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THE ECONOMIC TIMES
Friday, May 25, 2001, http://www.economictimes.com/today/25lead01a.htm MSEB slaps PPA termination notice on DPC THE FINANCIAL EXPRESS Friday, May 25, 2001, http://www.financialexpress.com/fe20010525/top2.html MSEB slaps notice revoking Dabhol PPA , Sanjay Jog Similar articles as above also appeared in the following newspapers: THE TIMES OF INDIA Friday, May 25, 2001, http://www.timesofindia.com/today/25mbom1.htm MSEB slaps notice on Dabhol Power Company BUSINESS STANDARD Friday, May 25, 2001,http://www.business-standard.com/today/economy5.asp?Me= nu=3D3 MSEB rescinds Dabhol PPA=20 =20 THE INDIAN EXPRESS Friday, May 25, 2001, http://www.indian-express.com/ie20010525/bus7.html MSEB slaps 'avoidance' notice on Dabhol PPA Charges company with material misrepresentation THE ASIAN AGE Friday, May 25, 2001, http://www.asianageonline.com/ Dabhol gets notice of termination from MSEB ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE Friday, May 25, 2001, http://www.hindubusinessline.com/stories/14255602.htm DPC-MSEB row: Centre awaits negotiations=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 25, 2001, http://www.financialexpress.com/fe20010525/corp20.htm= l MSEB has no right to revoke PPA, says DPC ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 25, 2001, http://www.financialexpress.com/fe20010525/news4.html MSEB issues Rs 136-crore cheque for power purchased from DPC for April , Sa= njay Jog ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 25, 2001, http://www.financialexpress.com/fe20010525/news6.html MSEB may file petition before MERC today=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD Friday, May 25, 2001,http://www.business-standard.com/today/state2.asp?Menu= =3D32 MERC pulls up MSEB for not providing DPC papers to Prayas, Renni Abraham in= Mumbai=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE INDIAN EXPRESS Friday, May 25, 2001, http://www.indian-express.com/ie20010525/bus4.html Godbole panel suggestions to be accepted, says Prabhu ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE Friday, May 25, 2001, http://www.hindubusinessline.com/stories/142556rm.htm Review panel member rejects Godbole's remarks=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD Friday, May 25, 2001http://www.business-standard.com/today/economy2.asp?Men= u=3D3 Lower DPC tariffs: High oil prices may affect talks, S Ravindran & Arijit D= e in Mumbai ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD Friday, May 25, 2001,http://www.business-standard.com/today/opinion5.asp? GODBOLE REPORT, CEA's dubious due diligence ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 25, 2001, http://www.economictimes.com/today/25econ08.htm Will the lights go out on Dabhol II?, Anto T Joseph=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 25, 2001, http://www.economictimes.com/today/25econ07.htm Bechtel's out if dues not paid by May 31, Anto Joseph=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 25, 2001, http://www.economictimes.com/today/25econ11.htm MERC questions validity of clearance for DPC unit ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES Friday, May 25, 2001, http://www.economictimes.com/today/25edit01.htm Attaboy, Godbole ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS Friday, May 25, 2001, http://www.financialexpress.com/fe20010525/an1.html Reform needs leadership, consensus will follow=20 Q & A -- Montek singh Ahluwalia ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 25, 2001 MSEB slaps PPA termination notice on DPC IN A retaliatory action, MSEB has slapped a legal notice on Dabhol Power Co= mpany to cancel the power purchase agreement. The Board will file a case wi= th the state electricity regulatory commission on Friday. A retaliation to = DPC's May 19 preliminary termination notice, MSEB had with this notice lega= lly questioned the validity of the entire PPA, state government sources sai= d here. MSEB chief Vinay Bansal confirmed the development and said the noti= ce was served on Thursday "rescinding" the PPA and accordingly setting it a= side under law. "We are saying that as per the Indian Contract's Act, 1872,= MSEB wishes to consider the entire contract with DPC as void," sources sai= d. The legal notice for cancellation of the PPA comes in the wake of DPC's = failure to achieve 100 per cent peak load capacity in 180 minutes from a co= ld start.=20 "We do not need to send a preliminary termination notice, this trumpcard of= ours has entitled us to terminate the PPA," they said. "Under the PPA, DPC= had made a representation that its power plant will conform to certain dyn= amic characteristics and operations, which it has time and again failed to = comply with," the sources added. The sources said DPC had, in several lette= rs to MSEB and the state government, admitted that the multinational could = not "ramp up" generation as it was a base-load power station and not a peak= one. "As per the Indian Contracts Act of 1872, such a confession amounts t= o material misrepresentation of facts, which, in this case, has been knowin= gly committed by DPC," the sources said. On May 19, 2001, DPC had issued a = PTN to MSEB after months of working with the loss-making board, the state g= overnment and the Centre to find solutions, saying "it was apparent that th= e first two parties are unwilling to honour their offtake commitments for t= he entire 2,184-mw power station". "The Centre has clearly communicated it= s unwillingness to assist MSEB and Maharashtra in either buying power or pr= oviding credit support," DPC added. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 25, 2001 MSEB slaps notice revoking Dabhol PPA , Sanjay Jog THE Maharashtra State Electricity Board (MSEB), in a retaliatory move, on T= hursday slapped an "avoidance" notice under the provisions of the Indian Co= ntracts Act on the Dabhol Power Company (DPC) for "material misrepresentati= on". "We are now convinced that your conduct is not bonafide and as such w= e are constrained to avoid/rescind the power purchase agreement dated Decem= ber 8, 1993, with immediate effect," MSEB chairman Vinay Bansal said in a = strongly worded two-page notice to DPC. Mr Bansal claimed the company had made material misrepresentation and "Our = consent to the PPA was caused, inter alia, by the representation on your p= art in respect of the capacity and capability of the Dabhol power station. = In the circumstances, we are advised that the PPA is void and/or is voidab= le at our option." However, MSEB said that it was agreeable to continue the present arrangemen= t of purchase of power and payment till the disputes were resolved by the a= ppropriate forum "so as to minimise loss and inconvenience". "For such sup= ply, we are prepared to make payments to you to as provided for under the = PPA, but such payments would be subject to adjustments on the basis of det= ermination of reasonable compensation by a competent forum," MSEB added. The MSEB missive said at that all material times, the company represented = that it would build, construct, own, maintain and operate a state-of-the-= art power station with a Nominal Baseload Capacity of 670 mw, having a star= t up and loading profile that would reach full load within 180 minutes from= a cold start. The company also represented