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Enron Mail |
THE HINDU Tuesday, May 22, 2001, http://www.the-hindu.com/stories/06220007.htm Not too late to save Enron project , Prem Shankar Jha=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 22, 2001, http://www.financialexpress.com/fe20010522/news1.htm= l Centre calls meet on May 25 to resolve termination notice crisis, Sanjay J= og The above article also appeared in the following newspaper: THE INDIAN EXPRESS Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/bus2.html Centre calls meet on May 25 to resolve Enron's PTN issue, Sanjay Jog ---------------------------------------------------------------------------= ------------------------------------------------------------- THE ECONOMIC TIMES Tuesday, May 22, 2001,http://www.economictimes.com/today/22econ20.htm FIs seek Centre's intervention in DPC-MSEB row ---------------------------------------------------------------------------= ------------------------------------------------------------- THE ECONOMIC TIMES Tuesday, May 22, 2001,http://www.economictimes.com/today/22econ14.htm Maha seeks legal opinion on termination notice The above article also appeared in the following newspaper: THE TIMES OF INDIA Tuesday, May 22, 2001,http://www.timesofindia.com/today/22indi30.htm Maharashtra for legal opinion on termination notice=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/corp7.html Domestic DPC lenders seek Centre's advice on course of action=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE HINDU BUSINESSLINE Tuesday, May 22, 2001,http://www.hindubusinessline.com/stories/14225601.htm Dabhol lenders draw blank with Finance Ministry , Shaji Vikraman , Balaji C= . Mouli=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE TIMES OF INDIA Tuesday, May 22, 2001,http://www.timesofindia.com/today/22busi3.htm Re-negotiation best: Deshmukh; lenders' SOS to Centre=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE HINDU BUSINESSLINE Tuesday, May 22, 2001,http://www.hindubusinessline.com/stories/14225602.htm Uncertainty over DPC presence at Godbole meet=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE INDIAN EXPRESS Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/nat2.html Pawar urges Centre to buy Enron power ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/news2.html MSEB not to pay capacity charges until receipt of Rs 401-crore rebate from = DPC=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE ECONOMIC TIMES Tuesday, May 22, 2001,http://www.economictimes.com/today/22econ04.htm Finding new buyers key to DPC's future ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/top4.html DPC to gain from ST waiver on naphtha, Sanjay Jog ---------------------------------------------------------------------------= ------------------------------------------------------------- THE ECONOMIC TIMES Tuesday, May 22, 2001,http://www.economictimes.com/today/22worl05.htm Enron sells stake in Dolphin to UAE Offsets The above article also appeared in the following newspaper: THE TIMES OF INDIA Tuesday, May 22, 2001,http://www.timesofindia.com/today/22inte2.htm Enron pulls out of major Gulf gas project=20 THE INDIAN EXPRESS Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/bus9.html Enron walks out of $3.5-bn UAE project ---------------------------------------------------------------------------= ------------------------------------------------------------- BUSINESS STANDARD Tuesday, May 22, 2001,http://www.business-standard.com/today/opinion3.asp?m= enu=3D8 FOCUS: THE ENRON CONTROVERSY, Dabhol: more heat than light A V Rajwade highlights some basic errors of omission and commission in the = Enron deal ---------------------------------------------------------------------------= ------------------------------------------------------------- THE TIMES OF INDIA Tuesday, May 22, 2001,http://www.timesofindia.com/today/22edit1.htm Business Unusual=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/fed3.html What happens when ignorance is bliss=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/fed1.html Learning by undoing=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE INDIAN EXPRESS Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/ed1.html Enron unplugged ---------------------------------------------------------------------------= ------------------------------------------------------------- THE HINDU BUSINESSLINE Tuesday, May 22, 2001,http://www.hindubusinessline.com/stories/042221ed.htm Messier and messier=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- BUSINESS STANDARD Tuesday, May 22, 2001,http://www.business-standard.com/today/edit1.asp?Menu= =3D9 Enr-off and Enr-out ---------------------------------------------------------------------------= ------------------------------------------------------------- BUSINESS STANDARD Tuesday, May 22, 2001,http://www.business-standard.com/today/edit2.asp?Menu= =3D9 The Godbole findings ---------------------------------------------------------------------------= ------------------------------------------------------------- Financial Times; May 21, 2001 Enron to quit India over unpaid bills POWER PROJECT COOLING-OFF PERIOD LOOK= S UNLIKELY TO SETTLE ACRIMONIOUS DISPUTE=20 BETWEEN US COMPANY AND BOMBAY CLI: KHOZEM MERCHANT ---------------------------------------------------------------------------= ------------------------------------------------------------- Financial Times, May 21, 2001 http://globalarchive.ft.com/globalarchive/articles.html?id=3D010521000893&;q= uery=3Denron India's power struggles: Enron's plight could mark a turning point in Indi= a's attempts to attract foreign investment, David Gardner: ---------------------------------------------------------------------------= ------------------------------------------------------------- Financial Times; May 22, 2001 http://globalarchive.ft.com/globalarchive/articles.html?id=3D010522001152&;q= uery=3Denron India unplugged=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- Financial Times; May 22, 2001 http://globalarchive.ft.com/globalarchive/articles.html?id=3D010522000904&;q= uery=3Denron Maharashtra pays the price for bad governance: Dispute with Enron has calle= d into question its status as India's preferred home for investment, KHOZEM MERCHANT ---------------------------------------------------------------------------= ------------------------------------------------------------- Financial Times; May 22, 2001 http://globalarchive.ft.com/globalarchive/articles.html?id=3D010522000903&;q= uery=3Denron Ally threatens to desert BJP coalition, DAVID GARDNER ---------------------------------------------------------------------------= ------------------------------------------------------------- THE ECONOMIC TIMES Tuesday, May 22, 2001,http://www.economictimes.com/today/22edit09.htm LETTERS TO THE EDITOR - Power corrupts... ---------------------------------------------------------------------------= ------------------------------------------------------------- THE HINDU Tuesday, May 22, 2001, http://www.the-hindu.com/stories/06220007.htm Not too late to save Enron project , Prem Shankar Jha=20 After months of tortured haggling and increasing bad blood, the Indian stat= e and Enron, the giant American energy transnational, have reached a partin= g of ways. Having failed to get the Maharashtra State Electricity Board pay= for the electricity it is buying from its Dabhol Power Compay; having fail= ed to get the Maharashtra Government to honour its commitment to pay MSEB's= dues in case the latter is unable to do so, and having failed to make the = Central Government honour its counter-guarantee of MSEB's dues, Enron has = served a preliminary notice of termination. This gives the two parties six = months to settle the dispute. After that the Government will have to pay En= ron a large sum in termination costs. If the MSEB fights this and loses, th= e compensation and penalties could add up to Rs. 17,000 crores or one and a= half times the cost of the entire project. Predictably, the air is full of= brave statements by the Maharashtra Chief Minister, State officials, bank = managers and Central Power Ministry officials, that this would be good ridd= ance. The Central Government virtually said as much first by claiming that = this was simply a dispute between a single power company and a State govern= ment; then by refusing to honour its counter-guarantee of MSEB's dues, and = finally by not sending its representative to the first meeting of the reneg= otiating committee that the State Government thrust down Enron's throat on = April 23.