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THE HINDU BUSINESSLINE Friday, May 11, 2001, http://www.hindubusinessline.com/stories/041156ju.htm DPC-MSEB slugfest -- Needed a conciliatory approach , Uttam Gupta=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD Friday, May 11, 2001, http://www.business-standard.com/today/state1.asp?men= u=3D32 DPC mounts pressure on lenders to terminate PPA , S Ravindran in Mumbai ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 11, 2001, http://www.economictimes.com/today/11infr02.htm Godbole panel can renegotiate PPA ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD Friday, May 11, 2001, http://www.business-standard.com/today/state4.asp?Men= u=3D32 Third Front may seek probe panel on DPC project=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 11, 2001, http://www.financialexpress.com/fe20010511/news4.html MSEB, state want rebate issue resolved before arbitration, Sanjay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 11, 2001, http://www.financialexpress.com/fe20010511/news2.html Offshore lenders to skip Godbole panel meeting today , Sanjay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 11, 2001, http://www.financialexpress.com/fe20010511/news1.html Inter-ministerial panel to assist PPA renegotiations , Anupama Airy ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ASIAN AGE Friday, May 11, 2001, http://www.asianageonline.com/ Centre rejects Enron's proposal ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ASIAN AGE Friday, May 11, 2001, http://www.asianageonline.com/ 'Talks with Enron on tariff a fraud', Olga Tellis=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 11, 2001, http://www.economictimes.com/today/11edit05.htm Power, populism and lost potential, Ajay Jindal=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE Friday, May 11, 2001, http://www.hindubusinessline.com/stories/1411562d.htm Dabhol: Back to the negotiation table , Dinesh Narayanan=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE INDIAN- EXPRESS Friday, May 11, 2001, http://www.indian-express.com/ie20010511/nat19.html Why disgraced Customs chief took 'secret' flight with Enron, Pranati Mehra ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- AFTERNOON Friday, May 11, 2001, http://www.afternoondc.com/ MSEB workers' agitation against Enron=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 11, 2001, http://www.economictimes.com/today/11comp02.htm Enron to relocate DPC managers abroad, Anto T Joseph=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE, Friday, May 11, 2001 DPC-MSEB slugfest -- Needed a conciliatory approach , Uttam Gupta=20 THE ROW between Dabhol Power Corporation (DPC) and the MSEB/Maharashtra Gov= ernment/Union Government has reached a flashpoint. At a DPC board meeting i= n London, the Managing Director and President/CEO were authorised to take a= decision to wind up the project at an ``appropriate time''. Though the DPC= team agreed to meet the Godbole Committee on re-negotiating the terms of t= he Power Purchase Agreement (PPA), things are far from clear.=20 The project's termination will place huge payment liabilities on the MSEB/M= aharashtra Government/Centre by way of compensation claims (running into se= veral thousand crore rupees), the aggravation of the power deficit in the S= tate, increased NPAs in financial institutions, adverse impact on companies= /units with business links with DPC, loss of employment and attendant socia= l problems. It may be recalled that DPC was the only project, among the eig= ht fast track IPPs that has seen the light of day. If this is also wound up= , it will have a debilitating effect on foreign direct investment (FDI) whi= ch has already suffered on account of policies and delays in various approv= als/clearances. Enron is currently implementing an ambitious project to set= up a terminal for handling imported LNG. Apart from replacing naphtha in D= PC-I, this will be used as fuel in phase II which is likely to be commissio= ned next year. The project involves import of 5 million tonnes of LNG, 2 mi= llion tonnes of which will be used by DPC I and II and the remainder will b= e made available to other projects, including the fertiliser sector.=20 Due to a severe shortage of domestic gas and the exorbitant cost of other f= uels such as naphtha, imported LNG is a favourite considering its low cost.= In the fertiliser sector, the ERC has recommended that all naphtha and fue= l-oil-based plants switch to imported LNG to improve cost-competitiveness i= n the emerging liberalised environment. LNG will also help gas-based units = feeling the pinch of short supply domestically. Against this backdrop, if t= he DPC power project is terminated, a major source of guaranteed offtake of= LNG on a long-term basis will disappear from the scene. For, it is not lik= ely that the LNG project will be taken up. This will affect the overall ava= ilability of LNG, hurting the fortunes of industries such as fertilisers an= d power. The genesis of the present crisis lies in the high cost of power s= upplied by DPC and the MSEB's inability to pay its bills. It is the inevita= ble outcome of a cost plus system of power tariff -- both with respect to t= he fixed and the variable component -- incorporated in the PPA. The MSEB/Ma= harashtra Government signed the deal with eyes open and the Centre also pro= vided a counter-guarantee!