BUSINESS STANDARD
Monday, May 28, 2001, http://www.business-standard.com/today/finance8.asp?Menu=5
DPC lenders take a hard line, oppose MSEB move , Tamal Bandyopadhyay in Mumbai
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THE ECONOMIC TIMES
Monday, May 28, 2001, http://www.economictimes.com/today/bn05.htm
Centre not 'very keen' to resolve Enron embroglio: Deshmukh
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THE FINANCIAL EXPRESS
Monday, May 28, 2001, http://www.financialexpress.com/fe20010528/eco3.html
'Centre not to purchase power from DPC',  Sanjay Jog
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THE ECONOMIC TIMES
Monday, May 28, 2001, http://www.economictimes.com/today/28edit05.htm
The great Indian investment movie Ecopinion/ S L RAO 
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BUSINESS STANDARD
Monday, May 28, 2001, http://www.business-standard.com/today/economy5.asp?Menu=3
In Guhagarh, the majority couldn't care less, S Ravindran in Guhagarh
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BUSINESS STANDARD
Monday, May 28, 2001
Scrap Dabhol project, say NRIs , Freny Patel 
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BUSINESS STANDARD
Monday, May 28, 2001, http://www.business-standard.com/today/economy3.asp?Menu=3
4,000 workers at DPC site without jobs, S Ravindran in Guhagarh
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THE FINANCIAL EXPRESS
Monday, May 28, 2001, http://www.financialexpress.com/fe20010528/news1.html
MSEB estimates up to Rs 5 crore legal expenses to fight DPC battle ,  Sanjay Jog
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THE FINANCIAL EXPRESS
Monday, May 28, 2001, http://www.financialexpress.com/fe20010528/an2.html
Enron woos regulators in era of deregulation ,  Bob Davis & Rebecca Smith
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THE TIMES OF INDIA
Monday, May 28, 2001, http://www.timesofindia.com/today/28busi1.htm
MSEB plans an acid test for DPC Phase II Vinu Lal
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THE INDIAN EXPRESS
Monday, May 28, 2001, http://www.indian-express.com/ie20010528/bus2.html
DPC may challenge MERC's jurisdiction

The above article also appeared in the following newspaper:

THE TIMES OF INDIA
Monday, May 28, 2001, http://www.timesofindia.com/today/28busi2.htm
DPC may contest MERC jurisdiction 
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THE TIMES OF INDIA
Monday, May 28, 2001, http://www.timesofindia.com/today/28edit2.htm
Defusing Dabhol 
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THE HINDU BUSINESSLINE
Monday, May 28, 2001, http://www.hindubusinessline.com/stories/042856pd.htm
Dabhol project: Politics of power , S. Padmanabhan 
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MID DAY
Monday, May 28, 2001, http://www.chalomumbai.com/asp/article.asp?cat_id=29&art_id=11248&cat_code=2F574841545F535F4F4E5F4D554D4241492F5441415A415F4B4841424152
DPC rejects MSEB's legal notice
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BUSINESS STANDARD, Monday, May 28, 2001
DPC lenders take a hard line, oppose MSEB move , Tamal Bandyopadhyay in Mumbai

Lenders to the $3-billion Dabhol Power Project are planning to take a hard line against the Maharashtra State Electricity Board's (MSEB) decision to scrap the power purchase agreement.The New York-based law firm, White & Case, which is advising the lenders, is of the opinion that the PPA-entered into by MSEB with Dabhol on May 23, 1993-is not exactly an  exclusive bilateral contract. The firm feels that the PPA cannot be scrapped without the consent of the lenders, who are also stakeholders in the project by virtue of their debt exposure. 

Armed with the opinion of DPC's law firm including the Indian Law Institute and the advice of White & Case, the lenders are meeting in Singapore in the first week of June to chalk out  the next course of action. At the meeting, lenders across the board areexpected to oppose the MSEB move as they feel that the failure of the 657 mw phase I project in generating power in time (cold start in 3 hours) is a breach of warranty which can be settled through arbitration.It cannot be a valid ground for the termination of the PPA. The MSEB had issued the notice toscrap the PPA on May 23, a week after DPC served the preliminary termination notice to the board. DPC served the PTN after the foreign lenders gave their consent despite a stiff opposition put up by the Indian lenders. However, the lenders did not give DPC the consent for transfer of assets. The company, has, however appointed Arthur Andersen and Jones Lang La Salle to undertake a valuation exercise of the project. 

