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Enron Mail |
THE ECONOMIC TIMES
Tuesday, May 15, 2001, http://www.economictimes.com/today/15econ03.htm MSEB refutes allegations by Enron, DPC, Girish Kuber=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/news2.htm= l Crucial meet today to finalise Centre's reply to DPC notices, Sanjay Jog The above article also appeared in the following newspaper: THE INDIAN EXPRESS Tuesday, May 15, 2001, http://www.indian-express.com/ie20010515/bus5.html Finance secy calls meet to review Dabhol situation, Sanjay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ASIAN AGE Tuesday, May 15, 2001, http://www.asianageonline.com/ Prabhu Will Discuss Enron In France, Ranvir Nayar=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/news3.htm= l Recast counter-guarantees to attract FDI, says report, Anupama Airy ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/corp11.ht= ml Merc to hear Prayas petition on May 16, Sanjay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS TODAY Tuesday, May 15, 2001, http://www.india-today.com/btoday/20010221/cf7.html Enron Switches Off ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE WEEK May 20, 2001, http://www.the-week.com/21may20/events13.htm Gridlock ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Tuesday, May 15, 2001 MSEB refutes allegations by Enron, DPC, Girish Kuber=20 THE MAHARASHTRA State Electricity Board on Monday in a letter to Enron refu= ted all allegations made against it by the company while invoking the polit= ical force majeure. Enron-promoted Dabhol Power Company on April 9 had invo= ked the political force majeure clause. DPC had indicated it was not in a p= osition to fulfil its contractual obligations to MSEB because of political= circumstances beyond its control. MSEB in a reply on Monday denied Enron'= s allegation of 'political circumstances' and said there was no reason why= it should have felt insecure. "Such a step was necessary under the Power P= urchase Agreement and related security documents to notify the board of 'ce= rtain events and to enforce our rights'," DPC had said. However, according = to MSEB, such a step by DPC was uncalled for. For DPC, invoking the force m= ajeure clause was necessary as 'certain events occurred that are beyond the= reasonable control of the affected party (DPC)'. MSEB has expressed surpri= se in a letter on Monday.=20 The energy major had dispatched the notice to MSEB, as an affected party, w= hich had been subjected to "concerted, deliberate and politically motivated= actions of state government, the Government of India and the Board, which = will have a material and adverse effect on DPC's ability to perform obligat= ions under PPA". "Given the cumulative effect of these political actions, D= PC determined that the political force majeure declaration is an appropriat= e mechanism for providing that notice, and that is an appropriate and nece= ssary step in protecting DPC and its stakeholders' rights," the statement = added. However, for MSEB this was 'yet another move' from Enron to avoid pa= ying Rs 402 crore penalty the MSEB has slapped on it for failing to supply = electricity as per the agreement. MSEB, in today's letter, reiterated its s= uggestion to adjust December 2000 and Januray 2001 bills, against the Rs 80= 0 crore penalty it has slapped on Enron for not supplying electricity as pe= r demand. MSEB has refused to pay DPC's December 2000 and January 2001 bill= s worth Rs 213 crore. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Tuesday, May 15, 2001 Crucial meet today to finalise Centre's reply to DPC notices, Sanjay Jog THE union finance secretary Ajith Kumar has convened a crucial meeting tod= ay to take stock of the Dabhol power imbroglio in the wake of completion of= three weeks' deadline given by the offshore lenders for continuing with th= e suspension of loan disbursement. The meeting will also finalise the Centr= e's reply to the arbitration and conciliation notices served by the Dabhol = Power Company (DPC). Mantralaya sources told The Financial Express that sta= te principal secretary (energy) VM Lal and Maharashtra State Electricity Bo= ard (MSEB) technical director Prem Paunikar will attend the meeting and app= rise Mr Kumar of the situation. The Centre, which has already appointed the= Law Commission chairman Jeevan Reddy as a conciliator and proposed to adop= t a conciliatory route, is expected to submit its replies before June 4 (wi= thin 60 days since the issue of notices on April 4). Mr Kumar is likely to review the situation in the wake of suspension of loa= n disbursement by offshore lenders since April 25. The overseas lenders had= agreed to show restraint in view of the Centre's indications of starting a= fresh dialogue and constituting a committee for this purpose comprising it= s representative. The overseas lenders had demanded that the Centre dischar= ge its guarantee obligations by honouring the December last payment within = a week and that MSEB should hold back preliminary