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Enron Mail |
THE FINANCIAL EXPRESS Thursday, May 10, 2001, http://www.financialexpress.com/fe20010510/top3.htm= l Govt rejects DPC terms for selection of third conciliator, Anupama Airy ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Thursday, May 10, 2001, http://www.financialexpress.com/fe20010510/news1.ht= ml Lenders seek power, finance ministry aid to resolve Dabhol mess , Anupama= Airy ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Thursday, May 10, 2001, http://www.financialexpress.com/fe20010510/news2.ht= ml MSEB to pay Rs 139cr April bill 'under protest' , Sanjay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE Thursday, May 10, 2001, http://www.hindubusinessline.com/stories/041056ma.h= tm Dabhol project -- Enron: A rational renegotiation plan, S. Padmanabhan=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE Thursday, May 10, 2001, http://www.hindubusinessline.com/stories/141056cr.h= tm Centre to back Maharashtra on tariff talks with Enron ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Thursday, May 10, 2001 Govt rejects DPC terms for selection of third conciliator, Anupama Airy THE finance ministry has rejected Dabhol Power Company's (DPC) proposal t= hat appointment of third independent conciliator for resolving the payment = dispute be done either by the London Court of International Arbitration o= r by the International Chamber of Commerce (ICC). Top government official= s told The Financial Express that at meeting between the union finance mini= ster Yashwant Sinha and the power minister Suresh Prabhu on Friday, it was = decided that the two conciliators, already appointed by the Centre and DP= C respectively, will now appoint the third conciliator. Official sources disclosed the finance ministry has also done away with the= stipulation that the third conciliator should not be a national of the U= S or of India. "The department of economic affairs (DEA) felt that the st= ipulation over the nationality of the third conciliator was not necessary a= nd should be done away with," the officials said.Earlier, the DEA had sugge= sted that the appointment of the third conciliator be either left to the tw= o conciliators (already appointed on behalf of the Centre and DPC) or be = selected by an institution based in India. DEA had proposed the names of two institutions - The Indian Council of Arbi= tration and The International Centre for Alternate Dispute Resolution - who= could be asked to appoint the third independent conciliator. However, sou= rces said of the two suggestions made by DEA, it was finally decided in the= meeting of the two ministries that the thrid conciliator be appointed with= the consent of the two arbitrators, already appointed.Sources said the sug= gestion of DPC that the Centre give a list of six neutral individuals of ap= propriate standing and eminence for the appointment of the third conciliato= r has also been turned down by the finance ministry. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Thursday, May 10, 2001 Lenders seek power, finance ministry aid to resolve Dabhol mess , Anupama= Airy FOREIGN lenders to Dabhol Power Company (DPC) have sought the interventio= n of the ministries of finance and power to quickly resolve the ongoing imp= asse over non-payment of dues by Maharashtra State Electricity Board (MSEB= ), as DPC has sought their consent to issue a preliminary termination noti= ce to the MSEB.Justifying DPC's plans on issuing a termination notice to MS= EB, the foreign lenders, in letters to the secretaries of finance and pow= er dated May 1, have said, "DPC is in its rights to do so, since various ev= ents and issues have had a materially adverse effect on DPC's ability to pe= rform its obligations under the power purchase agreement (PPA)." Sources informed that this issue was also discussed at the meeting between = Union power minister Suresh Prabhu and finance minister Yashwant Singh on M= ay 4. In their letters to the two ministries, foreign lenders have asked th= e government to quickly find an amicable solution by ensuring timely paymen= ts to DPC of all the outstanding dues, besides asking the government to inc= rease the face amount of the letter of intent (LoI).The lenders have also = informed the government that all future disbursements for Phase-II of the D= abhol project have been stopped till this matter is resolved between DPC an= d MSEB. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Thursday, May 10, 2001 MSEB to pay Rs 139cr April bill 'under protest' , Sanjay Jog THE Maharashtra State Electricity Board (MSEB) proposes to pay the April bi= ll of Rs 139 crore "under protest" to the Dabhol Power Company (DPC) befo= re the expiry of due date of May 25.This would be the third consecutive t= ime the MSEB would pay the bill to protest against the DPC's refusal to a= ccept mis-declaration and default on the availability of power on January 2= 8 and rebate of Rs 401 crore slapped by the MSEB. The MSEB has paid, also= , "under protest," the February bill (Rs 114 crore) and the March bill (Rs = 134 crore).