The MSEB move on scrapping the PPA has unified the entire lending community which was  vertically divided on DPC's action on serving the  PTN. While the Indian lenders-who are not covered by the Centre's counter guarantee-oppose the PTN tooth and nail, the foreign lenders gave the go-ahead to the company as they were apprehensive that the MSEB might pull the plug ahead of DPC. Now both the Indian as well as the foreign lenders are planning to oppose the scrapping of  PPA collectively. The Singapore meeting will take stock of the cash position of Phase II of the project which is set to go on trial run on June 7 and formalise the lenders stance whether to support or mothball the
project. 
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THE ECONOMIC TIMES, Monday, May 28, 2001
Centre not 'very keen' to resolve Enron embroglio: Deshmukh
 
MAHARASHTRA chief minister Vilasrao Deshmukh on Monday accused the BJP-led NDA government at the centre of 'not being very keen to resolve the ongoing embroglio' between state electricity board and Enron-promoted Dabhol Power Company. "The centre is not cooperating with the state government over this issue," Deshmukh told reporters after the ruling Democratic Front coordination committee meeting here. Despite several letters, the centre has not responded to the state's pleas to intervene in the matter, the chief  minister said and lamented that the centre was not taking  the issue with utmost priority. The DF constituents were briefed about the legal steps initiated by the state government vis-a-vis DPC, Deshmukh said. The renegotiations committee appointed by the state government is slated to meet on May 29, the day on which the Maharashtra Electricity Regulatory Commission was also to take up the petition filed by MSEB against DPC. The DF's future strategy in this matter will be decided on May 31 in view of the outcome of the MERC and renegotiations panel meeting, Deshmukh added. (PTI)
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THE FINANCIAL EXPRESS, Monday, May 28, 2001
 'Centre not to purchase power from DPC',  Sanjay Jog

THE union minister of state for power Jayavantiben Mehta has categorically stated that the Centre would not purchase the Dabhol power, but would allow the Dabhol Power Company (DPC) to sell its power directly to various other states across the country. "However, the DPC will have to drastically cut the tariff. The Centre is prepared to facilitate the direct sale of power by DPC to states which are power deficit," Ms Mehta said in an exclusive interview. Ms Mehta's statement comes in the wake of the DPC's appeal on Friday to the Centre to help resolve the ongoing crisis.

The minister said that although the Centre would not purchase Dabhol power, it would provide necessary assistance to resolve the present impasse. "The Centre will try to protect the interests of the Maharashtra state and ultimately of the National Democratic Alliance government in a bid to find a way out to overcome the Dabhol crisis," she opined. Ms Mehta said that she was of the view that efforts should be made to save the Dabhol project especially when there were several states which had been striving to meet increasing demand for power. She said it is important to meet the demand for power as the country is entering into newer and newer pastures in various segments like information technology, software development and oil  and petroleum through joint ventures.  "Similarly, the Indian financial institutions (IFIs) have appealed to the Centre that it should take a positive view as their substantial funds are blocked in the Dabhol project," she added.

The minister also said that there has been tremendous pressure from the IFIs to get the project  going. The IFIs have already made representations to the Centre on various occasions in this regard. According to Ms mehta, the DPC has said that it has three options comprising termination of contract, participate in the negotiations and the take over of Dabhol project by any agency. "I am quite optimistic that ultimately an acceptable solution will emerge," she observed.Ms Mehta said that the people should consider the Dabhol crisis against the backdrop of country's  requirement of additional one lakh mega watt to be created by 2012. "The NDA government is committed for this capacity addition despite a huge required investment of Rs 8 lakh crore," she remarked.