that the Dabhol plant would h= ave certain Operating Characteristics and Dynamic Parameters. "One of th= e key characteristic and parameters of the Dabhol power station to be const= ructed in phase I of the project was that from a cold start the power plant= would have the capacity to ramp up to 100 per cent load within a period of= 180 minutes," MSEB said. It further added that relying upon the said exp= ress representation in respect of the Operating Characteristics and Dynamic= Parameters of power station relating to attaining full generation from a = cold start, MSEB consented to the PPA. Since commissioning of the Dabhol pl= ant in May 1999, the company has been billing MSEB for capacity payments ba= sed on the Rated Baseload Capacity for each Availability Period. "Until January 2001, the Operating Characteristics and Dynamic Parameters= of the power station in respect of the ramp up capacity in a cold start ha= d never come into question and at no stage you disclosed to us any informat= ion in respect of the capability of the Dabhol power station being material= ly different from the contractual parameters mentioned in the PPA," MSEB sa= id. Further, on January 28, 2001, to its urgent requirement, MSEB instructe= d to deliver fully declared baseload of 657 mw within three hours. "You, ho= wever, failed to deliver the energy required by us and committed breach of = the PPA. You committed similar defaults on February 13 and March 29. In vie= w of these defaults, we became entitled to rebate as provided in the PPA in= respect of the three occasions and claimed the same from you," MSEB added. MSEB charged that the company, however, failed and neglected to compute the= rebate or adjust the rebate in the billing statement or to pay the same to= MSEB. "In the letters addressed to us after January 28, you have admitted = that your power plant does not conform to the PPA and is not capable of mee= ting the contractual terms in respect of the crucial Operating Characterist= ics and Dynamic Parameters. In particular, you have acknowledged and admitt= ed that the actual performance and capability of the power station does not= conform to the start up and loading profile curves of Schedule 6 of the PP= A," MSEB added. =20 MSEB said it has shown utmost restraint and has given more than sufficient = opportunities, to resolve the issues amicably. "Instead of cooperating in t= he matter, you have embarked on a campaign to create confusion and obfuscat= e the issues, which has involved, inter alia in wrongfully withholding reba= te payments, pressurising us to make payment that are not due, invoking gua= rantee issued by the Government of Maharashtra and Government of India, inv= oking arbitration, declaring Political Force Majeure, without justification= , wrongly seeking to activate the escrow arrangement without being entitled= to do so and issuing preliminary termination notices on false and frivolou= s grounds," it added. According to MSEB, in these circumstance it was now= convinced that the company's conduct is not bonafide and it was constraine= d to avoid/rescind the PPA with immediate effect. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE, Friday, May 25, 2001 DPC-MSEB row: Centre awaits negotiations=20 THE Centre is willing to consider any worthwhile idea emerging out of the n= egotiating committee for the settlement of the dispute between Dabhol Power= and MSEB, according to the Union Power Minister, Mr Suresh Prabhu. An offi= cial release issued today states that any such proposal has to be acceptabl= e to both the MSEB as well as the DPC. Industry sources, however, point out= that the Centre's stated position is not likely to provide a breakthrough = since the Centre has endorsed a consensus-driven approach with its involvem= ent restricted to the participation of its member Mr A.V. Gokak in the nego= tiating committee. A meeting between Dabhol Power Company and Ministry of P= ower is slated to be held on Friday following DPC's request to the meet th= e Power Secretary, Mr A.K. Basu.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 25, 2001=20 MSEB has no right to revoke PPA, says DPC THE Dabhol Power Company (DPC) in its reaction said the Maharashtra State E= lectricity Board did not have the right to rescind the power purchase agree= ment (PPA) as attempted in its notice. A DPC press release issued here on= Thursday said that it would appear that MSEB's notice was a deliberate att= empt to further delay the resolution of difficult issues confronting the MS= EB. Nevertheless, even though the MSEB continues to seek ways to delay and = frustrate the resolution of these matters, DPC remains open to receiving pr= oposals from the board, Government of Maharashtra and Government of India. = "In the first place, the PPA does not allow MSEB to shut down the plant ex= cept in emergencies. Moreover, the Dabhol plant was intended as a baseload = facility. As a result, the question of plant performance following a cold s= tart should not arise. The MSEB has chosen an obscure and improper justific= ation for attempting to rescind a contract that, in any event, was signed m= ore than seven years ago. In any case, this basis and many of MSEB's relate= d claims are already the subject of a pending arbitration initiated by the = DPC. Our arbitration notice of April 12, 2001 should serve as evidence of o= ur confidence in SPC's legal position, and we expect that the issues in arb= itration will be resolved to our satisfaction," the company added. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 25, 2001 MSEB issues Rs 136-crore cheque for power purchased from DPC for April , Sa= njay Jog THE Maharashtra State Electricity Board (MSEB), which served an "avoidance"= notice, on Thursday prepared a cheque of Rs 136 crore towards power purcha= se from the Dabhol Power Company (DPC) in April this year. MSEB sources tol= d The Financial Express that the payment would be made "under protest" as t= he DPC has failed to pay the rebate of Rs 401 crore charged by it for misde= claration and default on the availability of power on January 28. "The cheq= ue was prepared well before 5 pm, however, the DPC officials would collect = it on Friday (May 25), the due date for the payment of bills," MSEB sources= said. Sources said that the MSEB has taken a conscious decision to continue the p= ower purchase and make payments to the DPC, despite serving the "avoidance"= notice. MSEB has so far paid the February bill of Rs 114 crore and Marchbi= ll of Rs 134 crore "under protest." MSEB said that despite its instructions= to maintain load at 657 mw from 6 pm onwards, DPC was unable to pick up an= d is generating only 216 MWH at 6.45 pm. On the appointed hour 6 pm- 9 pm, = DPC's declared baseload capacity of 657 mw, the company failed to deliver e= nergy as instructed by the MSEB and delivered only 156 mw on January 28, 20= 01. According to MSEB, a shortfall occurred and in terms of Clause 8.4 (b) (iii= ) the available baseload capacity was required to be calculated. Such shor= tfall was to be calculated on the basis of the formula set out therein for = a period of 14 days prior to the available period in which the shortfall oc= curred.MSEB said that DPC owes nearly Rs 143.073 crore after adjusting the = December bill (Rs 102 crore) and January bill (Rs 111 crore). MSEB is entit= led to damages for misrepresentation calculated from the date the power pla= nt made its "entry into commercial service" and/or MSEB under section 19 of= the Contract Act, is entitled to treat the contract as void. MSEB said in = failing to compute the rebate for the shortfall that occurred on January 28= in its billing statement of January, DPC committed a breach of Clause 11.1= (b) (ii). MSEB was thus entitled to adjust the rebate against the outstan= ding sum for the period relating to the January billing statement. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 25, 2001 MSEB may file petition before MERC today=20 THE MSEB is trying its level best to file a petition on Friday before the M= aharashtra Electricity Regulatory Commission (MERC) for seeking its ruling = over its dispute with DPC, under the provisions of the Electricity Regulato= ry Commission (ERC) Act, 1998. MSEB sources say a petition, comprising ann= exures, is being prepared in consultation with the battery of lawyers. The = petition will be made with an appeal to the MERC to adjudicate the disputes= . "The DPC has committed a material misrepresentation and also misdeclared = and defaulted on the availability of power in January, February and March.= Although the PPA had been inked between the MSEB and DPC before the establ= ishment of MERC, the disputes have arisen after the MERC was delegated powe= rs to adjudicate disputes on December 5, 2000," MSEB sources said. "As per= the ERC Act provisions, MERC is in a position to admit the MSEB's petition= on the grounds that consumers are entitled for getting quality power at fa= ir price. The decision to take up the matter at the level of the MERC is wi= th an objective to shift the legal battle from London to the Indian soil. S= imultaneously, it would also save cost." The MSEB at length would explain its case, vis-a-vis, DPC's failure to ho= nour the rebate and its payment. Under the PPA, DPC undertook to construct= and operate a base load, combined cycle power station in two phases. MSEB = agreed to purchase and accept delivery of the electrical energy generated b= y the Dabhol power station into its distribution system and pay for the ele= ctrical generating capacity made available to it, as well as for the electr= ical energy actually delivered, subject to the terms and conditions of the = PPA. "In terms of Clause 1 of the Government of India guarantee dated Septe= mber 15, 1994, no sums of money are validly due by MSEB to DPC and accordin= gly, there has been no failure on the part of MSEB to make such payments," = MSEB said. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD, Friday, May 25, 2001 MERC pulls up MSEB for not providing DPC papers to Prayas, Renni Abraham in= Mumbai=20 The Maharashtra Electricity Regulatory Commission (MERC) on Thursday pulled= up the Maharashtra State Electricity Board (MSEB) for not having provided documents related to the Dabhol Power Company (DPC) to Prayas, an NGO, des= pite being ordered to do so in January. Chairman of MERC, P Subrahmanyam, s= aid, "In the wake of the January order by the commission and in the light o= f the Right of Information Act passed by the Maharashtra legislature, all d= ocuments apart from those listed by the government have to be made availabl= e to the public. Even the Electricity Regulatory Commission Act states that= the such commissions (like MERC) will act in a transparent manner. Hence w= e said that all the documents should be provided to Prayas."=20 The commission rapped MSEB for not being able to explain, with legal opinio= n, how it could withhold the documents despite the MERC ruling. The Commiss= ion has given the board a month to provide all documents to Prayas as well = as itself, related to the DPC project. With regard to those documents it c= laims confidentiality, the Commission has sought a clear legal stand by it = and not a reliance on merely the legal opinion forwarded by DPC."When MSEB = has such a huge legal department at its disposal it's reliance on DPC's leg= al opinion is not reasonable," the Commission held. Another rider posed by = the MERC was that while all costs effected by MSEB's contractual agreements= with DPC were passed on to consumers why the consumer was not allowed to s= ee the documents related to the PPA.Sources added that containing the fuel = cost charges will reduce tariffs and make the project conducive to higher o= fftake of power. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE INDIAN EXPRESS, Friday, May 25, 2001=20 Godbole panel suggestions to be accepted, says Prabhu The Central government will accept the recommendations of the renegotiating= committee headed by Madhav Godbole for the settlement of the dispute betwe= en Dabhol Power Company (DPC) and Maharashtra State Electricity Board (MSEB= ). A government statement quoting power minister Suresh Prabhu said "the Go= vernment of India is ready to consider any worthwhile idea emerging out of = the renegotiating committee for the settlement of the dispute." The propos= al, Prabhu said, has to be acceptable to the parties to the dispute - Maha= rashtra State Electricity Board and Enron-promoted Dabhol Power Company- ad= ding that a quick settlement of the differences was essential for the power= sector of Maharashtra. Dabhol Power Company had last week slapped a preliminary termination notice= (PTN) on MSEB following the dispute over payment of power bills. While for= mer telecom secretary A V Gokak has been appointed as centre's nominee on t= he Godbole committee constituted by Maharashtra government, a = committee of senior officers of the concerned ministries has been set= up to quickly examine the proposals emerging out of the negotiating commit= tee. The committee officers comprise officials of ministries of finance, po= wer and petroleum. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE HINDU BUSINESSLINE, Friday, May 25, 2001 Review panel member rejects Godbole's remarks=20 DR R.K. Pachauri, a member of the Review Committee set up by the Maharasht= ra Government on the Dabhol controversy, has voiced his concern on a fellow= member's recent statement in a leading national daily on the issue. In a p= ress statement released here, Dr Pachauri has contended Mr Godbole's statem= ent that, ``The committee has also suggested that the judicial enquiry, hea= ded by a service or a retired Supreme Court judge should be initiated as so= on as possible.'' According to Dr Pachauri, this statement needs to be seen= in the context of the fact that three out of the five members in the commi= ttee recorded their strong dissent with this view. ``Can the view of two me= mbers of the committee, clearly a minority, be read as `the committee has a= lso suggested...','' Dr Pachauri has argued. According= to him, ``Can a judicial enquiry really force Enron back to the negotiatin= g table?'' In the press statement, he has thrown up several other questions= -- Can the Maharashtra Government renegotiate a deal with Enron if a judic= ial enquiry is in progress, and would the public accept any such deal till = the enquiry is over? And till it is over, the Maharashtra Government would = continue to run up huge bills even as the State is unable to absorb the power generated by Dabhol. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD, Friday, May 25, 2001 Lower DPC tariffs: High oil prices may affect talks, S Ravindran & Arijit D= e in Mumbai The spurt in global oil prices, and the consequent impact on naphtha, will = curtail Dabhol Power Company's (DPC) ability to offer concessions on its ta= riff structure,=20 even as the government looks to isolate fuel costs from the tariffs.The Mad= hav Godbole committee is currently renegotiating a lower tariff structure f= or power from=20 the 2,184 mw Dabhol power project. Top government sources said they were wo= rking around the uncertainties in the naphtha prices. "We are working towar= ds a rational tariff structure which will insulate it, to some extent, from= the vagaries of fuel prices," a top state government source told Business = Standard. The official indicated that this could take the form of reducing = the pass-through component of fuel prices. "We could try to get a lower pas= s-through, from the current 100 per cent," he explained.=20 Alternatively, the fuel component could be capped at a certain level to pro= tect the tariff from surging fuel prices. Fuel prices are an important comp= onent in the=20 tariff structure, as the entire component (in variable costs) is passed on = to the purchaser. Crude oil prices, which had touched a high of $33 per bar= rel last year,=20 pushing up DPC's tariff, had softened to $26 per barrel levels in December = 2000. However, prices have jumped over 20 per cent in the last few weeks to= around=20 the $30 levels again. Power industry sources indicate this may cast a shado= w over the conciliation talks. While the 740 mw phase-I of the project is c= urrently naphtha-based, the entire plant is supposed to turn to LNG once th= e 1,444 mw phase-II comes into commercial operation. Naphtha and LNG prices= are both linked to crude oil prices. DPC had earlier attributed the rise i= n tariff from the contracted price partly to the sharp rise in global napht= ha prices.It had argued that the rise in naphtha prices coupled with the lo= w offtake of power by the MSEB was responsible for the higher tariffs.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- BUSINESS STANDARD Friday, May 25, 2001,http://www.business-standard.com/today/opinion5.asp? GODBOLE REPORT, CEA's dubious due diligence The Central Electricity Authority's role in scrutinising the technical aspe= cts of the project is questioned The 'techno-economic clearance (TEC)' from CEA has been a controversial iss= ue. The in-principle clearance for DPC's project pursuant to sections 29 an= d 44 of the Electricity (Supply) Act, 1948 (the Act) was issued by MSEB on = May 20, 1993. The clearance was granted subject to clearance from the CEA a= s required under=20 section 44 of the Act. On November 26, 1993, CEA granted its conditional cl= earance... for the project after considering the technical aspects of the s= cheme at its=20 meeting held on November 12, 1993. A day earlier, on November 11, 1993, the= Secretary, Ministry of Power, appears to have written to the CEA and quote= d an extract of the minutes of a Foreign Investment Promotion Board (FIPB) = meeting of November, 5, 1993 which said, "...Finance Secretary has observed= that the question of the cost of power has been looked into and it has bee= n found that it was more or less in line with other projects being put up i= n Maharashtra". Accordingly, the CEA observed that "The aspects related to = import of fuel, foreign exchange rules and deviation from Government of Ind= ia tariff notification indicting return on equity have been examined by FIP= B and the project has been found acceptable by them."=20 On July 14, 1994, CEA issued another clearance for the project... stating t= hat all the conditions had been complied with. However, it reiterated two c= onditions stipulated earlier, viz., - Phase II of the project could only be= taken up after MSEB/GoM ensures absorption of the entire power including o= ff-peak power in or outside Maharashtra together with the completion of ass= ociated transmission system matching with the commissioning schedule of the= project. The CEA, as stated in an affidavit by the CEA in the CITU case, c= onsiders this to be the "techno-economic clearance" accorded to the scheme,= which was based on discussions in a meeting held on 24 June 1994. The minu= tes of this meeting are not available to the Committee. Furthermore, it is = curious that the letter does not mention the word "techno-economic" anywher= e, as compared to a clearance given to similar IPP [independent power produ= cer] projects ...=20 Subsequently, on December 23, 1994, CEA issued a letter to Ministry of Powe= r stating that "the cost of power has been found reasonable by the Ministry= of Finance, CEA feels that since the cost of power is to be derived from t= he capital cost, the capital cost of Dabhol project may also be considered = reasonable" In effect, the CEA said that since the Ministry of Finance find= s the tariff acceptable, the capital cost is reasonable, which accords grea= ter significance to the role of the tariff... In addition, curiously enough= , it makes no reference to the meeting of 24th June 1994 regarding techno-e= conomic appraisal of DPC mentioned in the CEA's affidavit. Thus, it is moot= question whether the CEA discharged the statutory duty cast on it under th= e Electricity Supply Act adequately.=20 ...Modification to the project after renegotiations: Subsequent to the nego= tiations conducted by the Negotiating Group ... the CEA received a letter f= rom DPC dated=20 March 7, 1996 intimating certain alterations to the Dabhol project and stat= ing that these alterations were minor as per the first proviso of section 3= 2 of the Electricity=20 Supply Act, 1948. The State of Maharashtra, through GoI [Government of Ind= ia], had sought CEA's views in the matter. The matter was deliberated upon = by the CEA and the GoI was informed that increase in capacity of plant and = use of naphtha in place of distillate fuel in Phase I of the scheme were of= minor character but the removal of LNG facility from the scope of the sche= me and execution of the same by a separate entity in Phase II of the scheme= was of a major nature.=20 Subsequently, DPC vide letter dated May 7, 1996 informed CEA that DPC was a= greeable to implement the scheme without changes considered as major by CEA= ,=20 viz. the removal of the LNG facility from the project scheme. As a result D= PC and MSEB went ahead with the project, without hiving off the LNG facilit= ies and avoided obtaining any fresh clearance required from CEA. It is difficult to compreh= end how MSEB agreed to accept the re-integration of the LNG facility, which= was not in its=20 own interest. The Committee finds it inexplicable why there was no mention= of any reduction in capital cost of the project from $2,828 million to $2,= 501 million as=20 agreed to by DPC as mentioned in the Summary Report of the Renegotiating Gr= oup, which appears to have been intimated to CEA, as part of its economic a= ppraisal.=20 Neither is there any intimation about the change in the cost of power, due = to the renegotiation of tariff, which formed the basis for CEA consideratio= n that "the capital=20 cost of Dabhol project (is) reasonable". The counter-affidavit by CEA on Ju= ly 1, 1996 in the CITU case however states that "since no cost increase (wa= s) involved...fresh formal clearance...