted the outlook on India's sovereign rating of BB+ from stable to negative.= It says central and state government guarantees - issued to support infras= tructure projects such as Enron's - amount to 9 per cent of GDP and "are co= ntingent liabilities of the government". Enron said at the weekend that it = was still operating and open to discussions but there needed to be some sig= n from state agencies that they were beginning "to reverse practices of den= ying obligations under contracts". ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, June 05, 2001=20 Power experts get it wrong, Sanjeev S Ahluwalia=20 STATE utilities owe Rs 40,640 crore to central power generators alone. This= is one half of their annual revenues. Overdue payments equal to eight mont= hs of revenue are sure signs of insolvency and financial unsustainability, = especially when the interest rate for incremental debt of 24 per cent is th= ree to four times the growth rate of revenue. The government of India set u= p a group of experts, chaired by Dr Montek Singh Ahluwalia, to recommend a = solution. Part one of the report was submitted in April 2001. Here is why t= he experts have gone wrong. The bulk of the overdue payments to central pow= er suppliers are the consequence of an arbitrary and ill-advised tariff inc= rease, in 1992 and again in 1998, of these central generators.=20 The allowed rate for depreciation was raised from 3.4 per cent to 7.4 per c= ent. In 1998 the allowed rate of return was increased from 12 per cent to 1= 6 per cent, even for existing plants. These measures add around Rs 2300 cro= re to the annual revenues of NTPC alone. State utilities are, however, cons= trained from passing through such increases by public pressure to keep reta= il prices low. The result has been cascading volumes of overdue payments fo= r power purchase. The Enron story and the more recent unilateral shut down = of the generation facility run by AES in Orissa, are sequels of the same ma= lady.=20 Enron is being renegotiated presumably because the costs were arbitrary. Th= e experts, however, failed to recognise a similar arbitrariness in the tari= ff increase, effected by GoI, prior to the formation of the central power r= egulator.=20 The fact is the bulk of these over-dues should be waived, as they should ne= ver have been levied in the first place.=20 State utilities face two kinds of financial challenges, which impact state = government finances. The first is tackling the overdue payments or borrowin= gs contracted to meet these liabilities. The experts have recommended that = state governments take responsibility for these overdues, by issuing bonds = in favour of the creditors. This is a welcome step towards fiscal responsib= ility, since these overdues are the contingent liability of state governmen= ts.=20 Failure to service the bonds, or failure to pay future power dues invites h= eavy censure including suspension of central transfers. These are efficient= penalties in themselves. Where the experts have gone wrong is in ignoring = the imbalance in revenue flows while restructuring the stock of overdues. R= eforms were supposed to bridge the revenue imbalances. Firstly, Regulatory = Commissions were to raise tariffs to meet costs. Commissions, which work in= a quasi-judicial manner and must needs safeguard the interest of the consu= mer, have justifiably baulked at passing through ``inefficient costs''.=20 The Andhra Pradesh Commission has not raised tariffs at all in 2001-2002. S= econdly, privatisation was supposed to cut costs and improve revenues. This= has not happened. Even where the private sector has taken over distributio= n, as in Orissa, its capacity for efficiency improvements is now seen to be= overrated. Nor is the private sector willing to finance the transition to = financial stabilisation. It is, therefore, the existing state utilities, wh= ich are now expected to provide efficiency improvements in operations. This= a tall order.=20 In fact, the very process of `reform' provides perverse incentives to let e= fficiencies fall and the system to decay pending eventual privatisation. Th= is was the Orissa story from 1995 to 1999. The result is that most reformin= g state utilities need a bridge facility to balance the revenue budget. The= experts have ignored this fact. By converting the overdues into equity, he= ld by central generators and Indian financial institutions and thereby faci= litating their participation in Board level management, the state utilities= could be assured the commercial autonomy which is key to improving their p= erformance.