Ms Mehta said that the NDA government in general and her ministry in particular have taken a lot of  initiatives to make this a reality with the active participation of the private sector. The ministry has  launched a 100 per cent metering programme, improvement and strengthening of transmission and  distribution, encouragement for the privatisation of power distribution systems and implementation of  power development programme across the country, she added.Meanwhile, the Dabhol Power Company is believed to have projected that the per unit tariff would  be reduced at Rs 4.20. The per unit tariff will further be reduced at Rs 3.50, when the naphtha would be replaced by liquified natural gas (LNG). DPC has already announced that the block b of  722 of phase-II would start commercial operations from June 7.
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THE ECONOMIC TIMES, Monday, May 28, 2001
The great Indian investment movie Ecopinion/ S L RAO 

THE Dabhol-Enron saga has all the ingredients for an unusual Hindi movie. There is a principal female interest in the (to some) ravishing and (to all) extraordinarily shrewd, determined and tough negotiator, Rebecca Mark. If politicians in India are our sleazy side, we have them from many political parties at all stages in the unfolding drama. For the comic element we have the bumbling, stuttering, uncertain, and incompetent Maharashtra State Electricity Board, always trying hard to please its masters, without any regard to its self-interest. For the patsy, the fall guy, we have the electricity customers of Maharashtra, paying increasing amounts forpoor quality. Then there are the other bit and not-so-bit players - the academics, the NGOs, the negotiating and re-negotiating groups, with varying interests, motivations and influences. 

But the hero(ine) of the story is undoubtedly Rebecca Mark, who rammed through an agreement that was  opposed by very many and `educated' some of the shrewdest political leaders in India.  Her Texan bulldozing ability, never-give-up attitude, total focus on her objective, packaged in an attractive female form, were too much for all her interlocutors, who were elderly men with no experience of such opponents, and even less so with strong women. 

Looming above all these characters is the brooding and baleful presence of the government of India. What little has emerged from Abhay Mehta and the Godbole Report shows its intervention at critical times to ease the way for the clearance and signing of the agreement. Apparently there was little concern for what the record would show, as indeed it has since done, that the approval of its technical wing (the central electricity authority), was rdered, and the clear recommendation of the World Bank, usually a strong supporter of foreign private investment, ignored. Among the government agencies involved, except perhaps the CEA, there was an urgent and overwhelming desire to clear the project. 

At the same time, the central government had done little of its policy homework. It had not defined a clear fuel policy for the country. It could therefore easily sanction naphtha and imported gas based power generation projects, with consequent cost escalation when the then (temporary) glut became a shortage. It refused to accept that the external value of the rupee would keep declining, even though it had just depreciated the rupee by a whopping 20 per cent. It had little understanding of the movements of international prices of oil and gas and assumed that present prices would be the  norm. These factors led to substantial escalations in costs and of tariffs. Without any firm plan to use the surplus gas transport and processing capacities, it agreed to MSEB paying the full fixed charges for gas capacities far in excess of the needs of the power plant. 

In this movie, therefore, the central government would be cast as the wicked uncle lurking behind the scenes and orchestrating the looting of the fall guy. This movie can have no happy ending. Indeed, one wonders if it can have an ending at all. The hero(ine) has  left the scene, as have her courtiers. Her kingdom, Enron, no longer has an interest in the movie and would like to give it up. The bumbling MSEB and its owner, the Maharashtra government, have no clue as to what to do. The politicians are in a corner, wringing their hands, helpless to extricate the country from the mess, but intent on saving themselves and their positions. The central government would like to forget the whole sorry episode, but cannot. The country stands to lose vast sums of money as fines and compensation payments, and a considerable loss of image, for not adhering to agreements. 

It also stands exposed for incompetence, a sorry advertisement for a country with the brains to become an IT `superpower'. Between the two, the exposure of incompetence allied to possible venality, is more  damaging. Our governments must stop playing to the grandstand. They must understand that they are playing in an international, not an Indian theatre. Their opponents, Enron, have all the cards stacked in their favour. Time is not on our side. We must end the movie. That requires that we use our best talents to buy Enron out. -
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BUSINESS STANDARD, Monday, May 28, 2001
In Guhagarh, the majority couldn't care less, S Ravindran in Guhagarh

Nature is at its best along the 50-kilometre stretch connecting Chiplun, the cultural capital of Konkan, to Guhagarh which houses the controversial Dabhol Power Project.Mountains dotted with Alphonso mango trees and the lashing Arabian sea make the place an  ideal picnic spot. However, along the well-laid out road leading to Guhagarh, odd huts and barren land reveal the   sad economic plight of the region Hopes of the $3-billion power project putting an end to the poverty-ridden life of the people living here seem to be short lived now. 