=20 Having consciously become a party to the deal, things need to be taken in s= tride. It would be imprudent, at this stage, to lay the blame for the conse= quential problems on DPC/Enron. Unfortunately, our side has adopted a confr= ontationist attitude, amply reflected in the MSEB's decision to lodge a cla= im for Rs 401 crore with DPC because the latter could not supply electricit= y for a couple of hours in January. Considering that the termination of th= e Dabhol project will be detrimental to Indian interests, a conciliatory at= mosphere should replace the present mood of mutual bitterness. The setting = up of a committee on re-negotiating terms with DPC is a good thing. But the= re is also the need to avoid frequent outbursts, charges/accusations and so= on.=20 In the circumstances, the vexatious problem of high cost power should be ap= proached in two parts. First, we need to carefully assess the role of the M= SEB/Maharashtra. Second, the need for necessary adjustment/changes in vario= us charges to reduce the tariff should be impressed upon DPC. Needless to s= ay, both parties should take that action concurrently in a spirit of mutual= accommodation. We need to clearly understand that under the PPA, the fixe= d charges have to be necessarily paid irrespective of the quantum of power = drawn by the MSEB. For DPC Phase-I, these are Rs 1,050 crore per annum or R= s 87.5 crore a month. After the commissioning of Phase-II, the charges will= be Rs 3,500 crore per annum or Rs 292 crore a month.=20 Depending on the quantum of the power drawn, the incidence per unit basis w= ill vary. Thus, at 80 per cent generation capacity of DPC-I, or 5,186 milli= on units per annum, the fixed charges will be Rs 2.02 per kWh. For both DPC= -I and II, at 80 per cent load, or 15,067 million units per annum, these wi= ll work out to Rs 2.32 per kWh. If, on the other hand, the offtake of power= is only a third of the generation capacity, or 2,139 million units on an a= nnualised basis, then for DPC-I the fixed charges would be Rs 4.91 per kWh= . Under a similar scenario, with the operation of Phase-II, the per unit in= cidence would be Rs 5.63 per kWh.=20 DPC-I now uses naphtha as fuel. On the basis of its prevailing price, the v= ariable cost component works out to about Rs 2.2 per kWh. Together with fix= ed charges corresponding to drawal at 80 per cent load, the total cost to t= he MSEB is Rs 4.2 per kWh. However, if the offtake is restricted to a thir= d, the cost would zoom to Rs 7.1 per kWh. From next year on, the entire pro= ject would operate on imported LNG. This being cheaper ($3.75 per million B= TU against about $6 per million BTU for naphtha), the variable cost will go= down to Rs 1.3 per kWh. Together with fixed charges at 80 per cent, the to= tal cost of power will be Rs 3.62 per kWh. In the event only a third of the= capacity is drawn, the cost will zoom to Rs 6.93 per kWh. Clearly, it is p= ossible to contain the cost of power supplied by Dabhol at Rs 3.5-4 per kWh= if, the MSEB draws the optimum load. There seems to be no other way of bri= nging about a meaningful reduction in cost, other than a significant increa= se in the offtake of electricity by the MSEB from the present low level.=20 The demand-supply scenario for power in Maharashtra justifies the accommoda= tion of entire supplies from DPC at optimum load. For 2001-02, the total re= quirement is estimated at 70,127 million units. Supply from MSEB's own gene= rating stations and sources other than DPC being about 57,000 million units= , there will still be an uncovered gap of 13,127 million units, which is hi= gher than the supply from DPC-I at 80 per cent load. Notwithstanding the a= bove, if the MSEB is not able to lift power at the optimum load, it is beca= use its precarious financial health limits its ability to make payments. Th= is, in turn, is because of supply of electricity to agriculture and househo= lds at subsidised rates and high transmission and distribution losses (pow= er theft). Without tackling these two problems on a war footing, we cannot = easily come out of the Dabhol imbroglio.=20 Besides yielding benefits by significantly lowering per unit cost, the abov= e steps will also help build confidence with DPC, especially considering i= ts consequential ability to optimally utilise generating capacity. The nego= tiating committee can then leverage this to seek from DPC a meaningful redu= ction, particularly in the fixed charges. Under the PPA, all liabilities to= wards foreign capital -- servicing of loans and return on equity -- are den= ominated in dollars/forex. In the event of the rupee's depreciation, this a= utomatically results in the increased burden on the MSEB. This is contrary = to established business practices the worldover and needs to be rectified b= y freezing all foreign currency liabilities with reference to the exchange = rate prevailing at the time of commissioning of the project. Likewise, with= fuel cost, efforts should be made to protect the variable component of tar= iff from the rupee's depreciation. The DPC should be in a position to absor= b its effect especially considering that the actual fuel consumption is low= er than the norm used for arriving at variable cost.=20 (The author is Chief Economist, Fertiliser Association of India. The views = expressed are personal.)