=20 By doing all this it implicitly endorsed the view expressed by the Godbole = Committee that the power purchase agreement was faulty; that Enron had infl= ated its costs and that the pricing system adopted was extortionate. The tr= uth is that renegotiation alone cannot save the Enron project because it ca= nnot bring the cost of power sold by it down to the level that the MSEB is = being allowed by the State Government to pay. Here are the bald facts. Thir= ty one per cent of the power generated by the MSEB is stolen or lost during= transmission. The balance 69 per cent is bought by 12 million paying consu= mers, of whom, by government orders, 10 million receive subsidised electric= ity. Chief of these are the so-called agriculturists who pay 16 to 25 per c= ent of the average book value cost of generation, the smaller of the small = scale industries, which pay a fraction less than the cost of generation, an= d the bulk of the domestic consumers. The MSEB attempts to recover the loss= by making industry and commercial establishments pay almost double the cos= t of generation.=20 But since a disproportionate share of these consumers is in Mumbai, where t= hey are served by Tata Electric Companies and BSES, in spite of charging 20= per cent more from industrial consumers than they do, the MSEB has been un= able to recover costs through cross-subsidisation. Between April 1997 and M= arch 2000, a succession of populist and irresponsible governments have forc= ed the MSEB to dole out Rs. 2,800 crores worth of subsidies. In 2000, the M= SEB was incurring a cash loss of about Rs. 5 crores a day, that is, 14 per = cent of the cost of generation. This was the situation in which Dabhol's fi= rst phase came on stream in June 1999. Since at 90 per cent capacity utilis= ation it would have added only 6 per cent to power generation and, even at = Rs. 5 per unit, the MSEB would have been able to cover the extra cost of En= ron power by raising average tariffs by a mere 5.5 per cent. But there has = been no increase in tariff since September 1998. That is the reason why the= MSEB simply could not face the prospect of buying the additional power tha= t Enron was capable of providing. It, therefore, sought to minimise its add= itional loss by buying barely a third of the Dabhol's generating capacity. = But since the capital charge was fixed, it found that this did not save muc= h. That was when it baulked at paying and began to look for a way to break = the power purchase agreement.=20 The Maharashtra Government's absolute refusal to reduce subsidies or curb p= ower theft spells the death of private power generation, whether by Indian = or foreign companies. This is because Maharashtra is no exception. Each and= every State electricity board is being prevented today from charging an ec= onomic price for power by populist and unstable State governments, while th= e Centre looks helplessly on. As a result, two foreign companies, Cogentrix= and Electricite de France, have already formally pulled out. Thirteen priv= ate power projects with a generation capacity of 6,275 MW have not invested= a single rupee so far despite having achieved financial closure and obtain= ed all necessary permissions. Among them is a third foreign investor, Daewo= o. This has forced the participating banks to cancel their loans to 10 of t= hem.=20 In Maharashtra, two more large plants, Ispat's 1,082 MW plant at Bhadravati= and Reliance's 437 MW plant at Patalganga, which were awaiting the outcome= of the Enron struggle, will now almost certainly be given up. All this is = happening when the country faces a 10 per cent overall and 32 per cent defi= cit in peak power supply. It is still not too late to salvage the Dabhol pr= oject on terms that are fair to the MSEB as well as Enron. The Centre can b= ring down the capital component of the electricity tariff by buying the CNG= terminal, port facilities and re-gasification plant from Enron, and bringi= ng in a strategic partner to run it as a separate enterprise. This will bri= ng the cost of the power project down from $2.8 billion to $2.2 billion. Th= e capital charge on the MSEB will come down by over 20 per cent and, since = capital charges are 55 to 60 per cent of the tariff, the cost of electricit= y will come down by 12 per cent.=20 When the second phase of the plant is complete in six months or so, at 90 p= er cent of capacity utilisation, the cost of power will come down to Rs. 3.= 15 to 3.20 per unit. This will be the lowest for a new plant in the country= . Second, since only three quarters of the equity and debt capital have bee= n raised abroad, and approximately the same proportion of running costs is = incurred in foreign exchange, only this proportion of the total tariff shou= ld be pegged to the exchange rate. This will substantially moderate the fut= ure increase in power costs for Enron. But even this settlement will requir= e the State Government to raise the average tariff to a point where it will= absorb the marginal cost of generating electricity from new plants. The Ce= ntre will have to point this fact and take measures to enforce this rule of= pricing throughout the country.=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS, Tuesday, May 22, 2001 Centre calls meet on May 25 to resolve termination notice crisis, Sanjay J= og THE BJP-led Central government, which has come under severe attack for its = not-to-worry attitude, has finally decided to act and has convened a crucia= l meeting on May 25 to take stock of the situation in the wake of issuance = of preliminary termination notice (PTN) by the Dabhol Power Company (DPC) t= o the Maharashtra State Electricity Board (MSEB). The meeting would be atte= nded by the officials from the union ministries of finance, power, oil and = natural gas, Maharashtra government and the MSEB. It is likely that the DPC= officials would also be invited for the May 25th meeting in a serious bid = to send a "positive" signal across the world. Union minister of state for e= nergy Jayavantiben Mehta confirmed the May 25 meeting and told The Financia= l Express that the Centre would always try to help the state government fin= d a way out. "However, the signatories for the power purchase agreement - = the MSEB and DPC - should first try to overcome the crisis and then and th= en only can the Centre intervene," Ms Mehta said. "Various options can be c= onsidered to resolve the Dabhol imbroglio," Ms Mehta said in a telephonic c= onversation. However, she declined to divulge any further details. Sources said that Ms Mehta, in the absence of cabinet minister Suresh Prabh= u who is abroad, took a lead and briefed Prime Minister Atal Behari Vajpaye= e and finance minister Yashwant Sinha after the issuance of the PTN by DPC.