Locals today say if Enron was to exit from the controversial power project, there would be only  a marginal effect on the region's economy. A few will suffer if the power major chooses to pack its bags. The majority could not care less. Appasaheb Salagre, called Appa by all and a long-time resident of Chiplun running tutorial classes, says, "Initially, there was a spurt in the economy. A number of people found employment in the project. However, the bulk of  the 12,000 -odd contract workers were from Bihar, UP, Bijapur (Karnataka) and other  regions." The locals are not an educated lot here, says Appa. They could get only low-paid jobs. These  jobs too were temporary in nature. "Contract labourers would have lost their jobs once construction of the project was over. This isirrespective of whether Enron decides to stay on  or exit," he adds. 

Concurs Pramod Pednekar, a local journalist with Pudhari, a large-selling Marathi daily, "A large number of Enron-officials in Chiplun gave a fillip to the travel business benefiting several  lodges and hotels. Now that the company has its own township, these opportunities too have vanished. However, a number of people used to come to do their marketing in Chiplun which will now be affected. With very few people from Guhagarh employed at the plant, Enron's exit will hit the region's economy by not more than five per cent." Appa adds that a number of locals in Chiplun and Guhagarh had purchased Sumos to carry Enron executives to and fro. These people are yet to repay their loans and hence would be affected. "There are 150 such Sumos. Even if one considers that the Sumo owners have large families, only about 1,000 people will be affected," he adds. 

The project has its set of supporters too. V S Nathu, the local BJP MLA from Guhagarh says,  "Guhagarh, like much of Konkan, is dependent on the `money order' economy. Most people  work in Mumbai and they send money back home. For the first time, this was set to change  (after the Dabhol plant came into being). Power, good roads and plenty of water is now available  in the region." He also says several other industries could have mushroomed in due course. Besides, if DPC   went ahead with its plans of setting up the LNG terminal, the food processing industry could have also got an impetus. Food processing precisely requires temperatures of minus 59 degrees centigrade, similar to the temperature in which LNG is stored, he adds. Nathu's estimate of families being affected  extends beyond Guhagarh. "A total of 12,000 families in Chiplun,  Guhagarh,and the adjoining regions of Dapoli and Khed would be affected if Enron exits," he says,  adding that DPC has also built a world-class hospital in the region. 

Yashwant Bait, a leader of the Enron Virodhi Sangharsh Samiti however disagrees. "One, the  power purchase agreement is not for selling  power in the region. It is for selling power to MSEB. How would industry come into this region as a result? Two, DPC has not done a  favour by building a hospital. It was based on the orders of Bombay High Court. The benefits accruing to the local population is minimal as the  hospital does not charge concessional rates for  locals."
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BUSINESS STANDARD, Monday, May 28, 2001
Scrap Dabhol project, say NRIs , Freny Patel 

Non-resident Indians (NRIs) in the USA have called for the scrapping of the controversial  Dabhol Power project, dubbing it as the largest  scam India has ever seen. The group of NRIs, under the umbrella 'Enron Action', in their outcry put up on the website  (www.altindia.net/enron) have stated that under international law, the MSEB can bypass the 'insane' obligations to the DPC only if an Indian court rules that the power purchase agreement (PPA) and the agreements surrounding it were in violation of Indian law. 

A court case was filed by Prayas, an NGO, but has been rejected by the Bombay High Court.  An appeal against this dismissal is pending before the Supreme Court, the group says. The NRIs group stated that under the laws when the PPA was signed, the agreement required mandatory economic and technical clearance from a statutory body (the Central Electricity Authority), which has been constituted for this purpose. The CEA issued a technical clearance to the DPC power plant, it refused the economic clearance. Rather it was the ministry of finance that looked into and approved the economic  issues. The petitioners are falling back on the argument that the "mandatory CEA clearance was the legal  safeguard against signing PPAs at exorbitant rates. 