=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD, Friday, May 11, 2001 DPC mounts pressure on lenders to terminate PPA , S Ravindran in Mumbai The Enron-promoted Dabhol Power Company (DPC) has stepped up pressure on le= nders to permit it, without further delay, to terminate the power purchase = agreement (PPA) with the Maharashtra State Electricity Board (MSEB). The co= mpany has reportedly told the lenders that there should not be any delay in= serving the termination notice as the engineering procurement and constru= ction (EPC) contractor Bechtel has threatened to pull out of the project on= June 11. Bechtel holds a 10 per cent stake in the project. The lenders ar= e, however, not yet ready to back DPC's demand. They are of the opinion that phase two of the project should be completed f= irst. The MSEB decision to clear the April bill (Rs 139 crore) has also com= e as a shot in the arm for lenders. "Financially, phase two is 93 per cent= completed while 97 per cent of the physical construction is over. The lend= ers want the project to be completed without any cost and time overrun. At = this juncture, if the PPA termination notice is served, it will preclude a= ny further disbursements by the lenders," a source familiar with the develo= pment said. A DPC spokesperson declined to comment on the development. A fu= lly completed phase two will be in the lenders' interest as they will inher= it the project if it is terminated.The lenders have first charge on the as= sets of DPC. A fully completed project will enable the lenders to find a bu= yer and secure a better valuation.=20 Earlier, on April 23 and April 24, DPC had sought the consent of its consor= tium of lenders at a meeting in London to terminate the PPA. This meeting w= as held amidst the backdrop of MSEB defaulting on its payments to DPC and = the Centre failing to honour the counter guarantee for the December bill o= f Rs 102 crore. The meeting witnessed a sharp division in the ranks of the = domestic and offshore lenders. The offshore lenders were all for backing th= e DPC move as their exposure is covered by the Centre's counter guarantee,= if the PPA and project are terminated. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 11, 2001 Godbole panel can renegotiate PPA MAHARASHTRA chief minister Vilasrao Deshmukh today said the views held by E= nron-promoted Dabhol Power Company on renegotiating PPA with MSEB would be = conveyed to the state government by the Godbole committee, which is slated = to meet us energy major representatives on Friday. Talking to reporters aft= er a cabinet meeting here, Deshmukh said the state government had empowered= the Godbole committee to renegotiate the controversial power purchase ag= reement on its behalf with DPC. When his attention was drawn to the reporte= d stand taken by DPC that its representatives would be attending the meetin= g convened by the Godbole committee as a mere courtesy and there was no que= stion of renegotiating PPA, the chief minister said the official view held = by Enron would be communicated to the government after the discussion. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD, Friday, May 11, 2001 Third Front may seek probe panel on DPC project=20 The coordination committee meeting of all the Democratic Front allies in th= e Maharashtra government scheduled late on Thursday night would witness t= he presentation of a written request by Third Front allies seeking the set= ting up of a commission of enquiry to probe the Dabhol Power Company (DPC= ) power project. Senior Third Front leaders after a meeting held Thursday a= fternoon decided to place their thus far oral demand in writing to be prese= nted to chief minister Vilasrao Deshmukh in the meeting.A senior Janata Dal= leader said: "The first letter that will seek the setting up of the commis= sion of enquiry bears the signatures of Janata Dal leader Nihal Ahmed, PWP = leader N D Patil, CPMleader Ashok Dhavle and Republican Party of India lead= er Sumantrao Gaikwad. Other leaders who were not present for the afternoon= meeting, though unable to pen their signatures, have also expressed their = consent to the written missive." ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 11, 2001 MSEB, state want rebate issue resolved before arbitration, Sanjay Jog THE state government and the Maharashtra State Electricity Board (MSEB) h= ave asked the Dabhol Power Company (DPC) that the question of payment of Rs= 401.62-crore rebate should be resolved at the outset before any of the o= ther arbitrations are proceeded with. The state government and the MSEB in = their separate replies to an arbitration notice served by the DPC said th= at such resolution of the arbitration between the DPC and MSEB regarding pa= yment of rebate for the misdeclaration and default on the availability of p= ower on January 28 would "consequently have a substantial and material bear= ing on the outcome of the other arbitrations." The state government and MSEB said that the Dabhol power plant had the capa= bility to ramp up to a 100 per cent load from a cold start within a perio= d of 180 minutes. The DPC, by an availability declaration declared its "dec= lared baseload capacity" to be 657 MW for each hour on January 28, 2001, = MSEB by a despatch instruction at 3 PM instructed DPC to deliver its final = declared baseload capacity of 657 MW from 6 PM. "However, the actual gen= eration of power did not achieve the declared baseload capacity within the = stipulated period. This failure on the part of DPC and its incapability t= o adhere to and perform according to the dynamic parameters and operating c= haracteristic entitled MSEB to