=20 MSEB sources told The Financial Express that it has received the April bill= early this week for the purchase of 128 million units at Rs 10 per unit.= The fixed charges were Rs 7, while the varible charges were Rs 2.95. Th= ese sources said that the per unit tariff had reached Rs 21.06 in January f= or the purchase of 53 million units. The MSEB has not paid the January bi= ll of Rs 111 crore on the grounds that the DPC should adjust it against the= rebate amount of Rs 401 crore. As far as the February bill is concerned,= the MSEB purchased 75 million units at Rs 14.74 peer unit from the DPC.= =20 In March, in view of increased power purchase at 156 million units from DPC= , the per unit tariff was reduced at Rs 9.34 (total bill of Rs 146 crore). = In case of the December bill of Rs 152 crore, MSEB purchased 179 million = units at the per unit tariff of Rs 5.21. It must be mentioned here that th= e MSEB has paid only Rs 50 crore and not paid the balance Rs 102 crore in = view of the non-payment of rebate of Rs 401 crore by the DPC. It must be me= ntioned here that the DPC's per unit tariff had skyrocketted at Rs 25 for t= he purchase of 39 million units in June last year which later soared at Rs = 7.90 in September and Rs 8.90 in November last year.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE, Thursday, May 10, 2001 Dabhol project -- Enron: A rational renegotiation plan, S. Padmanabhan=20 THE MAHARASHTRA Government recently announced its plans to renegotiate the = Enron-promoted Dabhol power project. In this connection, Mr R. K. Pachouri,= a committee member appointed for the renegotiation, outlined the prioritie= s of the project in a television interview:=20 < To reduce the interest rate for the project debt of DPC to be in line wit= h the current market trends;=20 <To achieve higher output and identify power purchasers outside Maharashtra= ; and=20 < To separate the LNG project from the power project.=20 A business daily on May 2 reported that Indian Oil plans to supply 1.2 mill= ion tonnes of naphtha to DPC at around the international price of $290 a to= nne, including sales tax of 16-18 per cent per tonne. The report indicates = that DPC has requested the Maharashtra Government to waive the sales tax = so that the reduction in the sales tax can be passed on to the consumers.= =20 Similar news reports on the project have started appearing in both the prin= t and visual media. These indicate that the State Government and the DPC ma= nagement seem to have come to an understanding on the broad principles of = renegotiation and both are in the process of educating the public about the= benefits these various measures would bring to the project.=20 No doubt, these steps would bring down the tariff. But, then, the reduction= will be due to concessions and subsidies offered by the State and the fina= ncialinstitutions by way of waiver of sales tax and reduction in interest r= ate. It appears that DPC will not offer any reduction or concession offered= in the tariff or the rate of returns.=20 Reduction in project debt: When the DPC loans were sanctioned, the prime le= nding rate was around 14 per cent and the power projects were offered loans= at 3-3.5 per cent over the PLR. Now the PLR is around 12.5 per cent and th= e interest rates for the power sector will be 15-15.5 per cent. Effectively= , there would be a reduction of around 1.5-2 per cent in the interest rate= . However, it must be noted that the same refinancing opportunity is good f= or every other Indian project. If the Centre permits refinancing for DPC, i= t should permit projects in other States as well to be refinanced. If it d= oes, that will be at a considerable loss to the FIs such as the IDBI, the = IFCI and the ICICI.=20 To achieve higher output and identify power purchasers outside Maharashtra: This is not a tariff-reduction exercise. In fact, this would help DPC impro= ve its profits and cash flows under the present PPA. DPC has a single-point= tariff whichconsists of a fixed and a variable charge. Higher the output t= he DPC recovers, higher the fixed charges and higher the profits. Thus, wit= hout any significant changes in the existing PPA, this step would help DPC,= and put more States in trouble. Perhaps, the renegotiating committee want= s other States to sink as well with Maharashtra.=20 To separate the LNG project from the power project: This is a welcome step.= While it would reduce the tariff for the power project, it would not remov= e the financial hurdles for the State and the Centre, which would continue = to be paying more for the LNG project and guaranteeing the loans of the LNG= project. DPC is now recovering all the cost of the LNG project from the Da= bhol project, which will consume only around 2.5 million tonnes of LNG, whe= reas the capacity of the LNG project is being upgraded to five million tonn= es. Therefore, the mere segregation of the LNG project without readjusting = the PPA or delinking the sovereign guarantee obligations does not serve the= purpose. It would help DPC and not the people of Maharashtra.