termination notice to DPC= . The lenders also sought MSEB to immediately reactivate the escrow arrange= ments and asked it to arrange for increase in the amount of letter of credi= ts from Rs 133 crore to Rs 357 crore. They also sought initiation of negoti= ation within three weeks. The state government and MSEB have, however, stuck to their stand and have = refused to pay the December (Rs 102 crore) and January (Rs 111 crore) bills= to DPC on the grounds that it should be adjusted against the rebate of Rs = 401 crore served for misdeclaration and default on the availability of powe= r on January 28. The union finance ministry has also upheld this stand on t= he advise of the Attorney General of India. The Centre is expected to reite= rate this stand while replying to the arbitration and conciliation notices.= The state government and MSEB are also expected to reiterate their appeal = to the Centre for its direct intervention in resolving the Dabhol impasse. = The state government and MSEB have expressed serious concern over the state= ment by union power minister Suresh Prabhu that the Centre would clear thir= d-party sale of Dabhol power if MSEB and the company submit a joint proposa= l identifying a 'willing' buyer. The state government and MSEB are of the v= iew that the Dabhol- II power can be purchased by power-deficit states afte= r renegotiating at an "acceptable" tariff.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ASIAN AGE, Tuesday, May 15, 2001 Prabhu Will Discuss Enron In France, Ranvir Nayar=20 The fallout of the current controversy surrounding American energy major En= ron over its power project in Maharashtra will figure high on the agenda of= Union power minister Suresh Prabhu who is paying a four-day visit to Franc= e. Though Mr Prabhu is arriving in Paris on an invitation by the Paris-base= d industrialised countries' club, the Organisation for Economic Cooperation= and Development, he will also use the opportunity to meet French minister= s and power companies to seek French investments in the Indian power sector= . On Tuesday afternoon, Mr Prabhu will meet the junior French minister for = industry, Christian Pierret, to discuss bilateral matters, especially Frenc= h investments in the Indian industry. Mr Pierret is believed to be very kee= n to promote French investments in India and has expressed a keen desire to= visit the country. (IANS) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Tuesday, May 15, 2001 Recast counter-guarantees to attract FDI, says report, Anupama Airy THE Centre should eliminate existing unused counter-guarantees and free up= capacity for new projects in the generation and transmission and distribut= ion (T&D) sector. Moreover, in order to restore investors confidence and pr= omote foreign direct investment (FDI) in the power sector, the Centre shoul= d consider providing guarantees till the time the state electricity boards = (SEBs) become creditworthy.These are some of the recommendations made by le= ading investment banker, Credit Suisse First Boston (CSFB) in a recent pres= entation to the power ministry on 'Foreign Direct Investment in the Indian = Power Sector'. Says CSFB, "The current market situation in India is not att= ractive to investors, when compared with other alternatives." This, it said= , was mainly due to inconsistent regulatory framework, uncertain power purc= hase agreement (PPA) tariff structure, and the poor financial health of SEB= s, leading to payment concerns amongst the independent power producers (IPP= s) over there being no credit worthy offtaker of electricity. Taking note of the FDI experience in India's power sector, CSFB has noted t= hat little progress has been achieved even after 10 years of power sector r= eform and opening up of the sector to foreign investment. Besides this, it = added, there has been an uneven implementation of reform from state to stat= e."Enron's Dabhol plant was the only thermal 'mega project' under productio= n, construction, for which there lies a bumpy road ahead with extremely vis= ible ups and downs. This would have an impact on FDI going forward," notes = CSFB. As per CSFB, only a few power projects have been able to close or are under= construction and IPP development has virtually stalled. Moreover, nothing = has happened in the T&D sector. It attributed this to the weak financial po= sition of SEBs and the lengthy negotiation and re-negotiation process. Howe= ver, as against this, CSFB has pointed that energy market consolidation and= liberalisation has resulted in tremendous opportunities in developed marke= ts such as the US and Europe. Moreover, upcoming privatisation programmes i= n countries like Singapore, the Phillipines, Korea, Thailand and China, wou= ld directly compete with India for FDI.