the rebate envisaged under the power purchas= e agreement (PPA)," state government and MSEB said. They have further said that under the contractual obligations, the DPC is d= uty bound to compute the rebate and to duly adjust the amount at the end = of four months block ending in January, May and September. "The DPC has fai= led to compute account for and adjust the rebate for the shortfall in decla= red base load availability on January 28 in its billing statement of Januar= y 2001. Thus DPC has committed a breach of their contractual obligations by= not giving the rebate to MSEB," the state government and MSEB have said in= no uncertain terms. The state government said that the DPC's decision to invoke state guarantee= for the outstanding amount of December bill (Rs 102 crore) and January bil= l (Rs 111 crore) was "baseless, wrongful and unjustified." Moreover, the am= ounts claimed by DPC towards December and January bills are not due and pay= able in the present circumstances when disputes and differences have arisen= between the DPC and MSEB in regard to the payment of rebate. The state gov= ernment denied that it has breached any of the obligations arising under th= e state guarantee, neither has it renounced and repudiated its obligations.= =20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 11, 2001 Offshore lenders to skip Godbole panel meeting today , Sanjay Jog THE representatives from Enron Corp, General Electric, Bechtel from US, off= -shore lenders and liquified natural gas suppliers from Oman and Abu Dhabi = will skip the Madhav Godbole renegotiation committee's meeting scheduled to= day. Instead, the Dabhol Power Company, which has already agreed to appear = before the Godbole committee as a matter of courtesy without any intent to= submit proposals with respect to tariff reduction, would be represented by= the Enron India managing director K Wade Cline, DPC president and chief e= xecutive officer Neil McGregor, senior vice-presidents Mukesh Tyagi and San= jeev Khandekar and chief financial officer Mohan Gurunath, along with a bat= tery of company lawyers. Curiously, none of the other DPC board members comprising Enron, General El= ectric, Bechtel and foreign lenders will fly down from Houston to partici= pate at today's meeting. Instead, the offshore and Indian financial institu= tions would be represented by former executive director of Industrial Devel= opment Bank of India AG Karkhanis at the meeting. Mantralaya sources told T= he Financial Express that Friday's meeting would be a ceremonial one as no = hard discussions would take place. However, the state government and the M= SEB have worked out a combined strategy to press for cuts in the Dabhol tar= iff and equity returns linked to the dollar, and above all, the Centre's in= tervention for the disposal of Dabhol phase-II. The state government and MSEB are believed to have said that they were not = against continuation of its contractual agreement for Dabhol phase-I, provi= ded the company agrees to rework tariff and share equity earning with the M= SEB. However, for Dabhol phase-II, the Centre would have to step in and bea= r liability. In a related development, state chief secretary V Ranganathan = on Thursday briefed the state governor Dr PC Alexander on the ongoing Dabho= l crisis at an hour-long meeting. The state has also written a fresh letter= to the government, seeking its active participation during renegotiation a= nd for solving the Dabhol impasse. Mr Ranganathan is believed to have made = it clear that the state does not require the Dabhol power, except 300 MW or= so at present against the contractual agreement for 90 per cent power gene= rated from the DPC. The chief secretary has also pointed out that the Dabho= l project, in its present condition, cannot be sustained by the state gov= ernment and hence the Centre's assistance is quite essential. Mr Ranganathan is believed to have stressed the need for a renegotiation wi= th the DPC to find out solutions as the burden on account of fixed charge= would increase on MSEB from June this year.The liabilities would increase = from the present Rs 95 crore to Rs 191 crore in June to Rs 238 crore in Oct= ober and Rs 475 crore in January 2002. The MSEB would have to shell out Rs = 544 crore at 90 per cent plant load factor in January 2002 to DPC. Mr Ranga= nathan seems to have told the state governor that these levels of liabiliti= es would be unbearable for both MSEB and the state government.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 11, 2001 Inter-ministerial panel to assist PPA renegotiations , Anupama Airy THE Centre has decided to constitute an inter-ministerial committee having = senior officials from the ministries of finance, law, petroleum, power and = surface transport, for providing inputs to the re-negotiation group recentl= y set up by the Maharashtra government to recast the state electricity boa= rd's PPA with the DPC. This decision was taken at a recent meeting between = finance minister Yashwant Sinha and power minister Suresh Prabhu. This me= eting was convened to discuss critical issues pertaining to invocation of = the Centre's counter-guarantee by the DPC. According to sources, this inter-ministerial committee would also brief the= Central nominee on the re-negotiation committee. Appointment of Solicitor= General Harish Salve as the Central nominee on the re-negotiation panel = was likely to be cleared soon and a finance ministry