As this clearance was never received, they conclude the Dabhol PPA has no force in law".  The World Bank also categorically stated in its feasibility report in 1993, when it was asked to part fund the project, that it was "not economically viable, and thus could not be  financed by the Bank". It went on to say that it "would place a heavy financial burden on the MSEB" because it was  "too large for base load operation in the MSEB system". The World Bank letter, written by its India country director Heinz Vergin, identified the need to reshape "the project to serve higher value intermediate load in the western Region". The website calls "for transparency, accountability, that lost promise called a democracy". Highlighting the chronology of events and legal suits filed in the past, the website also suggests "a  way out" for the Indian state and central governments.
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BUSINESS STANDARD, Monday, May 28, 2001
4,000 workers at DPC site without jobs, S Ravindran in Guhagarh

At least 4,000 workers at the site of the Dabhol Power Company are now without jobs. These  are mainly semi-skilled labour and only a fraction of them are from Guhagarh Taluka in Ratnagiri  district, the site of the controversial power project. "About 4,000 to 5,000 workers are jobless. The  contracts of most of them were coming to an end anyway as the construction is more or lesscomplete. However, the present uncertainty surrounding the project has led to an earlier exit,"  said V S Nathu, the BJP MLA who represents Guhagarh Taluka. 

When contacted, a senior DPC executive said  "this is mainly because during the monsoon a  number of workers are told to leave as construction is not possible anyway. Besides, a major part of the construction is now over". A total of about 12,000 contract workers were employed at the project site at the height of the project construction. They were not direct employees of DPC but of the engineering, procurement and construction  contractor Bechtel and various other sub-contractors like Besix, UB Engineering and Paharpur Cooling Towers. Nathu also said that construction had come to a  grinding halt at the site in the last few weeks. The DPC executive, however, denied that construction had come to a halt though he agreed there had been a slowdown as lenders had stopped disbursing funds in the last three months. 
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THE FINANCIAL EXPRESS, Monday, May 28, 2001
MSEB estimates up to Rs 5 crore legal expenses to fight DPC battle ,  Sanjay Jog

FOR the Maharashtra State Electricity Board (MSEB), the ensuing legal battle with Dabhol Power Company (DPC) will really be a "costly" affair. MSEB is prepared to engage lawyers at a fee of paltry Rs 15,000 per hour to a whopping Rs 1.50 lakh. In terms of pounds, it has prepared to shell out a minimum of 90 pounds per hour to 500 pounds per hour.MSEB sources told The Financial Express that according to preliminary estimates, it expects the legal expenses in the range of Rs 1 crore to Rs 5 crore. "We will spend it as we have a strong case against the DPC for misdeclaration and default on the availability of power on January 28 and non payment of rebate of Rs 401 crore towards that," sources added.

The lawyer's fees would be dependent on their experience. The more the experience and the name, the higher would be the fees. "For example, if a lawyer, other than Indian origin, has completed one year in the profession, his/her fees would start from 90 pounds per hour. However, the lawyer representing a leading firm with a vast experience, he/she would charge not less than 450 to 500 pounds per hour," MSEB sources said.In a recent communication to the MSEB, the London-based Baker & McKenzie has said the "rate of charges of around 360 pounds per hour are highly competitive compared to other firms of similar status and experience." The solicitor firm has further said that these rates may appear high compared to Indian lawyer's fees, however, their competitors are now charging 420 pounds per hour or more.

These rates would apply to firms such as Linklaters (representing Enron) and the other top firms that  would have the necessary experience to respond in kind to Linlaters, the Baker & McKenzie  communication said. MSEB sources said that it was aware that it would have to take on a battery of lawyers and solicitors both from India and abroad engaged by the DPC. Further, it was also aware of the fact that the US-based multinational Enron, with deep pockets, would not mind fighting its case in  various Indian courts and later at arbitration in London.