= Ms Mehta is believed to have stressed the need for a meeting of all partie= s involved in the Dabhol project. The May 25 meet was fixed as Mr Prabhu is= expected to reach New Delhi on late May 23 or early May 24. In addition to= this, the Centre wants to wait until it receives a briefing from its nomin= ee and former bureaucrat AV Gokak who would attend the May 23 meeting of th= e Madhav Godbole renegotiation committee. In a related development, the MSE= B on Monday has sent copies of the PTN to the respective union ministries f= or their perusal. MSEB's top officials, comprising chairman Vinay Bansal on= Monday closeted with its legal advisors to examine the PTN and its impact.= State chief minister Vilasrao Deshmukh said that his government has also s= ought legal opinion on the issuance of PTN. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= -------- THE ECONOMIC TIMES,Tuesday, May 22, 2001 FIs seek Centre's intervention in DPC-MSEB row FOLLOWING Enron-promoted Dabhol Power Company's issuance of the preliminary= termination notice to the Maharashtra State Electricity Board, its Indian = lenders have once again decided to seek the Centre's intervention to solve = the imbroglio. "Like our earlier efforts, even this time, we wish that the = Union government intervene and help defuse the entire crisis amicably," fin= ancial institution sources said. Indian lenders, led by Industrial Developm= ent Bank of India and a consortium of several banks -- including State Bank= of India and ICICI -- have lent around $1.4 billion of DPC's $3-billion, 2= ,184-mw project in Dabhol. In fact, the sources said, IDBI, along with the = global lenders, had written to Union finance secretary Ajit Kumar in the fi= rst week of this month, seeking the Centre's intervention to direct MSEB an= d the Maharashtra government to pay dues of up to Rs 213 crore towards Nove= mber and December 2000 bills "We had also asked the Centre to convince MSEB= , and restrain it from issuing a termination notice to DPC," they said.=20 However, Kumar in his reply, had put the ball in the lenders' court and ask= ed the Indian FIs to take "the course deemed fit to them in this case". Wit= h reference to the notice, sources said the Indian Fis had been very critic= al of the move and that they had voted negative when DPC had sought for a m= andate by May 18, during the three-day tele-conferencing of all the lenders= . "We think the matter is a not a boxing match, but a commercial dispute, w= hich could be solved by negotiations," they said. Expressing doubts about f= urther funding to DPC, in view of the notice, sources said: "We have to thi= nk whether they can disburse the remaining 20 per cent funds of around $250= million following the PTN." The Indian FIs were also upset about the fact = that DPC did not wait for the voting scheduled to be completed on Monday, a= s it had received the required mandate from ABN-AMRO-led offshore consortiu= m. "We are sure that the foreign lenders must have exercised their vote on = May 18 night itself, immediately after the end of the tele-conference," the= y added. "This proves that DPC had already made up its mind over the PTN, b= ut such a hasty step will not deter us Indian lenders to vote against the = PTN," the lenders said.=20 DPC had also convinced the foreign lenders that the state government had br= eached the PPA and the very fact that the government constituted the review= committee indicated that it did not want to support the agreement, the sou= rces said. Moreover, in DPC's April 25 London board-meet, an IDBI official = had tried to convince the foreign counterparts to refrain from PTN, and req= uested DPC to resort to re-negotiation. (PTI) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------- THE ECONOMIC TIMES, Tuesday, May 22, 2001 Maha seeks legal opinion on termination notice THE MAHARASHTRA government has sought legal opinion on the preliminary ter= mination notice served by Enron promoted Dabhol Power Company to the State = Electricity Board. "We have asked our officers to take legal opinion and ac= cordingly we will pursue the matter," chief minister Vilasrao Deshmukh told= reporters on the sidelines of the conference of chief ministers on WTO agr= eement here on Monday.=20 Stressing on resolving the tangle by way of renegotiating the power purchas= e agreement, he said that Mahrashtra State Electricity Board had not slappe= d another Rs 400 crore penalty notice on the US energy company. "No notice = has been given. I talked to MSEB chairman who said that no notice has been = given," he said. Earlier MSEB sources were reported to have said that the b= oard had decided to go ahead with its decision to slap yet another Rs 400 c= rore penalty on DPC for mis-declaration and default on the availability of = power. The proposed penalty is in the wake of DPC's inability to produce po= wer on February 12 and March 13 as per MSEB's demand in stipulated time of = three hours as per the power purchase agreement, they said. (PTI) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= -------- THE FINANCIAL EXPRESS, Tuesday, May 22, 2001 Domestic DPC lenders seek Centre's advice on course of action=20 THE domestic financial institutions (FIs) led by Industrial Development Ban= k of India (IDBI) have asked the Centre to advise them on the further cour= se of action, in the backdrop of both the Dabhol Power Company (DPC) and th= e Maharashtra State Electricity Board (MSEB) serving each other preliminary= termination notices (PTN) for the $3 billion power project. This is despit= e the fact that Mr Ajit Kumar, finance secretary, in his earlier reply to t= he FIs' letter had put the ball back in the lenders' court, asking them to = take "the course deemed fit for them in this case." The domestic lenders ha= d also asked the Centre to convince MSEB, and restrain it from issuing a PT= N to DPC. "Like our earlier efforts, even this time, we hope the Union gove= rnment would intervene and help defuse the crisis amicably," sources in fin= ancial institutions said. Indian lenders led by IDBI and a consortium of several banks including the = State Bank of India and ICICI have lent around $1.4 billion out of DPC's to= tal $3 billion 2,184 mw project in Dabhol. In fact, the sources said, IDBI= , along with the global lenders, had written to the union finance secretary= Ajit Kumar in the first week of this month, seeking Centre's intervention = to direct MSEB and the state government to pay dues up to Rs 213 crore towa= rds the November and December 2000 bills. With reference to the PTN, source= s said the Indian FIs been highly critical of such a move and that they ha= d voted negative when DPC had sought a mandate by May 18, during the three = day tele-conferencing of all lenders. "We think the matter is a not a boxin= g match, but a commercial dispute, which could be solved by negotiations," = they said. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= -------- THE HINDU BUSINESSLINE, Tuesday, May 22, 2001 Dabhol lenders draw blank with Finance Ministry , Shaji Vikraman , Balaji C= . Mouli=20 THE Indian lenders to the Dabhol power project, led by Industrial Developme= nt Bank of India (IDBI), have met with a cold response from the Finance Min= istry to its request to the Government to help protect its loan exposure an= d to honour the power purchase and counter-guarantee agreements. The domest= ic lenders, who have a debt exposure of over $1 billion to the project, had= sought the intervention of the Government to resolve the deadlock over the= outstanding payment to the power utility from the Maharashtra State Electr= icity Board (MSEB) and the Maharashtra Government. Indian financial institu= tions and commercial banks will be in a spot of bother as they do not enjo= y the comfort of their exposure to Dabhol Power Company (DPC) being covered= under the counter guarantee agreement.