notification to this e= ffect was likely to issued by Friday, sources added. Sources also disclose= d that the finance ministry had turned down the request of the state gover= nment that the chairman of the Central Electricity Authority (CEA) be made = a permanent member of the re-negotiation panel. However, it was agreed that= a senior CEA representative would be part of both the inter-ministerial p= anel and would also be the Centre's nominee on the re-negotiation panel. The re-negotiation panel was set up to carry out discussions with DPC for r= educing tariff from the 2,184-MW first phase of the Dabhol project. These r= e-negotiations would mainly relate to the cost of delivered power as also o= n the exact quantum of power which can be absorbed by the state in the bac= kdrop of Dabhol phase-II nearing completion. The panel will also look into = the issue of wheeling excess power outside Maharashtra.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ASIAN AGE, Friday, May 11, 2001 CENTRE REJECTS ENRON'S PROPOSAL The appointment of third conciliator may deepen the controversy over the En= ron promoted Dabhol project with Centre turning down Dabhol Power Company's= plea for appointment of the third conciliator by London Court of Internati= onal Arbitration or International Chamber of Commerce to resolve the paymen= t dispute with Maharashtra State Electricity Board. The finance ministry re= jected the DPC proposal and put the view that the third conciliator should = be appointed by the two conciliators named by the Government of India and D= PC. Favouring appointment of an Indian for the job, Centre also rejected the DP= C demand that the third conciliator should not be a national of India or of= the US, officials said, adding that such a stipulation (about nationality)= is not absolutely necessary. Finance ministry conveyed to DPC that the app= ointment of the third arbitrator be left to the two conciliators or be sele= cted by an institution based in India like the Indian council of arbitratio= n or the International Centre for Alternate Dispute Resolution. Maharashtra= chief minister Vilasrao Deshmukh said the views held by DPC on re negotiat= ing PPA with MSEB would be conveyed to the state government by Godbole comm= ittee, which is slated to meet US energy major representatives on Friday. M= r Deshmukh said in Mumbai that the state government had empowered the Godbo= le committee to renegotiate the controversial power purchase agreement on i= ts behalf with DPC. Meanwhile, the Maharashtra government and state electricity boardhave refut= ed all charges levelled against them by the DPC in separate replies to the = four international arbitration notices slapped on them by Enron. The replie= s, which were dispatched to DPC on may eight by the state and MSEB, categor= ically deny the allegations mooted by the company, official sources said. "= Instead, it is DPC which has to adjust the amount from the Rs 401 crores pe= nalty slapped on it by MSEB for its February 28 default," the sources said.= The state government, which replied to three notices, including non-compli= ance of state support agreement and supplemental state support agreement, h= as said that "since MSEB had already denied DPC's charges over non-payment,= the question of the state paying on its behalf did not arise". Meanwhile, Swadeshi Jagran Manch convenor Ravindra Mahajan said the group w= ill be holding a seminar in Delhi at the end of May, in which "we will take= up the Enron issue with the Central government". ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ASIAN AGE, Friday, May 11, 2001 'TALKS WITH ENRON ON TARIFF A FRAUD', Olga Tellis=20 The discussion on tariff charged to the Maharashtra State Electricity Board= by the Dabhol Power Company between the renegotiating committee and Enron= will be based on flawed, fraudulent and inflated costs, Centre of Indian = Trade Unions claimed on Thursday. Enron's former managing director Rebecca = Mark who negotiated the Dabhol power project in the early nineties had off= ered the 10,000 MW liquified natural gas-based power project with regassif= ication at 4.9 cents per unit. Dabhol has been charging seven cents, a clea= r difference of two and a half cents or an additional Rs 2,000 crores per y= ear. The Centre of Indian Trade Unions which is in possession of a copy of = this letter questions the very basis on which the renegotiation committee i= s going to discuss tariff and said it can only be vitiated and can have ser= ious implications on any negotiations. Mr Vivek Monteiro, secretary Citu, Maharashtra told The Asian Age that "fra= udulent and flawed tariff calculations provide the base matrix for corrupti= on on a scale unprecedented in our nation's history. A one paise increase i= n Dabhol Power Company Phase II tariff translates into a Rs 17 crores extra= earnings. A rupee one difference in tariff translates into Rs 1,700 crores= per year. It must be remembered that the power purchase agreement is a 20 = year contract. So if this renegotiating committee brings down the project s= ay by Rs 500 crores per year it would still leave a difference between what= Dabhol Power Company is charging and what Ms Mark offered, a difference o= f more than Rs 2,000 per year, which leaves a lot of room for corruption."