MSEB said that it would engage the state advocate general Ghulam Wahanvati during the hearing at  Maharashtra Electricity Regulatory Commission (Merc). In addition, it has already engaged Mumbai-based solicitors Shyam Diwan & Company to provide legal assistance. MSEB would also try to rope in the best available solicitors across the country to plead its case in the Indian courts. Simultaneously, it would have to pay the fees of its arbitrator and former Bombay High Court Justice ML Pendse during the arbitration proceedings in London.MSEB sources said that it was aware that billing rates are only one part of the equation that leads to  the ultimate bill that a law firm sends to its clients. "The much more significant is the number of hours worked by the number of lawyers. The lesser the number of lawyers, the lower will be the bill," sources added.
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THE FINANCIAL EXPRESS, Monday, May 28, 2001
Enron woos regulators in era of deregulation ,  Bob Davis & Rebecca Smith

EVERY energy executive in America would have liked a half-hour with Vice President Dick Cheney as he  fashioned the Bush administration's national energy program. Enron Corp. Chairman Kenneth Lay got it.  Mr Lay used the time to set out an eight-point agenda intended, among other things, to head off price controls on wholesale electricity, provide Enron and other energy traders with unfettered access to the US's electricity- transmission system and remove regulatory obstacles to building new generating plants and power lines. The energy plan President George W Bush unveiled last week re-elected many of those same priorities. In a recent interview, the vice president said he also met with other energy executives, but Mr Lay was the only one he named. Mr Cheney says he sought Mr Lay's advice because "Enron has a different take than most energy companies." 

Indeed, Enron is a modern paradox. It has transformed itself over the past 15 years from a stodgy gas-pipeline operator into the largest trader of gas and electricity in the US and a formidable player in newer markets such as telecommunications services and emissions-reduction credits. Today, it is the quintessential model of a company dedicated to free markets. 

In a certain respect, this is true even in Enron's dealings in India, where the company is in the news this week because of a dispute with a state electricity board over that entity's failure to pay $48 million in overdue bills. Enron was one of the first foreign power companies to enter India when the country started free-market reforms in the early 1990s, and Dabhol Power Corp., its power-generating project outside Bombay, remains India's single largest foreign investment. Enron's trouble has its roots in the sometimes wildly shifting political winds in India; it is facing political barbs from opponents who attack it as a foreign multinational unjustly milking a poor country by charging too much for electricity, a charge Dabhol denies. 

Politics, however, is a minefield that Enron has very successfully negotiated in the US. As much as any  American company, it has cultivated close ties with government. Since the late 1980s, the Houston-based  company, which was President Bush's biggest corporate campaign donor, has beefed up its lobbying staff,  boosted its political contributions and sought out friends in the world of politics. Now, with Mr Bush in the White House, it is in a unique position to see whether those efforts will pay off. 

Enron's lobbying blitz reflects one of the ironies of the era of deregulation. Just as government created  immense telephone, electric and gas monopolies early in the 20th century, Enron and other players feel they need the government's help in opening those monopolies and gaining access to once-closed markets. In particular, Enron wants the Federal Energy Regulatory Commission to ensure that energy is deregulated on terms favourable to the company. Rather than having the nation's transmission lines controlled by the utilities,  it wants-those lines to provide open access for new entrants such as Enron eager to buy and sell power. 

Mr Lay is on a first-name basis with a half-dozen members of the Bush cabinet and knows many senior White House staffers from their days in the Texas governor's mansion with Mr Bush. Before joining the administration, both White House economist Lawrence Lindsey and US Trade Representative Robert Zoellick were on Enron's advisory board, which pays members an annual stipend of $50,000.  Under Mr Lay, Enron has donated nearly $2 million to Mr Bush during his political career. Since the start of the 2000 campaign, Enron and its employees have contributed $1.3 million to the Bush presidential drive, the  Republican Party and the presidential inauguration, says the Center for Responsive Politics. Enron also  accounted for $461,000 in contributions during Mr Bush's two runs for governor, according to the Center for Public Integrity.

Mr Lay, who holds a doctorate in economics, says all he wants from government is a fair shake. Enron  supports candidates "you believe in," he says. "You believe in their value system, you believe in their  philosophy and you believe they'll do the right things as leaders."  But it is clear that Mr Lay wants more than that from government. For now, he is focusing on FERC, where he worked in the early 1970s when the agency was known as the Federal Power Commission. He hopes to make FERC his ally in beating back the power of utilities. Long dismissed as a regulatory backwater overseeing wholesale transactions by electric and gas utilities the commission has emerged as the chief navigator of the nation's transition to a fully deregulated energy marketplace. 