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Tuesday, May 15, 2001 Merc to hear Prayas petition on May 16, Sanjay Jog THE Maharashtra Electricity Regulatory Commission (Merc) would hear on May = 16 a petition filed by the Pune-based non-governmental organisation (NGO) P= rayas to declare the power purchase agreement (PPA) between the Maharashtra= State Electricity Board (MSEB) and Reliance Patalganga Power Ltd (RPPL) fo= r the 447-MW project as "null and void." Prayas claimed that MSEB and RPPL= had not sought prior approval for amending the PPA in February 2000 after = the establishment of Merc, and thereby have violated the Electricity Regula= tory Commission (ERC) Act, 1998, and also the Merc regulations.Through this= amendment, the MSEB has agreed to provide escrow cover and certain other b= enefits to the Patalganga project. These amendments were made in view of th= e state government's decision to withdraw its permission granted for the th= ird party sale to the RPPL and accord escrow cover. Prayas has prayed that MSEB should seek Merc's approval before entering int= o or amending or approving any power purchase-related contract such as PPA,= escrow agreement, fuel supply agreement and financing agreements with RPPL= or any other generating company. Prayas said the Merc, as per section 22 o= f the ERC Act, 1998, is empowered and dutybound to regulate the power purch= ase and procurement process of the transmission and distribution utilities,= including the price at which power shall be procured from the generating c= ompanies, stations or from other sources for transmission, sale, distributi= on and supply in the state.According to Praya, as per Merc Regulations 1999= , no. 73, any generating company proposing to enter into any agreement for = supply of electricity between the generating company and any buying party s= hall get the Merc approval for the tariff before entering into such contrac= t. "From these provisions in the ERC Act, 1998, and Merc regulations, 1999,= it is evident that no utility or generating company can amend the PPA with= out prior approval of Merc," Prayas opined. Prayas' petition deserves special importance, especially when the Madhav Go= dbole energy review committee has recently observed that neither the RPPL n= or the Ispat Group (promoter of the 1,082-MW Bhadravati project) would be a= ble to match the load requirements of Maharashtra, "as both are structured = as base load plants, with high plant load factor." The Godbole committee ha= d said that allowing RPPL and Ispat Group to proceed, "would only result in= a problem similar to DPC re-emerging in future years." The committee has t= herefore recommended that MSEB should defer its PPAs with RPPL and Ispat Gr= oup and re-examine then in accordance with a least-cost plan, in any case, = till such time as the demand levels in the state permit full absorption of = power generated from such independent power producers (IPPs). The Godbole c= ommittee has observed that the MSEB needs to justify its projections in mor= e detail as to the type of demand, before proceeding further with these pro= jects.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS TODAY, Tuesday, May 15, 2001 Enron Switches Off CEO Sanjay Bhatnagar's exit could well be one more indication that the US m= ajor has gone cold on India. Darkness at Noon Enron's India odyssey which started with the largest American FDI in India = is ending in a whimper. (Debojyoti Chatterjee) That was back in 1996. Rebecca Mark was the face of US energy major Enron i= n India then. Her charm swayed India's industry and wowed its politicians-f= rom reluctant union ministers to the Shiv Sena's firebrand leader Bal Tha= ckeray. Mark managed to wrest the controversial Dabhol Power Project back f= rom the jaws of defeat. Enron then was on a roll in India. Five years later= , today, it could roll off the map. Two years after Mark's own fall from gr= ace at Enron's Houston headquarters, the US major seems to be winding down = its once-ambitious Indian operations. Suggest that to Enron's spokesperson = in Houston and the answer is a terse: ''No comment.'' But tap Enron watche= rs and insiders and the picture becomes clearer. Enron's operations in Indi= a and in several other emerging markets seem to have become a major headach= e for the company. Want to know something else? These are the very projects= that Mark was gung-ho about. Surprised? Well, don't be. Not only is Enron miffed about its aggressive forays in eme= rging markets, most of which were spearheaded by Mark, but it's also weedi= ng out many of Mark's old faithfuls in the company. The most recent being = Sanjay Bhatnagar, the dapper former CEO of Enron India, who moved to head E= nron Broadband Services in Singapore as recently as in January 2001. Last f= ortnight, Bhatnagar quit the company. Just three months back, Bhatnagar's p= redecessor in India and an Executive Vice-President of Enron Corp, Joe Sutt= on, left the company. Sutton had played a key role in Enron's negotiations-= both with the Sharad Pawar government in Maharashtra and then with the Shiv= Sena government. A quick recap: Enron's Dabhol project was first cleared b= y the Pawar government in 1993; then when the Shiv Sena-BJP alliance came t= o power, it rescinded the approval