= So the issue as the Centre of Indian Trade Unions posts it is "how can yo= u negotiate on bogus figures? Therefore a judicial enquiry and proper finan= cial audit is where the whole process should start. Something illegitimate = cannot be negotiated upon," Mr Monteiro said. Mr Monteiro said the cost of the project is as yet undetermined. The projec= t does not have an approved financial package. As per Energy Review Commit= tee documents in the possession of the renegotiating committee, the project= does not have any approved financial package. The implications on the powe= r purchase agreement of an invalid tariff approval are extremely serious, s= aid Mr Monteiro. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 11, 2001 Power, populism and lost potential, Ajay Jindal=20 THE CURRENT Enron embroglio throws up two sad points: firstly, the power sector has achieved precious little in the ten years of = privatisation; and secondly, it is hard to figure out how India will ever = really seriously get into a higher economic growth orbit. Privatisation in = the power sector was launched with great hopes in the early 1990s. The gove= rnment realised two things: reliable and sufficient power supply is a prere= quisite for industrialised economies; and the government on its own was inc= apable of meeting expected future requirements.=20 India has always been (then and even now) a power deficit nation. Studies = constituted by the government in the early 1990s had shown a demand for add= itional capacity for about 10,000 MW per annum; annual capacity addition by= various central and state government organs and PSUs had generally been = in the range of 3,000-5,000 MW per annum. Hence, the government figured it = urgently wanted private sector to come in generation. Numerous schemes were= formulated. Liquid fuel based generation " a practice hardly followed anyw= here in the world " was also designed; these plants come up quickly and gov= ernment wanted power fast.=20 Larger, conventional projects "some with central government counter-guarant= ee like the Enron project " were planned as well. The clearance process was= simplified. Pit-head based schemes were encouraged and pit-heads found for= such projects. Coal import was liberalised for those wanting to import coa= l. In short, government showed apparent zeal and innovativeness, something = it is hardly known for. Nothing much has come of any of this. Fast-track, l= iquid-fuel, pit-head based, or mega power projects " all of these schemes l= ie by the wayside. Don't get fooled by the long list of projects awarded re= gulatory clearances or under the process of getting clearances.=20 What finally comes up is the key issue. Actual capacity addition by the pri= vate sector is less than 6,000 MW in all these years of privatisation. Ther= e is no improvement in the power supply situation in most states; it has on= ly worsened in some. The Enron controversy has probably driven the final na= il in the power privatisation coffin. It is hard to believe that any new gr= eenfield private project will ever come up for many years to come, particul= arly if it involves selling to the state electricity boards.=20 Financial closure will be impossible to achieve now as no lending agency or= financial investor can be expected to participate. So we are now back to h= oping that the government sector and NTPC can measure up to the task ahead.= The irony is that the government probably under-utilised the capacity addi= tion potential of some of its own resources while it focused on getting pri= vate players in. In the latter part of the '90s, the government did realise= the going the generation way was the wrong path, improving financial and o= perational health of distribution was more important. Given India's vast si= ze, many states and thus mane SEBs, and muddled politicians, this is a her= culean task. Even assuming political opinions were all streamlined, distri= bution reforms would take at least a decade to play through " remember, tar= iff rationalisation has to occur. With the reality that political masters w= ill continue populist policies, it is difficult to figure out when the SEBs= will become financially viable. SEB losses are mounting with every year ev= en now.=20 So there we are, all ready to drive in a car with four flats. With a core i= nfrastructure sector sinking deeper in the mire (not to mention no progress= in certain other infrastructure sectors as well), just how is Indian econo= my going into a higher growth curve? Unless reliable and cheap infrastructu= re is in place, Indian industry will remain uncompetitive except for a few= lucky sectors like the knowledge-economy ones. Going into a higher growth = orbit also needs higher rates of investment, some of which needs to come fr= om FDI. The Enron issue could also deter some future FDI, for example in po= wer distribution. A multiple whammy, indeed.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE, Friday, May 11, 2001 Dabhol: Back to the negotiation table , Dinesh Narayanan=20 MANY turbulent years later, when Enron sits across the negotiating table to= morrow, several people would remember the day it stepped into the ``liberal= ised'' India, promising power, growth and greenbacks. They would also remem= ber 1995, when Ms Rebecca Mark, the high-profile go-getter of Enron, talked= out the ``sinking project clear out of the Arabian sea''. Undoubtedly, thr= oughout the decade it has been here, Enron has shown tremendous tenacity an= d stamina in completing the Dabhol power project. And now, just as the stac= ks of the second phase of the project were about to begin spewing smoke, th= e players are back at the table -- ``let's talk what's wrong''. This time, = however, Enron makes its ``courtesy visit'' to the Godbole panel knowing fu= lly well it can afford to talk holding an axe over the project. In 1995, wh= en the Shiv Sena Government cancelled the DPC project, Enron pulled arbitra= tion and simultaneously started renegotiating the power purchase agreement = with the Negotiating Group of the Maharashtra Government. Several``hard bar= gains'' later, the project was revived with a ``$330-million reduction in c= apital cost and a 201-MW increase in the gross output''.