(was) not necessary". This only adds s= trength to the suspicion that the CEA did not consider the economic aspects= of the=20 project at all. Indeed, given the non-availability of any official record o= f the meeting on June 24, 1994 with the Committee, and the nature of this l= etter dated December 23, 1994, the Committee is doubtful whether the economic aspects = of DPC were discussed at all. ...=20 Demand for power: As already mentioned, the GoM's submission at the start o= f the project regarding the need for power was flawed to the extent that it= failed to=20 distinguish between different types of load. This led to an inappropriately= high PLF of 90% being taken for purposes of calculating per unit tariff. I= n 1993, however,=20 based on the past growth of consumption and load, it was possible to argue = that a 695 MW plant could be absorbed into the system. This, however, compl= etely=20 omitted any consideration as to whether there was a demand for power at the= price that was expected to be charged by DPC....=20 The subsequent error of calculation: However, this mistake pales in compari= son to the assurance given by MSEB, on September 2, 1998, that there was su= fficient=20 demand to absorb the power from Phase II. As mentioned earlier, the CEA cle= arance to DPC stipulated that "Phase II of the project could only be taken = up after=20 MSEB/GoM ensures absorption of the entire power including off-peak power in= or outside Maharashtra together with the completion of associated transmis= sion=20 system matching with the commissioning schedule of the project." In respons= e to a letter from DPC on the demand supply position in the MSEB system, MS= EB=20 replied, establishing that there was sufficient demand. ...=20 The initial error of composition: The MSEB demand projections for justifyin= g the requirement of Dabhol was on the basis of the 15th EPS. The actual co= nsumption=20 in 1998 was higher than the estimate in the 15th EPS by 4.4%. MSEB therefor= e replaced the base year EPS estimate with the higher actual consumption an= d=20 applied the EPS growth rates to this higher base. On the face of it, perhap= s justifiable, until one looks at the growth of demand in the past. ... The= actual growth=20 in demand in the MSEB system in the years immediately before 1998 were actu= ally much lower than the 15th EPS estimates. Indeed, there is a sharp slowd= own=20 in growth in 1996. This slowdown was completely ignored. While the actual c= onsumption in 1998 was indeed about 4.6% higher than estimated by 15th EPS,= the=20 trend growth rate was actually much lower (2% in 1997 and 5% in 1998). As c= ompared to the growth of 2% and 5% in the previous two years, MSEB estimate= d an=20 immediate return to earlier growth rates of 8 to 9% ...=20 Based on these extremely over-optimistic assumptions, MSEB stated "there is= sufficient projected base load demand for power in the state to justify Ph= ase II of=20 the Dabhol project, even at a 90% dispatch. This was stated without an anal= ysis of the load curve. Indeed, MSEB in its projections before the Committe= e has=20 submitted that their current expectations are that consumption in 2004-2005= will be around 67813 MU as opposed to 91202 MU expected by them in 1998,= =20 implying an overestimation of 58%! On the basis of this unconvincing estima= tion of demand ... Phase II of DPC was given the go ahead.=20 The World Bank was asked to review the project by GoI, for possible financi= ng. It reviewed the project extensively and pointed out on April 30, 1993 t= hat "The project (was) not a least-cost choice for base load power generation compa= red to Indian coal and local gas. Even if domestic fuels (were) not availab= le,=20 imported coal would be the least-cost option for base-load generation for M= SEB with current environmental standards. The unique features of this LNG-b= ased=20 project...offset LNG's environmental benefits over coal." =20 The current design which would "Dispatch the plant as a base load unit at 8= 0-85% minimum plant factor...would prevent the operational flexibility of a= combined=20 cycle plant, (and)..the project would add more capacity than needed to meet= the projected load growth in 1998 and would also result in uneconomic plan= t dispatch."In addition, "substantial adjustment in electricity tariffs wou= ld be required to recover the cost of the project from the consumers and to= safeguard MSEB's financial position...Adjustments limited to special indus= trial categories would not be sufficient as their capability to continue to= cross-subsidize, by paying more than the already high cost of LNG power wo= uld be limited."=20 Subsequently, after further discussions, the World Bank wrote again on July= 26, 1993 to "reconfirm (their) earlier conclusion" and stress that the pro= ject needed to=20 be reshaped to "serve higher-value intermediate load", and that if the proj= ect was being justified on the basis that the existing system (was) project= ed to decline in=20 efficiency (and) most recently discovered slippages in MSEB's ongoing and p= lanned least-cost program, then it was better to take determined actions...= to=20 reverse this projected deterioration rather than accepting it as a given fa= ct in the analysis of new investments....=20 Enron was concerned. It wrote to MSEB stating, ... "I feel that the World B= ank opinion can be changed. We will engage a PR firm during the next trip a= nd hopefully=20 manage the media from here on. The project has solid support from all other= agencies in Washington. We will get there! We need now to put the PPA behi= nd us" (emphasis added). MSEB and GoM addressed these objections of the World Ban= k by emphasising the environmental benefits of gas, reducing the plant size= ... and assuring the GoI that there would be power sector reform to adjust elec= tricity tariffs ....=20 In retrospect, all the concerns of the World Bank proved well founded. Refo= rm did not occur, the cost was too expensive and the system has not been ab= le to=20 absorb the capacity, even of Phase-I. In hindsight, it is always easy to ar= gue that the decisions made at that time were not justified, but in this ca= se these issues=20 were raised and dismissed at the time the original decision was made. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 25, 2001=20 Will the lights go out on Dabhol II?, Anto T Joseph=20 WITH lenders, both offshore and domestic, refusing to fund the cost overrun= of $400 million, the second phase of the Dabhol project seems to be in dee= p trouble. The US power major may now be forced to chip in with the additio= nal project cost, either in the form of equity, quasi equity or debt, or a = mix of these. Enron has, however, informed lenders that it would bring in t= he additional project cost only if the renegotiations look like making any = headway. With EPC contractor Bechtel stopping construction at Dabhol, India= n lenders are fearing a further cost overrun. "It could be around $20 milli= on per month. If the project is delayed for a few months, the financial via= bility of the project will be at stake," said senior financial institution = officials. They said the huge cost overrun had become a major deterrent in = completion of phase II. When domestic lenders refused take any further expo= sure in the controversial project, Enron had scouted for foreign debt, but = in vain. "Indian lenders, who contributed 40 per cent of $2.9 billion (earl= ier project cost), had earlier refused to take more exposure. Later, foreig= n lenders have also taken a negat= ive stand," said sources.