=20 To exempt sales tax on naphtha: This is like robbing Peter to pay Paul. As = IOC suggested, if $290 is the price of naphtha per tonne, it works out to R= s 13,630 (one $ =3D Rs 47). Given that DPC gets paid fuel cost per kWh at 2= ,000 kcal (heat rate) and the naphtha has a heat value of 11,000 kcal, one = tonne of the fuel will give DPC fuel price for 5,500 kWh, that is at the r= ate of Rs 2.48 per kWh for naphtha. If sales tax of 16 per cent is exempte= d from this price, the naphtha price drops to Rs 11,750 and the per kWh fue= l price for DPC drops to Rs 2.14 from Rs 2.48. IOC expects to supply 1.2 mi= llion tonnes of naphtha for producing 6,600 million kWh and the sales tax e= xemption effect will be Rs 225 crore (0.34 per kWh).=20 What is DPC`s contribution in this reduction? On the same account, every po= wer project would seek to reduce the sales tax on the fuel they use. Rememb= er that if the State sacrifices revenue in one area, it will recover the lo= ss through some other taxes. When the current trend is to remove subsidies = in all the sectors, the State and the renegotiating committee are opening u= p new subsidies to support DPC. An alternative The renegotiating committee = should reduce the real tariffs from DPC`s fixed costs, rather than making = cosmetic changes in the taxation structure. The following steps are needed:= =20 To remove the corporate veil protecting the DPC project documents: The publ= ic at large are paying for the revenues of DPC and no government can have t= he right to keep a veil of secrecy on the documents. This will help the pub= lic at large and the experts in the industry understand the implications an= d suggest viable alternatives.=20 To change DPC tariff formula from a single-part to two-part tariff: The Cen= tre has a two-part tariff policy which stipulates recovery of fixed cost un= der certain circumstances. The most critical issue of this policy is the re= covery of all fixed costs at a capacity utilisation (PLF) at 75 per cent. D= PC has adopted a single part tariff system where the fixed costs are paid f= or all capacities and, thus the return of DPC increases as the capacity uti= lisation rises. While this method may promote efficiency, DPC has tied the = State in tight knots with this higher capacity utilisation and, will make v= ery high levels of profits. Therefore, it is essential that the single-part= tariff is renegotiated at lower levels or better still scrapped and two-pa= rt tariff adopted.=20 Renegotiating the station heat rate: DPC has a station heat rate of 2000 kc= al per kWh. Thus, for every unit of electricity it produces the fuel -- nap= htha " it is reimbursed to DPC at the rate of 2,000 kcal per kWh. At $290 p= er tonne (Rs 13,630 at one $ =3D Rs 47) of IOC price this works out to Rs 2= .48 per kWh. DPC uses GE 9FA machines-gas turbines which burn naphtha at a= round 1,700 kcal per kWh. In other words, DPC uses 1,700 kcal of naphtha a= nd gets paid for 2,000 kcal. Thus, it spends Rs 2.11 per kWh on fuel but ge= ts paid Rs 2.48 per kWh, making a profit of Rs 0.37 for every kWh. On 2,100= MW at 80 per cent capacity, this is a whopping Rs 550 crore. While there m= ay be technical grounds to pay at a level higher than 1,700 kcal due to con= siderations of part load, there is no justification for paying at 2,000 kca= l. In fact, the Centre and the CEA as well as other States have been succes= sfully forcing all power producers to reduce from the 2,000 kcal levels whi= le Maharashtra has not been able to do this. This is a key issue in negoti= ations.=20 To source naphtha only from domestic sources:=20 India has a surplus of naphtha as of now and there is no need to import it.= DPC should be forced to buy fuel only from domestic sources so that the pr= ofits remain with domestic companies, and not allow DPC to make higher prof= its of fuel handling.=20 What if renegotiation fails?=20 DPC will not agree to changes in the PPA as it would feel that it is a sign= ed and sealed document. Maharashtra may look at cosmetic changes, and may m= ake sacrifices to reduce the tariff. But in the long run, the contract will= run aground because of the inability of the State Government to use and pa= y for the power produced by DPC. Given the background of Enron worldwide, i= t would press ahead with its perceived advantages -- legal and contractual.= It is better for the State to ready a back-up action plan. The following l= ine of action is suggested: * To terminate the PPA and other project contracts and give notice to Enron= to wind up operations;=20 * To inform the lenders, the beneficiaries of the sovereign guarantee, that= the Centre will pay up its commitments. Perhaps, this may involve setting = up an escrow account and placing sufficient debt reserve funds that the len= ders may request, pending final payments;=20 * To quickly move towards an arbitration process primarily to determine the= amounts payable to Enron towards contract termination;=20 * To initiate an international competitive tendering process, with the perm= ission of the lenders, to sell the power project and the LNG terminal as in= dependent projects -- the process should also permit bids from Indian compa= nies;=20 * To make a serious effort to complete the bid finalisation and selection o= f the successful bidder in two-three months;=20 * The bidding