=20 However, nothing had changed fundamentally and most of the ``problems'' con= tinued to plague the project. The negotiation details were not available an= d only a summary report was given. Even though there were protests, and cas= es filed against the company, the project went on and things quietened for = a while. That is, till phase I of the plant went on stream and MSEB started= paying through its nose for the power purchased (or not purchased). As one= anti-Enron activist put it: ``The enormity of the trap fully manifested th= en.'' Inevitably, the board defaulted and that triggered off another chain = reaction. It has come a full circle to arbitration, conciliation and negoti= ation. However, this time around it appears Enron has the upper hand especi= ally since the damage wreaked will be most on Indian financial institutions= and Governments. The financial institutions are going ape because they had= committed funds to the project, not strictly considering its merits but b= owing to political pressure, say officials. They say that the Government ba= cking was ``instrumental'' in their taking the exposure. They want the proj= ect to continue because that is the best way for them to get their money ba= ck.=20 MSEB is really cheesed off because it is caught between carrying out the ``= social obligations'' of those in power and the rigours of doing business in= the open market. Adding insult to injury are the barbs of being inept and = unbusinesslike and talk of reform school.In the melee, the Centre -- the on= e player capable of making any decisive difference to the issue -- has main= tained more or less a studied silence. It is understood to be reluctant to = get too deep into the matter for fear of contracting another ``headache''. = It wants the other three -- the State Government, MSEB and DPC -- to thrash= it out among themselves.=20 But they want the Centre to talk shop. Enron does not appear interested in = hanging around running a multi-billion-dollar power plant, even though it h= as consistently denied so. It also has not categorically ruled out the sell= -out option. The end-game is getting more convoluted with all the players c= linging on to even the pawns. Enron has already said it does not agree with= the interim report of the Energy Review Committee headed by Dr Madhav God= bole, which had suggested some workable solutions, never mind if they were = really tough. Enron is hesitant to compromise on its returns, institutions = cannot reduce interest rates beyond a limit, MSEB is adamant on ``going by = the book'', and the Centre is mum. The going is getting tougher...the toug= h should get going. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE INDIAN- EXPRESS, Friday, May 11, 2001 Why disgraced Customs chief took 'secret' flight with Enron, Pranati Mehra CVC probes BP Verma's role in getting DPC import duty cuts, = =20 THE controversy surrounding the Enron-sponsored Dabhol Power Project (DPC) = is taking a new twist. Details of how some Customs officers, including disg= raced former Customs chief B.P. Verma, allegedly helped the transnational g= et import duty concessions are trickling out. The role of Verma, former chi= ef of the Central Board of Excise and Customs who is in judicial custody,= is being investigated by the Central Vigilance Commissioner for waivers r= esulting in cheaper imports for DPC's Liquefied Natural Gas (LNG) facility.= The role of Pune Customs Commissioner C.K. Kaloni is also under scrutiny. = Kaloni rejected his subordinate officers' objections in extending duty conc= essions to the LNG facility that DPC was putting together. The subordinate = officers had taken the stand that the LNG facility is part of material han= dling facility and has nothing unique about it to entitle it to duty benef= its. Though the recommending authority is the Union Ministry of Petroleum a= nd Natural Gas, Kaloni allegedly took the support of a Maharashtra Governme= nt sanction to justify the lower rate of duty. The Customs department had earlier denied concessions for the DPC's Naphtha= SPM (single-point mooring) project on grounds that it was only a material = handling project. The dispute was before the Commissioner (Appeals) when Ka= loni allowed the concessions to the LNG project. This and other concessions= by the Customs helped the DPC save around Rs 400 crore. Now where does Ve= rma enter the picture? Last year, Kaloni allegedly interfered in the depart= ment's efforts to add service charges to the value of the LNG equipment. Ju= st when the dispute was hotting up, Verma who was then DG, Central Economic= Intelligence Bureau (CEIB), and was angling for the post of CBEC chairman,= visited Pune, on an invitation from the Confederation of Indian Industry. While in Pune, he made a secret visit to the project site in Enron's choppe= r. There was nothing official