Even before Mr Bush took office, FERC had begun to rein in the market power of utilities. In December, it told the nation's utilities that it wanted them to voluntarily surrender their high-voltage lines-those that can dispatch electricity across state lines-to independent grid operators, such as those already in place in  California and the Northeast United States, which would provide open access to the lines. Although it told the utilities to submit plans for doing so, many of them have been reluctant to relinquish control of their lines to such independent organisations. 

Mr Lay wants FERC to go further, forcing the utilities to cede direct control of their lines. He also is seeking rules that would end what he calls energy "Balkanisation" and create "seamless" interstate electricity markets. "Enron is the biggest gas and electric company entirely dependent on the competitive side of the business," says Andre Meade, an analyst for Commerzbank. "To the extent deregulation slows down, their business slows down."  Right now, it's a lucrative strategy. Enron typically targets tightly controlled markets just as they are opening up, using its financial clout and risk-management acumen to gain a dominant market position. In doing so, it frequently portrays itself as an insurgent taking on entrenched interests. 

In electricity, for instance, Enron buys the output of generating plants, sometimes days, weeks or years before the power is actually produced. Using sophisticated weather data, it determines the most lucrative market for the power, finds a buyer, and then arranges delivery via transmission lines owned by others. It hedges its positions with other contracts. Its wholesale trading volume climbed 55% for natural gas and more than doubled for electricity in the first quarter alone. 

Between 1996 and 2000, Enron's yearly net income nearly doubled to $979 million and its revenue increased almost eightfold to $100.8 billion. Over the same period, Enron's stock price, adjusted for splits, rose more than fourfold. At the start of the Bush administration FERC's future was very much up for grabs. Two of the five seats on the commission were vacant, and Enron quickly sought to fill them with activist Republicans. President Bush named a friend of his and Enron's to one of those seats: Texas utility-regulator Pat Wood. Mr Wood had worked closely with Enron during a six-year effort to open Texas' retail electricity market. Mr Wood also had shown the kind of backbone Enron wanted in a separate fight over telephone deregulation when he insisted on closely monitoring phone utilities to make sure they opened their networks to competitors. 

For the second slot, Enron backed Nora Mead Brownell, a Pennsylvania utility regulator. She had come to Enron's aid in 1997 when she voted to block a electricity-market restructuring plan backed by Philadelphia's utility and by Republican Gov. Tom Ridge. Enron argued that the plan would have locked it out of the Philadelphia market.A White House spokeswoman says a number of individuals and industry groups weighed in to favour Ms Brownell, but she declined to name any. Meanwhile, Enron was using its Democratic contacts to strengthen its ties with Linda Breathitt, a Kentucky Democrat on the commission. Earlier this year, the company hired two of former Vice President Al Gore's closest friends as lobbyists: Nashville lawyer Charles Bones and Mr Gore's campaign-finance director, Johnny Hayes. Both had come to know Ms Breathitt through Democratic politics.Ms Breathitt says she wasn't very familiar with Enron's interests, but that she accepted when Mr Hayes invited her to dinner at a Washington restaurant in April to meet Richard Shapiro, Enron's managing director for government affairs. "Everyone likes to get to now the FERC commissioners," Ms Breathitt says, adding that she always pays for her own meals.

Enron has long played this kind of insider's game. Mr Lay has been friendly with both Democratic and  Republican administrations over the past 25 years, sharing time on the golf course with Presidents Bill  Clinton and Gerald Ford. He's been a particularly close friend of the Bush family. In the late l980s, he ran  fund-raising drives in Texas for the current US president's father, then-Vice President George Bush. After the younger Bush became governor, he appointed Mr Lay to run the influential Governor's Business Council. Mr Lay also made Enron's fleet of corporate jets available to the new governor and won his help in lobbying officials considering Enron projects. 

Mr Lay says he hasn't sought Mr Bush's aid directly since Mr Bush won the presidency. "It's not a matter of us going off hunting or fishing or sitting around and having drinks," he says.  Not all Mr Lay's initiatives have been successful. When Mr Bush reneged in March on a campaign pledge to fight global warming by requiring reductions in carbon-dioxide levels produced by burning hydrocarbons, Mr Lay says he telephoned Mr Cheney to complain. "The scientific evidence, although certainly not conclusive, is  pretty compelling that there could be a climate-change problem," he says he told the vice president. "The  administration should still look very seriously at it."