=20 However, true `risk sharing' of this nature, which is a prospective concept= , has been ignored by the experts in favour of `loss sharing', which is a b= ackward looking concept and hence self limiting. By tackling only the stock= and ignoring the flow of future overdues, the experts have devised a solut= ion, which is bound to fail. Let's take the case of Uttar Pradesh. This ref= orming state government has already waived Rs 20,000 crore owed by the stat= e utility to it and assumed Rs 10,000 crore of the utilities liabilities, i= ncluding unfunded pension liabilities. In addition, it provides Rs 1000 cro= re every year as subsidy and an equal amount as capital infusion. The reven= ue gap is still around Rs 1000 crore per year. Future efficiency improvemen= ts will only dilute the incremental revenue mismatch from a 7 per cent annu= al increase in supply.=20 Hence, in five years, the cumulative revenue gap, after subsidy, will be Rs= 5000 crore or double the existing level of payments overdue to central gen= erators. Against this requirement, the formula allows UP to float additiona= l bonds for only Rs 600 crore leaving an unfinanced gap of Rs 4400 crore pl= us interest on this amount. Even if UP could borrow this amount, it would i= nflate its fiscal deficit by 44 per cent. The resultant interest payments w= ould inflate its revenue deficit by 15 per cent or UP will need to cut back= other revenue expenditure by around Rs 350 crore or 1 per cent of total re= venue expenditure.=20 UP is not the exception to this fact. States may still opt for the formula,= despite its limitations. However, this is not an endorsement of the robust= ness of the formula but rather the helplessness of insolvent states. It is = no one's case that fiscal imbalance should become an excuse for easy money = but a package for fiscal stabilisation cannot ignore the differing base lev= els of such imbalances, both stock and flow, within the states. Incentives = and penalties are efficient only when they can induce the required fiscal r= esponse. By adopting a ``cookie cutter'' uniform approach to financial rest= ructuring, the experts have ensured that only states at the margin, or thos= e least requiring immediate assistance, will corner the lion's share of the= assistance.=20 (The author is secretary, finance, government of UP. These are his personal= views) - ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE TELEGRAPH Singh Protest Puts Sonia In Bind On Enron , RASHEED KIDWAI, Sunday, June 3,= 2001 Sonia Gandhi is in a bind over the demand for a judicial probe into the Enr= on deal due to opposition from Manmohan Singh and N.K.P. Salve. Maharashtra= chief minister Vilasrao Deshmukh is waiting for Sonia's signal to implemen= t the Madhav Godbole committee report that has recommended a judicial inqui= ry into the Power Purchase Agreement (PPA).If Sonia vetoes Manmohan and Sal= ve, there will be a question mark over the continuation of the Democratic F= ront government in Maharashtra. Sharad Pawar's Nationalist Congress Party h= as made it clear that it will part ways in case its alliance partner, the C= ongress, favours a probe. There is a sharp division in the Congress over th= e Enron deal. Madhavrao Scindia, Pranab Mukherjee, Motilal Vora, Murli Deor= a and Arjun Singh are in favour of the probe but Manmohan is reluctant as t= he deal was struck during his tenure as the Union finance minister. Salve, = then, held the power portfolio.=20 Party leaders said the "image-conscious" Manmohan would take offence though= there is nothing that could go against him in the probe. He had reportedly= not even attended the Cabinet meetings in which Dabhol power project was d= iscussed. Sonia, who chaired the meeting on Enron, has decided to ascertain= the views of the Maharashtra Congress unit. "She will go by its opinion," = a source close to Sonia said. A section of the Maharastra party unit wants = Sonia to take an aggressive stance and queer the pitch for Pawar, who was i= nstrumental in getting the deal through. "In case of a judicial probe, thre= e leaders, Pawar, Bal Thackeray and Atal Bihari Vajpayee are going to be th= e worst affected. Since the trio is a known enemy of the Congress, why shou= ld we shield them?" a senior leader from the state, who called on Sonia to = press for the probe, asked. But another section of the party is opposed to it on the ground that the Co= ngress-NCP alliance would fall through. "The Deshmukh government is doing a= fine job. Why should we rock the boat? Secondly, what kind of signal would= we be sending to the MNCs and investors?" a party MP asked.But Pawar's det= ractors in the state Congress are getting restless. According to them, the = leadership should either work for a merger with the breakaway group or take= on Pawar to end the confusion over "two Congresses". Going by the present = mood, the merger is unlikely as Pawar, P.A. Sangma and Tariq Anwar continue= to make Sonia's foreign origin an issue.
|