=20 The threat to the FIs has now arisen because of the preliminary termination= notice under Sec.17 of the power purchase agreement has been served by the= project sponsor. The counter-guarantee agreement covers only the foreign l= enders. According to the agreement, the foreign debt component equivalent t= o the foreign equity in the project is guaranteed free of cost. For the rem= aining part of the foreign debt, the sponsor would have to pay an interest= charge of 1.2 per cent on a reducing balance basis.=20 The Indian lenders to the project is led by IDBI, which has advanced funds = aggregating Rs 1,700 crore, and includes ICICI, IFCI, State Bank of India a= nd Canara Bank. Besides the rupee loans, IDBI has provided a guarantee for = a $200-million line of credit extended to DPC by the US Exim Bank. Accordin= g to senior Government officials, the Ministry has taken the view that the = Indian lenders would have to act on their own in this case as it is their c= ommercial judgement which prevailed when the loan was disbursed at high int= erest rates to DPC. ``Prior to sanctioning of the loan, they never approach= ed the Government. After the mess, they want the Government to bail out the= m. It only reflects their short-sighted approach,'' a Ministry official sai= d. The consortium of lenders to the Dabhol project want the MSEB and the Ma= harashtra Government to increase the escrow cover and also the line of cred= it to DPC. The Maharashtra Government has, however, refused to oblige sayin= g that the company had already invoked politicial force majeure. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= -------- THE TIMES OF INDIA,Tuesday, May 22, 2001 Re-negotiation best: Deshmukh; lenders' SOS to Centre=20 ``The (best) solution lies in an amicable settlement,'' remarked Maharashtr= a CM Vilasrao Deshmukh to journalists' queries here on Monday regarding th= e Enron standoff. The CM, who was here at the meeting called by the PM to d= iscuss India's position at the WTO talks on agricultural trade, reiterated = the basic point: His government was keen on negotiating and that was the on= ly way out. The Maharashtra electricity board just cannot afford to buy Enr= on's generation at the current price, he said. Queried on the latest set of= notices between the two parties, Deshmukh said what was being aired verbal= ly is not so important. What is more to the point is a willingness to find = a way out. PTI adds from Mumbai: Following Enron-promoted Dabhol Power Company's issua= nce of the preliminary termination notice (PTN) to MSEB, its Indian lenders= have once again decided to seek the Centre's intervention to solve the im= broglio. "Like our earlier effort, even this time, we wish that theUnion go= vernment intervene and help diffuse the entire crisis amicably", FI source= s said. The Indian lenders, led by IDBI and a consortium of several banks i= ncluding SBI and ICICI have lent around $ 1.4 billion out of DPC's total $= 3 billion 2,184-MW project in Dabhol.=20 In fact, the sources said, IDBI along with the global lenders had written t= o Union finance secretary Ajit Kumar in the first week of this month, seeki= ng the Centre's intervention to direct MSEB and the Maharashtra government = to pay dues up to Rs 213 crore towards the November and December 2000 bill= s."We had also asked the Centre to convince MSEB, and refrain it from issu= ing a termination notice to DPC," they said. However, Kumar in his reply, = had put the ball in the lenders' court and asked Indian FIs to take "the co= urse deemed fit to them in this case". ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------- THE HINDU BUSINESSLINE, Tuesday, May 22, 2001 Uncertainty over DPC presence at Godbole meet=20 THERE is uncertainty about Dabhol Power Company (DPC) officials' attendance= at the second negotiation meeting on May 23 chaired by Dr Madhav Godbole. = The company had said that the Godbole committee report ``should not form th= e basis for any future discussions''. ``They (DPC) have not informed us abo= ut staying away from the meeting. So we will assume that they will be prese= nt. But if they do not come, it will be the end of the dialogue for negotia= tion,'' a senior State Government official said. The Centre's representativ= e, Mr A.V. Gokak, will attend the May 23 meeting, the official said.=20 DPC had objected to the absence of the Centre's representative at the last = meeting. ``GoI did not even bother to send a representative to the initial = renegotiation committee meeting on May 11,'' the company had said when issu= ing the preliminary termination notice. DPC's spokesperson declined to comm= ent on being asked if the company's representatives would attend the secon= d meeting of the Godbole panel. Meanwhile, senior officials of the State Go= vernment have expressed concern over neglect in appointing the third concil= iator to enable the conciliation process between the Union Government and D= PC. ``The conciliation process has to be completed within 60 days, which me= ans the deadline falls on June 7,'' a senior State Government official said= . ``But they're still looking for the third person,'' he said. In its state= ment when issuing the preliminary termination notice on Saturday, the compa= ny has put down the Union Government's ``failure to respond positively to D= PC lenders' written requests for assurances'', as one of the reasons for is= suing the notice. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------- THE INDIAN EXPRESS, Tuesday, May 22, 2001 Pawar urges Centre to buy Enron power NATIONALIST Congress Party president Sharad Pawar has urged the Union Gover= nment to play a supporting role in the Enron controversy by purchasing addi= tional power from the Dabhol Power Company (DPC). Speaking to mediapersons,= Pawar said Maharashtra was not in a position to purchase 2000 MW of power = from phase II of DPC and the Union Government should come forward to purcha= se it. He said the government could purchase power from DPC as several stat= es were facing a shortage. The NCP leader said the DPC had not taken a wise= step by sending a notice to the Maharashtra State Electricity Board (MSEB)= . It should have sorted the issue through negotiations. When specifically a= sked about the Godbole Committee set up by the Maharashtra government, Pawa= r said the views of Godbole on the issue were known to all. But three of th= e members resigned from the committee, putting a question mark on its funct= ioning. Pawar said it would be wise for both the DPC and Maharashtra government to = solve the issue through discussions, instead of fighting a legal battle. As= ked whether he would persuade the Union Government to change its stand, Paw= ar said Chief Minister Vilasrao Deshmukh and Energy Minister Padmasinh Pati= l were making efforts in the same direction. He said the DPC should also ha= ve brought down its purchase rates in view of the complications, adding tha= t it would not be in the interests of Maharashtra if the matter was taken u= p to the tribunal. He said the issue would send wrong signals to the foreig= n investors, which will ultimately halt the economic growth of the country. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= -------- THE FINANCIAL EXPRESS, Tuesday, May 22, 2001 MSEB not to pay capacity charges until receipt of Rs 401-crore rebate from = DPC=20 THE Maharashtra State Electricity Board (MSEB), which would slap a rebate o= f nearly Rs 800 crore for misdeclaration and default on the availability of= power in February and March by the DPC, has threatened not to pay capacit= y charges until DPC makes the payment of rebate of Rs 401 crore charged fo= r the January 28 default. MSEB sources told The Financial Express that it h= as paid a whopping Rs 1,806 crore to DPC towards capacity charges during M= ay 1999 and February 2001, on a monthly basis. However, the successive occurrences of shortfall in actual generation under= mines the entire basis of the power purchase agreement (PPA) and the "MSEB = is entitled to be discharged from further performance in terms of the PPA, = due to DPC's failure to perform its obligations in terms of the PPA," sourc= es said. MSEB on or about March 27, 2001 paid "under protest" the capacity = payment of about Rs 83.04 crore for the month of February 2001, having take= n a view that in terms of the PPA, the rebate would be adjusted in May 2001= . "However, given the fact that DPC has raised disputes in order to avoid = and/or delay adjusting the rebates and the successive breaches by DPC, MSEB= may be entitled to be relieved of its future obligations - making capaci= ty payments until such disputes are finally determined," MSEB sources said= . In view of DPC's admission with regard to failure on its part and its incap= ability to adhere to the provisions of Schedule 6, and/or the inability of= the Dabhol plant to perform according to the Dynamic Parameters and Operat= ing Characteristics, DPC is not entitled to insist that its December 2000 b= ill (Rs 102 crore) should be paid in full without any adjustment. According= to the MSEB, the clear intent of Clause 11 (b) (ii) of the PPA is that DPC= would compute the rebate in accordance with Clause 10.2 and the amounts wo= uld be duly adjusted in the months of January, May and September, and that,= thereafter, if after such adjustment, further amounts are still payable to= MSEB, the same would be paid and/or adjusted against future capacity payme= nts. "This breaks down if DPC refuses to calculate the rebate, make necessa= ry adjustments, make payment, and resorts to the dispute resolution procedu= re. Therefore, MSEB is entitled to adjust and/or withhold amounts as it has= a legitimate claim against DPC," sources said. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= -------- THE ECONOMIC TIMES, Tuesday, May 22, 2001 Finding new buyers key to DPC's future THE MAHARASHTRA government and the Centre are exploring the possibility of = an Indian company taking over the Dabhol Power Company, the subsidiary of U= S energy major Enron that is mired in a major power tariff dispute with the= Maharashtra State Electricity Board. According to Maharshtra government of= ficials, the sale of Enron's stake in DPC to an Indian company in the priva= te or public sector is being seen as the honorable way out of the dispute b= etween the company, the government and the MSEB. According to a source, the= Maharashtra government is under pressure from lending agencies, foreign in= vestors and the US government to save the $3-billion Dabhol project. Abando= ning it could result in payouts of about Rs 17,000 crore to Enron, he said.= =20 Under the counter guarantees provided by the Indian government, compensatio= n would include returns on investment made by Enron in the DPC project. Fin= ancial institutions like the Industrial Development Bank of India, ICICI an= d the State Bank of India could face major losses as they have given guaran= tees to international lenders, officials say. Maharashtra has already begun= to cover its flanks by charging DPC with providing insufficient services a= nd installing substandard equipment to prevent its facility from generating= 95 per cent power. A penalty of Rs 401 crore was slapped on the company la= st month for not providing power to MSEB at a notice of three hours. It has= now been decided that a notice for a similar penalty will be sent in June = as well, officials here said.=20 MSEB officials have been quoted as saying that no bills would be paid to th= e company after the April bill of Rs. 1.39 billion. The bills for the remai= ning months would be adjusted against the penalty. With Enron hardening i= ts stand, it is possible the company could stop power supply from June, the= y indicated. Although the DPC has issued the preliminary termination notic= e, the actual process of terminating the PPA could take as long as six mon= ths. "This initiates the process of terminating the power purchase agreemen= t with the Maharashtra State Electricity Board," DPC said.=20 Simultaneously, it said it was open to "constructive" negotiations on the i= ssue. The DPC is demanding that the Central government participate in the n= egotiations between Enron and MSEB or provide credit support to purchasers = of its power as a pre-condition to talks. "While a lasting and feasible so= lution to this issue may be possible, it can only occur if the parties cont= ractually bound to purchase DPC power (MSEB with guarantees from state and = central government) are willing to either purchase themselves or find "othe= r" creditworthy entities," the company said.=20 Enron also said the report of committee on renegotiating the power purchase= agreement should not be the basis for discussions. The stalemate in the pr= oject follows the Maharashtra government disputing payments for power purch= ased by the MSEB from the DPC. The government cleared its February and Marc= h outstanding of Rs 113 crore and= Rs 134 crore respectively but under protest. The DPC currently produces 74= 0 MW of power. This is to go up to 2,184 MW if and when the second phase of= the project goes on stream. (IANS) ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS, Tuesday, May 22, 2001 DPC to gain from ST waiver on naphtha, Sanjay Jog THE Maharashtra government has waived the 5.4 per cent sales tax on napht= ha supplied by Indian Oil Corporation (IOC) for Dabhol Power Company (DPC).= Mantralaya sources told The Financial Express that the decision would be= nefit not only DPC but also other electricity utilities operating in the s= tate. Although the energy, finance and planning departments have cleared t= he file pertaining to this issue, it would be taken up for the Cabinet's a= pproval only at its meeting on May 23. Sources said instead of considering= the DPC's case in isolation, the state government had taken a broader vie= w in offering the naphtha sales tax waiver to utilities operating in the s= tate. "The objective is to refrain these utilities from procuring naphtha from G= ujarat. Had these utilites procured naphtha from Gujarat, the latter woul= d have earned a revenue of over Rs 40 crore annually," the sources added. = Analysts said the state government's move would draw criticism especially = from the anti-Enron lobby. According to them, although it is a coincidence = that the file in this regard was cleared after the issuance of preliminary= termination notice (PTN), the government would have to convince its const= ituents which have been pressing for the scrapping of the Dabhol project.= =20 Ironically, the state finance and planning department had, in the past, que= stioned naphtha sales tax waiver on the grounds that its approval for DPC= in particular would not be possible as the Shiv Sena-BJP alliance governm= ent had already reduced the sales tax on naphtha from 15 per cent to 4 per= cent in 1995. However, the department relented and is believed to have agr= eed to clear the file by making it clear that the waiver will be applicable= to all utilities and not DPC in particular. Since January this year, DPC = has been pressing for the full waiver of sales tax on the 1.2 million tonne= of naphtha procured from IOC during the calender year 2001.