about it. Immediately afterwards, Kaloni inst= ructed that loading of service charges to the value (of the equipment) be s= topped. Verma was accompanied to the project site by Kaloni and another ret= ired customs officer. Verma soon became chairman of CBEC. When contacted, J= immy Mogul, spokesman for DPC, said he did not want to comment on the issue= . DPC has been constructing the LNG facility for the last two years, includ= ing a jetty about two kms into the sea. The imported LNG is to be carried i= n liquid form to the storage tanks through pipelines from the jetty. After = regassification, it was to be used at the plant. DPC had made no secret of= the fact that only about 40 per cent of the LNG would be used for the Dab= hol plant and that the rest would be sold to other customers. Enron's own s= ubsidiary, MetGas, was setting up the LNG terminals, and therefore, in eff= ect, a separate commercial entity was benefiting from theconcessions in the= name of the power project. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- AFTERNOON, Friday, May 11, 2001 MSEB workers' agitation against Enron=20 The Maharashtra State Electricity Board Workers Federation (MSEBWF), which= is affiliated to the All India Trade Union Congress (AITUC), has proposed = to launch an agitation aimed at forcing the US power giant, Enron, to quit = Maharashtra. MSEBWF vice-president, Mr. A.D. Golandaz disclosed that a cent= ral executive meeting of the federation will be held today at Kolhapur to = finalise plans for the agitation against Enron. The meeting will be preside= d by the federation president, Mr. A.B. Bardhan.=20 Mr. Golandaz pointed out that MSEBWF was the first to come out against the = Enron project at Dabhol in 1993, predicting the consequences. It had taken = the initiative to form the Enron Virodhi Sangarsha Samiti (Maharashtra) whi= ch has been fighting against the project for the past four years. "What we = had said about Enron has now come true. It is time that the Maharashtra gov= ernment tackles over the first phase of the project and hands it over to th= e MSEB. The agreement with regard to the second phase should be cancelled,"= he said, adding that the agreement was totally in favour of Enron.=20 Drawing attention to the fact that the Madhav Godbole Committee has pointed= out numerous irregularities in the agreement, Mr. Golandaz suggested condu= cting a judicial inquiry into the project. "We insist that no compensation = is payable to Enron in the event of scrapping the deal," he said. Mr. Golan= daz further pointed out the high cost of Enron's power, which is presently = Rs. 8 per unit as against MSEB's rate of Rs. 1.40 per unit. He also express= ed dissatisfaction over chief minister, Mr.Vilasrao Deshmukh's insistence o= n continuing the project and stressed that the federation would continue a= gitating till Enron leaves the state. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 11, 2001 Enron to relocate DPC managers abroad, Anto T Joseph=20 WITH confrontation with the Maharashtra State Electricity Board deepening b= y the day, Enron is starting the process of re-locating senior officials to= its operations in other countries. Company sources said its multinational = parent is working towards absorbing manegerial talent at its Indiansubsidi= ary in its operations abroad. The company is expected to give a choice to i= ts remaining staff " whether to continue with the company abroad or opt for= a golden handshake. Many senior officials currently working with Enron are= planning to stay with the company, no matter which country they are re-lo= cated to. "Enron is a professionally-run company, and tops the chart of the= best-run global companies, annually brought out by Fortune. Unfortunately,= the company could not pursue its projects in India, and has decided to fo= ld up its operations in the country," said a senior Enron official, who ex= pects to be transferred either to Houston or London.=20 The whole process of re-locating the Indian staff is expected to be comple= ted within a month or two. An Enron spokesperson refused to comment on the= se developments. Company sources also said a new VRS is on the anvil for th= e Dabhol Power Company staff. The Houston-based energy giant has pulled out= of all its existing projects in India except the Dabhol power project, whi= ch is currently in the thick of controversy. The other group companies " Me= tgas (which was setting up a liquefied natural gas pipeline in Maharashtra = ), and Enron Broadband Solutions (which was laying an optic fibre cable ne= twork across the country) " have already virtually folded up operations. T= he other group company Enron Oil & Gas (India) which is a joint venture be= tween Reliance and ONGC, is currently in the process of selling its stake= .=20 Enron, which had earlier proposed to set up a few more power projects in In= dia, has already decided to drop these plans, after it ran into a series of= payment problems with MSEB. Enron has already got rid of around 50-60 peop= le by way of a successful voluntary retirement scheme. Enron India now has = a little over a dozen employees on its rolls. The focus of Enron Corp, whic= h occupies the seventh position on the Fortune 500 list in terms of revenue= s (with over $100 bn) has shifted to trading. A lion's share of its turnove= r came from its trading activities all over the world, especially in the US= market.
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