=20 According to FI sources, Enron wanted to maintain status quo in the debt-eq= uity ratio at 70:30. This would mean an additional debt of $280 million and= an equity call of $120 million. With the minority stakeholders -- MSEB and= Bechtel (they hold 15 per cent and 10 per cent, respectively) - having = shown their dissent in the project, = a new equity infusion has turned almost impossible. In this situation, Enr= on will have to raise its stake from the current level of 65 per cent. "Thi= s is an unlikely scenario since Enron is actually planning to reduce its st= ake in the project to below 50 per cent," said an Enron official. "Enron is= in a fix now. The entire responsibility of bringing in the additional cost= lies on the shoulders of Enron. It could bring the fund in the form of equ= ity, quasi equity or debt, or a m= ix debt-equity," said an industry analyst. Cost overrun has stemmed from de= -valuation of rupee vis-a-vis dollar and increase in equipment cost. Indian= Fis are now wary of a further cost overrun due to delay in project executi= on.=20 According to the PPA, the PTN would mean fixing up a deadline of six months= for pulling the final plug on the project. "As of now, the FIs have held b= ack $250 million debt to the project. After the PTN is served, DPC could no= t expect lenders to make any more disbursements, and it has almost sealed t= he fate of the project," said an FI source. While the 740-mw phase I is ope= rational, the second phase of 1,144 mw was expected to go fully operational= by the year-end. One unit of 740 mw (part of the second phase), which was = on trial runs, was expected to be commercially operational in June. With Be= chtel stopping the construction work at the site, it has now become uncert= ain. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 25, 2001 Bechtel's out if dues not paid by May 31, Anto Joseph=20 FRUSTRATED by a series of payment defaults, US-based Bechtel has threatened= the Enron-promoted Dabhol Power Company that it will withdraw from the con= troversial project by May 31, if its dues are not paid. In a letter written= to DPC, Bechtel - which is the EPC contractor for the 2,184 mega-watt pro= ject and also a minority stake holder (10 per cent) in DPC - has said it = was stopping civil work at the site in coastal Maharashtra. Sources from fi= nancial institutions said that the unit I of the project's phase-II, which = was slated to be operational commercially by June, will not be ready by the= n, after Bechtel stopped work at the site. Around 10 to 15 per cent of the = work is yet to be completed, sources added.=20 Both Bechtel and DPC refused to comment on these developments. FI sources s= aid the issue will be discussed threadbare at the meeting in New Delhi on F= riday called by the Centre. While Bechtel issued the May 31 deadline to DPC= to make its outstanding payments, lenders have refused to bail out the pr= oject with any further debt disbursements. The preliminary termination noti= ce issued by the cash-starved DPC has compounded the matter, according to F= I sources. The ongoing payment impasse, involving MSEB and the state and ce= ntral governments, has resulted in delays in payments to vendors for the se= cond phase of the power project. On May 2, Aric Oakf, project director of B= echtel India, had said his company was concerned about the payment defaults= . He had said that the company was exploring various options as per the EPC= contract.=20 On May 3, the Economic Times had reported that Bechtel was considering pull= ing out of the project. Though there were defaults and delays in payment, t= he company had continued with the construction work at the site. Sources sa= id DPC was not in a position to change the situation, unless lenders soften= their stance and start funds disbursal. The lenders have held back around = $250 million payment out of the committed debt, after the project ran into = a series of controversies. Bechtel, one of the largest engineering construc= tion firms in the world, has set up more than 450 power plants, installed m= ore than 6,800 kilometers of high voltage transmission lines, and is the le= ading builder of independent power projects worldwide. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 25, 2001=20 MERC questions validity of clearance for DPC unit =20 FRESH trouble seems to be brewing for the Maharashtra State Electricity Boa= rd over the present dispute with Enron's Dabhol Power Company, as the state= electricity regulatory commission on Thursday questioned the basis on whic= h the MSEB cleared the 2,184 mw project. "As per your submission that MSEB = did not have the actual documents of the financial closure of the project's= Phase II till February 27, on what basis did the board clear the project?"= MERC members asked MSEB technical director Prem Paunikar while hearing the= petition filed by Pune-based NGO Prayas.=20 In it's plea, Prayas has sought the status and copies of various power purc= hase agreements and related contracts or commitments signed by MSEB with in= dependent power producers including DPC, in the state.In its argument, MSEB= said it was contractually bound with DPC as the energy major had claimed c= onfidentiality on several documents. The documents in question are both Pha= ses I & II of the $3-billion project, which include details of the prelimin= ary termination notice, termination notice, the 20-year gas supply agreemen= t and liquid fuel contract with Oman LNG, operation and maintenance records= , construction contracts and fuel= management. (PTI) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE ECONOMIC TIMES, Friday, May 25, 2001 Attaboy, Godbole AFTER an initial fit of pique directed at NCP boss Sharad Pawar, Madhav God= bole has decided to stay on with the committee that will renegotiate the de= al that the Dabhol Power Company has with the Maharashtra State Electricity= Board. Thank goodness for that. For many years, India needed something lik= e the report filed by the committee headed by Mr Godbole. The Enron project= has been dogged by controversy, allegations of goldplating and graft. The = initial power purchase agreement (PPA), signed in 1993 when the Congress go= vernment of Sharad Pawar ruled Maharashtra, was attacked by the opposition = which included the BJP and Shiv Sena. When a Sena-BJP coalition came to pow= er it scrapped the deal, only to sign another one in 1995. Then, the so-cal= led `renegotiation' was widely perceived to have been an eyewash that allow= ed everybody to save face but push the project through.=20 One year later, the only thing cleared by the first, 13-day Vajpayee govern= ment in New Delhi was a counter guarantee for the project. Five years later= , the same allegations are flying thick and fast. Given that, Godbole shoul= d stick around to finish a job that needs to be done. The report of the com= mittee headed by him points out serious flaws in the way the project was cl= eared, in the terms that successive governments in Maharashtra and New Delh= i agreed to and in project specifics. If this is correct, a handful of babu= s, mantris and managers have been taking the Indian public for a ride and p= rofiting at everybody else's expense.