=20 The company had pointed out that any tax levied on the naphtha purchases wi= ll lead to tariff increase and would add to the burden on the consumers "a= s the cost of fuel is passed to MSEB under the power purchase agreement". = DPC had said MSEB would have to bear an additional burden of about Rs 71.5= crore in 2001 as a result of the net impact of local sales tax. "Given the= effect of a tariff increase for electricity consumers in the state, ... gr= ant us full exemption of tax on local purchase of naphtha by issuing neces= sary notification under section 41 of Bombay Sales Tax Act," the company p= resident and ceo Neil Mcgregror had in one of his recent communications to = the state government said. Further, the energy department and MSEB had sup= ported the DPC's stand and had said MSEB was not in a position to take the= additional burden in view of its present precarious finances. The MSEB ha= d requested the state energy department that the finance department should = clear sales tax waiver to DPC "as a special requirment."=20 ---------------------------------------------------------------------------= ------------------------------------------------------------- THE ECONOMIC TIMES, Tuesday, May 22, 2001 Enron sells stake in Dolphin to UAE Offsets US Enron has bowed out of a $3.5-billion project to route Qatari gas to the= United Arab Emirates and sold its stake in Dolphin Energy, the project cha= irman and US firm announced on Monday. Enron sold its stake to the UAE Offs= ets Group for an undisclosed amount. Richard Bergsieker, the US firm's Midd= le East MD, told a news conference in Abu Dhabi that Enron did not believe = it could add much to the project in its current stage. "As the project had = evolved into a strong upstream gas supply project and gas transport and del= ivery, we don't believe there is a lot of value that Enron can add," he exp= lained. "The project requires longterm equity investment in upstream and E= nron is frankly not an upstream company."=20 DEL chairman Ahmed Ali al-Sayegh had earlier said Enron had agreed to trans= fer its 24.5 per cent stake in Dolphin to UOG for an undisclosed amount, ra= ising the UAE firm's stake to 75.5 per cent. TotalFinaElf holds the remaini= ng stake. Patrick Rambaud, TotalFinaElf's senior vice-president for the Mid= dle East, said his firm has formally asked UOG to increase its own stake = in the project. Sayegh, however, said UOG is seeking a different partner. "= We are studying the TotalFinaElf request...(but) there will be another part= ner in the project," he said. "Starting tomorrow, we will begin negotiatio= ns with the global firms who have shown interest in acquiring a state. The= y are more than eight companies." He refused to name the firms but said "ev= erybody who is working in the Gulf is interested. We are not in a hurry to = choose a partner." Qatar and DEL in March signed a "commercial term sheet a= greement" which outlined the conditions of the upstream agreement for the l= ong-awaited $3.5bn project. The two sides aim to sign a production-sharing = agreement by the end of the third quarter '01. Sayegh said they would stic= k to that deadline. "The latest date is mid-September," he added.=20 Qatar, which sits on the world's third largest gas reserves, is seeking to = boost its natural gas exports to the Gulf after investing billions of dolla= rs to tap its vast gas riches. The gas deal will entitle DEL to develop a t= ract of Qatar's giant North Field and produce up to two billion cubic feet = per day. UOG is to invest $2 billion in developing the tract, drilling and = setting up of production facilities. The remaining $1.5 billion would be in= vested to lay a pipeline and set up receiving terminals at Dubai's Jebel Al= i and Taweelah in Abu Dhabi. First gas is targeted to reach the UAE capital= Abu Dhabi by late '04 or early '05. 1-1.5 billion cfd of Qatari gas would = be used by utilities in Abu Dhabi and the remainder supplied to Dubai. DEL = has started inviting local, regional and international companies to prequal= ify for five contracts between May 19-23 following the establishment of a t= echnical project team to oversee the implementation of the first cross-bord= er gas pipeline project in the Middle East. Engineering and construction ma= nagement firms will have two weeks to submit their prequalification stateme= nt for each contract after the date of the official announcement. (Reuters) ---------------------------------------------------------------------------= ------------------------------------------------------------- BUSINESS STANDARD, Tuesday, May 22, 2001 FOCUS: THE ENRON CONTROVERSY, Dabhol: more heat than light A V Rajwade highlights some basic errors of omission and commission in the = Enron deal The general impression propagated by the critics of the Enron-promoted powe= r project, and often accepted by the man on the street, is that MSEB and, a= s a by-product, the citizens of Maharashtra, are victims of very high-cost = power; that the agreements were signed at the behest of corrupt politicians= ; and that, therefore, the best course of action is to tear up the agreemen= ts and forget about it. But the first phase of the power plant has been in = operation for a few years, and the second phase is also reportedly 92 per c= ent complete. These are genuine productive assets that the economy will eve= ntually need, and cannot be wished away. Nor can the country afford to rene= ge with impunity, solemnly undertaken financial obligations. In my regular = weekly column (World Money, which appears on Mondays), I have been a suppor= ter of foreign investment and had criticised the initial stance of the BJP-= Shiv Sena government, which had terminated the contract, only to revive the= project on a much bigger scale, on the basis of the efforts of a renegotia= tion committee appointed by it.=20 The controversy has once again become front-page news, given the inability = of MSEB to pay the dues of Dabhol Power Company (DPC). In turn, the MSEB ha= s served notices for what it claims are dues from DPC because of defaults, = and the whole matter has become a first-class mess. The recent report of th= e Godbole Committee is certainly a step in the right direction, and the gov= ernment has appointed another group, once again led by Mr Godbole, to reneg= otiate the contracts with DPC/Enron. Theoretically of course there are thre= e possible culprits - politicians, a devious Enron that corrupted them, or = a system whose competence (and professional commitment) was less than adequ= ate to evaluate the project properly.=20 To be sure, the committee has, while commenting on how the tariff was shown= to be within government of India norms, felt "this combination of circumst= ances to be beyond the realm of coincidence". This is the closest it has co= me to questioning the motives of those involved. But before drawing conclus= ions, consider some basic issues. Demand estimation: The report concludes t= hat gross errors were committed in estimating the total amount and nature o= f the demand for power in the state. The growth in the high tariff group ha= s been very limited (surely this was foreseeable - at a particular MSEB tar= iff, industry finds it cheaper to generate captive power), while low-tariff= demand has grown steadily.