on the grounds that the tariff for Enron= 's power was too high; finally, Enron mustered all its lobbying power and = got the project approved again. But controversy still dogs Enron and its Da= bhol project, the latest being the payments crisis involving Maharashtra St= ate Electricity Board (MSEB). Today, Dabhol seems like a $1 billion disaster and Bhatnagar's successor Wa= de Kline is not deterred from taking a tough stance in his negotiations wit= h the state government. Of course, some of that has to do with the fact th= at the current CEO of Enron, Jeffrey Skilling (who took over in 1999 from t= he high profile Kenneth Lay, who is still the company's Chairman) wants to= focus more on developed markets where the power sector is deregulated and = pegged to market forces. He is also credited with the huge success of Enron= 's Tyeside operations in the UK. One of the first things Skilling did was to review Rebecca Mark's business = decisions, many of which were fuelled by her penchant for tapping the poten= tial of developing markets. The fact that two of her projects-in India and = in Croatia-backfired did not help. Two other forays led by Mark-in Kuwait a= nd the Phillipines-had also come unstuck in the mid-nineties. Eventually, M= ark moved out. Cut to India and things look rough. Recently, the outgoing U= S ambassador hinted that the Dabhol project, which is the single largest di= rect investment from the US in India, may turn out to be a huge disappointm= ent. And observers don't rule out the possibility of the Houston-based ener= gy major selling out or invoking penal clauses in its contractual agreement= to exit what may have begun as a dream but has clearly ended up as a bad n= ightmare. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE WEEK, May 20, 2001 Gridlock Dabhol Project: If Enron pulls out the costs will be heavy for Maharashtra = By Harish Rao and Nandkumar Pudhari The endgame has begun. The decision of the foreign lenders to authorise bot= h Enron India's managing director, K. Wade Cline, and Dabhol Power Company= 's (DPC) president and CEO, Neil Mcgregor, to issue termination notices, as= and when appropriate, signals the first move in the decade-long power play= . But company Chairman Kenneth Lay has apparently vetoed the idea of withdr= awing from the project at least for now. Surprisingly, the government, whic= h should have been happy to see Enron's back, seems to be developing cold f= eet. A few politicians have gone on record saying that Enron's threatened p= ull-out will not be in the country's interest!=20 White elephant: Dabhol power plant The project was jinxed from the very beginning. There was no way the countr= y could absorb 2,200 MW of base load in the current scenario. The projectio= ns about the demand were clearly wrong. Pushing ahead for the second phase = was another mistake. The demand for Phase-II may not emerge for another six= to seven years. "While Enron has used every clause to its advantage, we ha= ve not done so," said Kirit Parikh, professor emeritus, Indira Gandhi Insti= tute of Development Research.=20 Over the last one year, Enron's image has taken a global beating, with the = company being forced to withdraw from Croatia, followed by its alleged inv= olvement in the California energy crisis. If Enron does ultimately pull out= , what is the liability of the state government? If merger and acquisition = and takeover rules are applied, Enron will have to be compensated for the p= roject cost as well as the discounted value of the future cash flow. It wil= l be a hefty sum that the state government can't afford. As for the salvage= able value of the project, the Enron Virodhi Andolan estimated the Dabhol P= roject's fair business value at Rs 350 crore. Enron's reported demand varie= s between Rs 1,800 and 2,800 crore. "Dabhol is a failed business model," sa= id Pradyuman Kaul of the Andolan. "The project cannot be valued on a going concern concept." Even if the Maharashtra State Electricity Board (MSEB) takes over the proje= ct, running it will be a challenge, considering the high cost of operation.= The already inflated Dabhol power project cost includes the LNG project co= st as well. DPC has set up a 5 million tonne LNG plant whereas the power pr= oject requires only 2.1 million tonnes. The Godbole committee recommended h= iving off the LNG project, so as to substantially reduce the cost of the po= wer project. Even if the project cost is brought down, the operating cost i= s already on the higher side. According to Abhay Mehta, a crusader who has been following the Enron case,= the cost of LNG quoted by the company is substantially higher than the pre= vailing market price. But it was also a fact that the price of LNG in the i= nternational market is manipulated by a handful of manufacturers and trader= s. This could have an adverse impact on the cost of power generated by the = company. Even if MSEB wants to transfer this plant to, say, the NationalThe= rmal Power Corporation, this factor alone may discourage the new