=20 That has to stop. The terms under which the project functions have to be re= negotiated. Yes, there are serious problems with IPPs trying to sell power = to bankrupt state utilities. Those problems have to be resolved by quick re= forms. Meanwhile, there is no reason why India should put up with = irregularities pointed out in the Godbole = report. Investigations to probe mala fide intent among everyone involved in= clearing the project on the existing terms must start now. Prosecution, c= onviction or acquittal of those accused should follow. A democracy which bo= asts about `rule of law' can do no less. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------- THE FINANCIAL EXPRESS, Friday, May 25, 2001,=20 Reform needs leadership, consensus will follow=20 Q & A -- Montek singh Ahluwalia Joining the Union ministry of finance as an economic advisor in 1980 after = a decade at the World Bank, Montek Singh Ahluwalia soon moved to the centr= e stage of policy making. In 1985 he was inducted into Prime Minister Raji= v Gandhi's "Camelot" and began shaping policy, setting the stage for the ec= onomic reforms introduced in 1991. Over the past two decades Dr Ahluwalia h= as pushed economic liberalisation sometimes as a General on a battlefield, = with his army of fellow travellers in different economic ministries, and so= metimes like a guerrilla using unexpected opportunities to plant an idea in= to a Prime Minister's mind. Through well thought out strategy and clever ta= ctics, Dr Ahluwalia has left a mark on economic policy making in India. Aft= er two decades in government he moves on to the International Monetary Fund= where he will head an independent evaluation office, evaluating the Fund's= policies, on a reported US$150,000 annual salary. Dr Ahluwalia is not yet= calling it quits to policy making in India, but agreed to give an 'exit in= terview' to The Financial Express.=20 You joined the government as an economic advisor in 1980 and have been clos= ely associated with economic policy making for two decades now. The India= n economy had registered an annual average rate of growth of 3.5% between 1= 950 and 1980 and since 1980 it has recorded a 5.5% to 6.0% rate of growth. = Was this acceleration of growth built on the foundations of what had been= achieved in the first phase or would you take credit for your policies of = economic liberalisation and trade openness in the second phase?=20 I certainly would not claim that the acceleration in growth was due to my b= eing there! Individuals play a relatively small part in the larger scheme o= f things. I have no doubt that the policy changes which began in the mid-19= 80s, but were really accelerated after 1991, are major factors explaining t= he improved performance in the last two decades. In the 1980s, the governme= nt recognised the limitations of the earlier control regime but changes wer= e marginal. The controls remained in place but they were operated more flex= ibly. The 1991 changes were much bolder. They were based on a clear recogni= tion of the need for a system change. It was recognised that the economy wo= uld benefit from much greater freedom and the unleashing of competition and= unshackling of entrepreneurial energy. While 1991 did constitute a policy break, and there was an acceleration of = growth in 1993-96, the long-term rate of growth of 1981-2001 has refused to= rise above 6.0%. So have the post-91 reforms failed to deliver higher grow= th? We had a sharp acceleration of growth in the mid-1990s with three years of = 7.5% growth in 1994-95 to 1996-97. Since then, it is true that growth has= slowed down. This deceleration is worrying and needs to be reversed. I m= ust mention however that although the average growth in the 1990s may not l= ook much better than in the 1980s, there is in fact a significant differen= ce between the two decades. In the 1980s, growth was fuelled by an unsustai= nable build-up of debt, internal and external. In the 1990s the external po= sition has actually improved over the decade. We have a current account def= icit which is quite modest in my view; if anything it is too small. In term= s of debt service ratios, we are now in a very comfortable position. =20 While the external profile of the economy has certainly improved in the 19= 90s, the internal fiscal profile is back where it was in the beginning of t= he 1990s, and growth has slowed down. That is undoubtedly a major source of weakness at present. There are many r= espects in which the economy is stronger than at the beginning of the 1990s= . Let me mention four. First, freeing up the economy from the draconian a= nd hugely inefficient external sector controls has contributed to efficienc= y and created self-confidence in external economic management. We now know = we don't need the extensive and highly inefficient foreign exchange contr= ols and import controls we had earlier to manage the economy. We would nev= er have developed an Infosys or a Wipro if we had not changed these externa= l sector controls.=20 Second, the unleashing of competition in industry has strengthened Indian i= ndustry. Industry circles often show signs of nervousness and this is und= erstandable given the nature of change, but by and large I would say Indi= an business is gearing itself up for competition. It may be a little too sl= ow, but the process is underway. Every industrialist may not survive in t= he new competitive world, and this is an important cause of nervousness, b= ut the objective cannot be that every industrialist will do well- only that= Indian industry as a group will do well. I think that will happen with the= right policies. Third, liberalisation of controls by the Centre has given the states new de= grees of flexibility for attracting investment both domestic and foreign.= Some of the states have done very well with growth rates comparable with t= he best in the world. The negative side of course is that the weaker perfor= ming states have seen a deterioration in their growth. However, there is no= w a much greater realisation in these states that much of the problem lies = with their internal policies and they must take steps to improve their perf= ormance. Herein lies the real hope for higher growth for the country as a w= hole in the future. We don't have to learn from other countries, which is m= uch more difficult. We have to learn from our own better performing States. Finally, we are doing very well in some of the new sectors as software and = IT services. The total impact may be small at present, but it has high pote= ntial (the present slowdown notwithstanding). More importantly, it shows ho= w well we can compete when conditions are right and also the potential for = new entrepreneurship.=20 Of course, the fiscal deficit remains a major problem. It is a first genera= tion reform which has fallen by the wayside. There was an improvement in t= he first two years of the reform, but since then there has been a steady = deterioration. The fiscal situation in the states in particular has got muc= h worse. Unless we complete this first generation agenda, the second generation reforms may get deraile= d.=20 Why is this so?