process should have two parameters for the bidders to quote:= =20 a) tariff payable to the bidder for the next 20 years (in the case of LNG t= erminal -- price of gas on long term basis);=20 b) price for the assets;=20 c) The bid would attract several international power players including Amer= ican companies for the power and the LNG projects and the bids offered will= be attractive. Also Indian companies or consortia would line up for the bi= d;=20 d) Simultaneous with this exercise, as soon as determination of amounts pay= able to Enron becomes clear, to place the funds so determined and accepted = with an escrow agent acceptable to Enron;=20 e) To set up an investigating team to go into the approval process to deter= mine whether there has been any corrupt practice in the process of granting= approvals. There is a Supreme Court case (filed by CITU) pending decision = on charges of corruption. The investigating team to focus, with the coopera= tion of the US Government, on the issues relating to Foreign Corrupt Practi= ces Act (FCPA) of the US. Violation of the FCPA by any American corporate i= s a serious issue attracting criminal prosecution. There can be a time boun= d investigation;=20 f) To proceed with the prosecution of all people concerned if found guilty = " if Enron is found guilty the compensations may not be payable and the US = law agencies will step in to prosecute Enron;=20 j) If Enron is not found guilty, to pay the monies due to it by releasing t= he amounts in escrow. By this time the asset takeover and the debt repaymen= t issues would have been resolved;=20 k) Conservatively, it is believed that there would be an ultimate gap of $1= ,000 million (Rs 4,700 crore at one $ =3D Rs 47) after the assets are sold = and debts transferred to the new owners. It is suggested that the State flo= at a public debt issue for paying this to Enron and levy an `Enron Cess' to= recover the loss and repay the debt issue over the next 15-20 years. At a= return of 10 per cent per annum on Rs 4,700 crore over the next 15 years a= nd assuming that 100 per cent of the loss is recovered from the 2,100 MW pr= oject and assuming an 80 per cent PLF, the `Enron Cess' per kWh of energy p= roduced will be Rs 0.42.=20 But will the Central and State governments have the political will to force= this issue?=20 (The author is a power-finance consultant.)=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE, Thursday, May 10, 2001 Centre to back Maharashtra on tariff talks with Enron THE Centre has conveyed that it would support the Maharashtra Government on= the contentious issue of tariff renegotiations with Enron for power purcha= se from Dabhol Power Company (DPC). Talking to newspersons here on Wednesda= y, the Union Minister for Power, Mr Suresh Prabhu, said the Centre had alre= ady appointed the Solicitor-General of India as its nominee in the panel se= t up by the Maharashtra State Government headed by Mr Madhav Godbole to ren= egotiate the terms of the power purchase agreement. Enron's executives were= due to meet the panel on May 11 in this connection, he added.=20 Replying to questions on Enron's proposals to exit from DPC, he said that n= either the Maharashtra Government nor Enron had conveyed their desire to ex= it from DPC. ``We will support the State Government,'' he emphasised. He sa= id that the Centre was not in a position to intervene in the matter since i= t was for Enron to take a decision on the issue. However, the Centre's coun= ter guarantee liabilities in DPC would be confined to the extent of the Sta= te Government's payment defaults. Earlier speaking at the inauguration of C= II institute of quality, he said that the Centre's new focus was on conserv= ation of power rather than adding fresh capacity.=20 The Karnataka Chief Minister, Mr S.M. Krishna, who was also present, said t= hat WTO's impact on the agriculture sector needed to be addressed and said = that the Prime Minister should call a meeting of the Chief Ministers to dis= cuss the outcome of the WTO and future steps that needed to be taken. He ad= ded that the Congress had initiated reforms -- liberalisation and globalisa= tion -- and there was no intention of retreating on them. However, it was n= ecessary to have a mid-term appraisal on them.=20 Dr K. Kasturirangan, Chairman, Indian Space Research Organisation said,``Be= hind every successful company is a quality culture, and that in the unforg= iving environment of space strict quality awareness was very essential and = any violation would mean that we have to pay heavily in space.'' He added t= hat space had given to the world configuration, control and management and = in the Rs 1,000 crore GSLV programme, over 10,000 computer simulations had = been done in th last six-seven years, before it was considered flight worth= y. Almost 1000 major reviews were done and input collected not only from se= nior engineers, but from youngsters too, ``as their minds are fresh. We wor= ked towards transparency and fairly and frankly exchanged ideas. Around hal= f a million a A-4 size papers documentation was done on the programme,'' he= added.
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