buyers. In= all this, what is the Central government's liability? Union Minister of St= ate for Power Jaywantiben Mehta had stated in the Rajya Sabha in March that= the Central government had given a guarantee for making payments to the DP= C--if the MSEB and the state government fail to do so--in respect of capaci= ty and energy payments as well as payments upon termination in respect of P= hase-I (740 MW). However, this liability is subject to a ceiling of Rs 1,50= 0 crore in a financial year. Won't Enron's exit spook other investors from coming to India? No, says Meh= ta. "The Dabhol project is a symbol of inefficiency. By letting them operat= e, we are sending wrong signals to long-term investors. We are setting a ba= d precedent and forcing the foreign investors to believe that rules and law= s can be changed by managing politicians." While Dabhol and Enron officials= were unavailable for comment, opponents like Kaul suggest that Enron may l= ike to leave Dabhol with dignity and without trouble from the lenders. Enro= n, according to him, will be more than happy to dump the project in MSEB's = lap and salvage whatever amount they can get in the bargain. Dabhol dilemma=20 Pros and cons of the Enron power project=20 Pros ?=09One of the few power projects that have been set up within the stipulat= ed time period.=20 ?=09Implementation of second phase is ahead of schedule.=20 ?=09Project involves the single largest foreign direct investment in the co= untry.=20 ?=09It is a multi-fuel integrated power plant with jetty and LNG regassific= ation terminal.=20 ?=09Equity participation by GE and Bechtel. Cons ?=09Cost of the project is on the higher side. The cost of the construction= of jetty and LNG terminal included in the total project cost, thus increas= ing the cost per =09MW, and, in turn, the power tariff.=20 ?=09Cost charged by Enron for LNG is higher than the prevailing internation= al price. Though LNG is considered to be one of the cleanest fuels, its pri= ce in the =09international market is manipulated by a cartel of LNG manufac= turers and traders. ?=09All disputes are to be settled by the Arbitration Committee in London, = in accordance with English laws.=20 ?=09Maharashtra government ignored the contrary opinion given by the World = Bank on demand-supply =09 projections.=20 ?=09Power tariff designated in dollars and subjected to rupee-dollar exchan= ge-rate fluctuations. ?=09PPA structured in such a way that MSEB would be required to pay DPC Rs = 508 crore a month, without even drawing a single unit of power from the pl= ant. A peek into the past The project being set up by the Dabhol Power Company (DPC) is promoted by t= he Enron Development Corporation (USA), which holds a 65 per cent stake. Th= e project envisages two phases of implementation, for establishing a total = capacity of 2,184 MW at Dabhol, on a build-own-operate basis (BOO). A Power= Purchase Agreement (PPA) of a 20-year duration was also signed.=20 The first phase involving 695 MW was completed in 1999. The second phase is= nearing completion. The project is based entirely on imported fuel. Phase-= I will use imported distillate oil. After the installation of Phase-II, the= entire 2,015 MW capacity (now 2,184 MW) will be operated on imported LNG. = The Central Electricity Authority cleared it in 1999 on the basis of the ta= riff notification given by the state government and the MSEB that the power= tariff was lower than that stated in the PPA. However, the Madhav Godbole = committee report stated that the payments made by MSEB were higher than tho= se mentioned in the PPA. The Enron project is the first and only project in India based solely on im= ported LNG. The annual foreign exchange outgo at the 1997 rupee-dollar rate= is estimated at $1.45 billion, which has a built-in potential for increase= on account of escalation. The total cost of the project is over $2.85 bill= ion for both phases, of which $910 million relates to Phase-I. The arrangem= ent between DPC and MSEB involves a guaranteed purchase of power at 90 per = cent PLF (plant load factor) at rates calculated by a formula in the PPA, w= hich has built-in escalation provisions.=20 In addition, the Maharashtra government has guaranteed payment of dues unde= r the PPA by MSEB to DPC. This is also counter-guaranteed by the Central go= vernment. The choice of Enron for the project was made not by inviting publ= ic bids, but by private negotiations with a single party. Now, by the state= government's own admission, Phase-I entails a monthly fixed charge of Rs 9= 5 crore. After the commissioning of Phase-II in 2001-02, MSEB will be requi= red to pay at least Rs 508 crore a month to Enron, without drawing even a s= ingle unit of electricity. And this will go on for 20 years.=20 This is the cost one has to pay for letting Enron invest in Maharashtra. (The authors are with Project Monitor, a fortnightly newspaper on projects = brought out by the Mumbai-based Economic Research India Limited.)
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