=20 Again, the report argues that, on the supply side, MSEB had enough generati= ng capacity available for the so-called "base load", to meet which plants h= ave to run 24 hours a day. MSEB really needed generating capacity, even acc= ording to its own demand projections, for the intermediate and peak loads. = While the fuel envisaged to be used in DPC is ideal to take care of this, t= he plant load factor (PLF) used for cost and tariff calculations is complet= ely unrealistic for such a power plant. Were these major errors in demand e= stimation and so on or political failure or system weaknesses?=20 Return on equity: If there were gross errors in the demand-supply projectio= n side, the assured 16 per cent return on equity, (at 68.5 per cent PLF) af= ter tax, is also open to serious questioning. What is truly amazing is that= the return was the same in percentage terms irrespective of whether the eq= uity was contributed in rupees, dollars or perhaps even yen -and that too i= n the respective currencies! The Maharashtra government is not responsible = for this: it is government of India policy, cleared at the highest minister= ial levels. Before adopting the norm, did we use concepts like Capital Asse= t Pricing Model (CAPM) which show that equity market returns in all countri= es are not identical; that they crucially depend on the risk-free rate of i= nterest which is different for each currency.=20 Again, there are robust benchmarks available for quantifying the political = risk that a foreign direct investor faces (for example, the premium charged= for different countries by the Multilateral Investment Guarantee Associati= on of the World Bank). Was such analysis done before the 16 per cent tax-fr= ee norm, and exchange-rate protected returns, were assured? If not, who is = responsible? The discount rate: I started thinking about the discount rate = used in the Power Purchase Agreement (PPA), for the calculation of the fixe= d charge, on a simple issue. If for the first phase, the fixed charge is Rs= 95 crore per month or, say, Rs 1,000 crore per annum, and is payable for t= he next 20 years, what should be the rate of discount at which the present = value of these payments would be roughly Rs 3,000 crore, which is the cost = of the first phase?=20 Moreover, the bulk of the fixed charge is indexed to the dollar-rupee excha= nge rate - in other words, for all practical purposes, the fixed charge is = a dollar-denominated outflow as far as MSEB is concerned. It seems that now= here is the discount rate used for calculating the present value of the fix= ed charge outflows specified or documented! Empirical analysis seems to ind= icate that the rate is about 17 per cent per annum! It is worth noting that= even in the dark days of monetary tightness in 1996, a 17 per cent discoun= t rate would be too high for simple rupee obligations guaranteed by the gov= ernment of India - it is absurd for discounting a stream of what are effect= ively dollar payments.=20 Elementary financial economics requires that for calculating the present va= lue of a dollar stream, the discounting rate should be based on the US trea= sury bond yields of corresponding duration. This has never been more than 7= per cent after 1994. For the desired present value, therefore, the correct= fixed charge needs to be perhaps 40 per cent of what it is now! There is a= similar logical flaw in the dollar-denominated O&M charges being subject t= o Indian inflation. While the latter point has been commented on in the rep= ort, the former has not been adequately weighed.=20 To be sure, this is something of a technical issue and one cannot expect th= e average minister to understand it. The actual discount rate used has infl= ated the fixed charges enormously: one suspects that Enron knew this, hence= the obvious efforts to hide the number. But surely the MSEB and other offi= cials and advisers dealing with the negotiations, should have appreciated t= he crucial importance of the number, and insisted on ascertaining the disco= unt rate? It could of course be argued that the political pressure was such= that the civil servants were silenced from voicing any objections they may= have had on the various issues. Is there any evidence in the notings on va= rious papers to support that the issues of financial economics pertaining t= o the case had been pinpointed? How is it that the impracticability, nay im= possibility, of more than half of MSEB's revenue being escrowed for a singl= e plant was not noticed by anybody? Were not at least some of the issues im= portant and significant enough for the financial health of MSEB, and indeed= the Maharashtra government, for at least one bureaucrat to stand up? A way out: The Godbole committee has recommended a package of proposals to= resolve the tangle. One would like to add a suggestion worth exploring. Th= is is based on what happened in the now celebrated dispute between Procter = & Gamble (P&G), the US multinational, and Bankers Trust Company (BTC) in th= e United States. P&G had entered into various, complex derivative contracts= with BTC. When it incurred huge losses, it sued BTC on the grounds that it= was persuaded to sign contracts the implications of which it had not under= stood properly, and that therefore the amounts already paid by it should be= refunded and the contracts voided.=20 Admittedly, this was a novel plea to be taken by a litigant of P&G's standi= ng. Unfortunately, the case was settled out of court with BTC paying $ 100 = million-plus to P&G. But if P&G can claim that it did not understand the im= plications of a financial contract, so surely can MSEB, particularly in rel= ation to discounting rate or the return on equity, and demand the contracts= be voided or renegotiated? But it is the Godbole Committee that should hav= e the last word on the issue: "The Committee would like to state strongly t= hat none of the solutions espoused for IPPs ... and DPC in particular is te= nable without the reform of MSEB, especially its distribution business." Th= at, perhaps, is the crux of the controversy. ---------------------------------------------------------------------------= ------------------------------------------------------------- THE TIMES OF INDIA, Tuesday, May 22, 2001 Business Unusual=20 Is India serious about the business of business? Two recent developments ra= ise this question, and the answer may well determine whether India can achi= eve its true economic potential or will continue to lurch along, doing the= best it can under the circumstances. The first is the Dabhol Power Company= 's issuance of a pre-termination notice to the Maharashtra State Electricit= y Board. This is the first step in a process that could eventually culmina= te with Enron pulling out of India. Many people might celebrate that, sinc= e the deal has been riddled with controversy right from the start. So, we = should perhaps remind ourselves why the need was felt for such a project = - because lack of power was accepted as one of the primary infrastructural= problems in India. After all these years, things have only got worse. Than= ks to politically-dictated tariffs, inefficiency and widespread theft, our = state electricity boards collectively owe central power utilities Rs 26,00= 0 crore. Given the financial woes of their primary consumer, the SEBs, prod= ucers can hardly be blamed for seeking some sort of financial safeguards be= fore they set up shop. The question then arises whether the safeguards Enro= n sought were prohibitive. It is high time the Centre takes a clear stand o= n the issue. It should either clearly state that the Enron deal is good for= India, in