=20 On the expenditure side there has been a steady expansion in current expend= iture at the expense of investment. On the revenue side the tax ratio rem= ains below the 1990 level. We have also not done enough to raise user charg= es, either in the Centre or the states. The crisis in the power sector is a= good example. The SEBs as a group have losses of about Rs.25,000 crores pe= r year. We have also not met disinvestment targets. Would you say the political will to tackle this is lacking? Well, I am an o= ptimist so I would like to put it differently. These are clearly difficult = issues which can only be tackled over time. The major good news is that the= re is much greater realisation in political circles today that the present = path is non-sustainable. Six or seven years ago this realisation wasn't the= re, certainly not at the state level. There was a tendency to think that = problems can be solved by the Centre giving more resources. Today, state ch= ief ministers know that their fiscal problem cannot be solved by the Centre= . Many states are even talking the language of fiscal reform and, even more= important, power sector reform. Of course, talking is not enough. If some = states begin to move ahead, we will all begin to see light at the end of th= e tunnel. So it is state chief ministers who must now lead reform? You are not hopefu= l that the centre will provide that leadership? The Centre must certainly take parallel action in its area but I would not = call this leadership. Each has a well defined agenda. The central side agen= da has been clearly laid out in the report of the Prime Ministers Economic = Advisory Council. These ideas have been there for ten years. You wrote a pa= per which came to be referred to as the M-paper when Mr V P Singh was Prime= Minister. Ten years later we are saying the same things. That paper did po= int in the direction where we have been going in this decade. It is not cor= rect to say that there has been no action. What has been achieved in the la= st ten years goes much beyond what was proposed in that paper which was aft= er all only a 2-year agenda at the time. Policy today has certainly gone mu= ch further which is good. But that is largely on the external policy front and in industrial policy. = Public finances are where they were. =20 That is indeed the area which is weakest. But, let us recognise some gains = even on the fiscal front. We have made great progress in rationalising the = tax system, by creating incentives for people to be more honest. Tax ratios= to GDP for personal and corporate taxation have improved though they are s= till too low. The main reason why the tax ratio has not improved is that th= e decline in customs revenue, which was to be expected, has not been matche= d by an offsetting increase in revenues from excise duties. There is a grea= t deal of leakage in this area. The absence of services in the tax net is a= lso a major problem. We should really move to a modern integrated VAT, whic= h is the least distortive form of indirect taxation. If we could move to a = VAT covering goods and services we could generate additional revenues of tw= o to three per cent of GDP. This has been the experience of many countries = which have adopted an integrated VAT. However, that requires a Constitution= al amendment. Pending that, we have to rationalise the excise duty structur= e and integrate services taxation with goods in an expanded Cenvat. The Par= thasarathy Shome Committee has made some new interesting proposals in this= regard. I am emphasising the changes needed on the revenue side because there is re= ally no margin available to reduce the total government expenditure to GD= P ratio. On the expenditure side, what we need is a restructuring of expe= nditures, in which we reduce subsidies and wasteful current expenditures bu= t use the resources released to increase public investment in education, = health care, roads (both highways and rural roads) and other economic inf= rastructure where the private sector will not invest. In short, total gover= nment expenditure in India is not too high. The political support for cutti= ng expenditure and downsizing the bureaucracy can only come if this is se= en as a redirection of expenditure to other more important uses. The improv= ement in the fiscal balance must therefore come from the revenue side. We a= re not mobilising as much as we should from existing rate structure and we = are not doing enough to raise user charges for services provided by the gov= ernment. Whether it is the railways or higher education, or power, or provi= sion of municipal services, we must increase user charges so that these sys= tems generate the revenues needed to ensure efficient supply. If this does not happen, can the economy attain the eight per cent growth t= hat the Draft Tenth Five Year plan would like to see in the next five years= ? If we don't tackle the fiscal problem facing the government, we will not be= able to undertake essential public investment in social and economic infra= structure. Interest rates will remain high which means private investment w= ill also not take place and the growth we have targeted will definitely not= be possible. The Planning Commission has said this loud and clear in the A= pproach document (10th Plan). The PM's Economic Advisory Council has said t= he same thing. I must emphasise that the recipe for high growth is not just public investm= ent. Private investment is 70% of total investment and high growth depend= s crucially on private investment and its efficiency. Reforms must contin= ue if private enterprise is to do its bit. But, this growth process needs t= o be underpinned by public investment in crucial sectors of social and ec= onomic infrastructure which depends on the fiscal health of the governmen= t. Do you see economic growth getting stuck at the 5.5% to 6.0% of the past tw= o decades and economic policy getting stuck in political debates?=20 I certainly hope not, but that depends on whether our policies evolve in th= e right direction. I remain hopeful mainly because we have been able to mo= ve forward in the past decade even if fitfully. Five years ago, we were deb= ating insurance sector liberalisation. Now that is done with and over, and = nobody worries about it. Even on privatisation, look at Balco. There were f= undamentalist positions being taken, but the issue has been resolved. From = the fact that something looks very difficult today, we should not conclude = that nothing will happen. However, we must recognise that we cannot continu= e with this slow pace of change. It is not enough to make progress compared= to the past. In a competitive world we have to benchmark against our compe= titors and that is where progress is clearly not fast enough. I hope the Te= nth Plan can be used as an opportunity to re-review the momentum on a core = set of policy changes. If that is done, we should be able to reach 8.0% gro= wth. Otherwise it will be difficult. Are you worried that this year again we might slip on growth? The economy is decelerating at present and the first two months of this (fi= scal) year show no immediate sign of a turnaround. It is difficult to say w= hether the situation will turn around in the rest of this year. The global = slowdown wil
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