which case it should bend over backwards to save it. Or it shoul= d flatly say the deal is unviable, and mount a public relations campaign to= minimise the effect of the contract being scrapped on other potential inve= stors. But before that, it should explain why a Central counter-guarantee w= as issued in the first place. The second development is the steadily intensifying confrontation between t= he government and the trade unions. As in the case of Enron, there are two = clearly polarised camps talking at, not to, each other. Predictably enough,= the unions are upset about the proposed move to make it easier for organis= ations to fire workers. The fact that there is also a proposal to treble th= e retrenchment compensation from 15 days to 45 days per year of completed s= ervice is being ignored. The logic of reforming labour laws is well-known: = it is necessary to make Indian industry globally competitive; it will make = both the labour and capital markets more flexible, which will create faster= growth; states which are ostensibly labour-friendly only end up driving aw= ay industry and increasing unemployment. Repeating these arguments, unfortu= nately, amounts to preaching to the converted. People who support labour la= w reforms already know all this, while the trade unions simply aren't willi= ng to listen. So what can be done? The only way out is for the government t= o bypass the self-appointed representatives of the disadvantaged, and start= hardselling reforms directly to this constituency. It should step up the c= ommunication effort, rather than trying to present reforms as a fait accomp= li, which can only generate suspicion and resentment. It should admit that = in its effort to be a benevolent parent, it botches up too many things. So = it makes more sense for it to focus on just a few things, like education, l= aw and order, health and nutrition, and providing safety nets for the dispo= ssessed. If the government can improve its performance in these areas, it m= ight find people less fearful at the thought of taking responsibility for = themselves. ---------------------------------------------------------------------------= ------------------------------------------------------------- THE FINANCIAL EXPRESS, Tuesday, May 22, 2001 What happens when ignorance is bliss=20 Ministry of Power ignored Planning Commission's advice on direct sale , G = V Ramakrishna One of the solutions to the problems associated with the power purchase agr= eements (PPAs) between independent power producers (IPPs) and the state ele= ctricity boards (SEBs) now being proposed is the direct sale of power by IP= Ps to blue-chip industrial customers. The Godbole Committee also is reporte= d to have suggested that this should be explored in the case of the Dabhol = project. The idea is not new. It was in fact proposed when the writer was a= member of the Planning Commission in 1994 and was ignored by the power min= istry in its preoccupation with the Enron project and the need to justify = the one-sided agreement as the only way of solving the power shortage in th= e country. The proposal made in 1994 also addressed the objection now being raised by = the SEBs that such direct sale will diminish their revenues from industrial= high tariff users and their capacity to cross-subsidise the cost of power = supplied to the low- or zero-tariff consumers in the domestic and agricultu= ral sectors. The proposal was based on four parameters: SEB power capacity,= pattern of supply to various users, the tariff structure and the extent of= cross subsidisation. These parameters would determine how much additional = power each state can afford and the extent to which direct supply can be ma= de to industrial users. The outline of the proposal is as follows: If, say, the existing power capacity in a state is 4000 mw and 25 per cent = goes to industrial users, 35 per cent to the domestic sector and 40 per cen= t to the agricultural sector, and the tariff structure requires government = support even after cross-subsidisation, then the state should be told that = if the SEB was prepared to yield 50 per cent of its industrial demand to th= e IPP for direct supply, with the SEB charging for wheeling the power, the = tariff rates should be raised for the non-industrial sectors and the state = should be prepared to subsidise the loss of revenue, if it actually occurs,= to the SEB. The new capacity will then be determined not arbitrarily but w= ith reference to ground realities in each state. In short, the states will get additional power to the extent they need and = deserve. There will be no excess capacity created by the IPP as in the case= of Maharashtra after DPC started generating in the first phase itself. It = was also pointed out that by yielding a given percentage of demand from exi= sting industrial users the loss of demand would materialise only when the = new project is completed by the IPP in about three years' time and not imme= diately. In the meantime the state could attract new industries with refere= nce to the additional capacity that will become available to it at the end = of three years and, if such new demand materialises, there will be no net l= oss of demand or revenue to the SEB. The new arrangement will involve tripartite agreements between the IPP, the= industrial consumers and the SEB which will agree to wheel the power at a = predetermined rate. The IPP can have the comfort of getting a PPA with the = industrial consumers based on acceptable bank guarantees or escrow accounts= of the consumers. The consumers will have the comfort of getting the requi= red quantity of power of the right quality. The SEB will also have time to = set up new distribution facilities to wheel the power through dedicated lin= es if necessary, and also to the new industries that will be set up to take= the loads that will be released by hiving off the existing industrial user= s. SEBs can be net gainers by getting wheeling charges and by getting a mor= e rational power tariff structure or government subsidy for cross-subsidisa= tion.=20 Having thus established the quantum of additional capacity to be establishe= d in each state, which can be calculated with reference to the parameters m= entioned above, the IPPs should have been asked to send competitive bids fo= r the determined capacity and not have memoranda of understanding (MoU) for= their own notional capacities at their own rates without any competition. = This arrangement will enable states to get the right amount of additional p= ower at competitive rates and also not need any state or central government= guarantees and will be a purely commercial transaction. There will also be= no occasion for the state to have surplus capacity arising from IPP-determ= ined capacities based on government guarantees. The other advantage will be that new capacities will be in the range of 400= to 6000 MW and they can also be distributed among the states with referen= ce to their demand patterns and willingness to rationalise their tariff str= uctures. The states and their consumers will get power at competitive rates= and in the quantities they need and deserve. The Planning Commission propo= sal had also worked out illustratively how the working of the proposal will= determine additional capacities in a few states and the beneficial impact = on the finances of SEBs in these states. No one has asked the power ministry to explain why this suggestion was not = accepted. It was obviously for the reason that this would scuttle the arran= gements they were keen to have wit
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