But Enron saved its main lobbying push for Mr Cheney's energy task force. In April, Mr Lay met with the panel's staff director, Andrew Lundquist, and later, with Mr Cheney. In both meetings, say Enron and White House officials, Mr Lay presented a broad agenda for opening up the nation's electrical system and wed the gas-transmission system as a point of comparison. In both cases, he argues, pipelines and transmission lines should be like the federal highway system that offers easy access to all. The Cheney report uses similar language, describing the electrical grid as the highway for interstate  commerce in electricity." As Enron sought, the report directs the energy secretary to determine by the end of the year whether it makes sense to establish a national grid, and to identify bottlenecks in the transmission system as well as how to remove them.

  (Jeffrey White contributed to this article)
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THE TIMES OF INDIA, Monday, May 28, 2001
MSEB plans an acid test for DPC Phase II Vinu Lal

AS June 7 deadline nears for Enron-promoted DPC to declare the commencement of Phase II, Maharashtra State Electricity Board (MSEB) has finalised its plans to conduct a performance test on the plant. This assumes significance because in case the plant fails to deliver full capacity according to the power purchase agreement, the board will have the right to declare the plant unviable. Enron has already defaulted thrice and the board has slapped Rs 768 crore as penalty, which is a matter in dispute.Confirming this plan, a top official in MSEB said, ``Once they declare commercial production, we will undertake a capacity test by asking them to shut down the plant completely for atleast 2 days and then perform a cold start. If they do not achieve full rated capacity (657 MW) within three hours then we will declare the plant as inefficient.''

MSEB has already formed a core team comprising six technical officers to work on block 1 of Phase II expansion project. As per the agreement the company is scheduled to start commercial production on June 7 and should furnish a seven-day notice to the board to gear up to the capacity addition. Sources added that while commissioning a block, there are provisions in the power purchase agreements to do a performance test for both the parties, viz MSEB and DPC. Unlike periodic reviews of the plant, this test would be crucial since an official added that once the plant does not qualify in the initial capacity check, then the board could declare the plant as unviable.

Energy experts informed that under section 5.3 of the PPA, immediately after commercial production, there will be a technical capacity check where all parameters of the plant will be put to test. Here since the company has been charged of misdeclaration and that the plant failed to deliver power within 180 minutes from a cold start, this test will be quite crucial. Sources added that the cold start timing will be amended only after the project is shifted to liquefied natural gas, when instead of 180 minutes, the plant would get 240  minutes to achieve full rated capacity. But this will not be applicable to Block 1 of Phase II since the project will be run by naphtha.

``It's just impossible to achieve full rated capacity in 3 hours after a cold start especially after a long period of idle time. The plant took five and a half hours to achieve its full capacity on January 28, where the plant was instructed to stop operations for 6 days,'' said an MSEB official. Sources added that the ramp up curves                                        incorporated in the PPA is a technical goof-up since  ramp up time depends on how long the plant was kept idle.MSEB officials informed that there was no notice given by the company yet on the June 7 deadline. They added that the company has to furnish a seven-day notice to the board before declaring commercial production.                                       

 Interestingly, the turbines used for Phase II project are not sourced from General Electric but from Japanese companies. However, experts argue that 3 hours ramp up time for any cold start would still prove an uphill task for the company.
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THE INDIAN EXPRESS, Monday, May 28, 2001
DPC may challenge MERC's jurisdiction

Enron-promoted Dabhol Power Company (DPC) is likely to challenge the jurisdiction of state electricity regulatory Commission (MERC) to settle a plethora of disputes, including "rescinding" of the PPA with Maharashtra State Electricity Board (MSEB) during the first hearing of the case, scheduled for May 29."One cannot deny the possibility of DPC's legal intention as the multinational strongly believes that the PPA of its $3 billion project, does not come under MERC's perview at all," legal officials involved in the DPC-MSEB row told PTI here today. However, MSEB's legal counsels feel DPC would be unable to prove their point if it took the "jurisdiction" angle.

MERC is a specialised body set up by Parliament in 1998 as part of the power sector reforms to regulate PPAs and procurement processes of transmission and distribution utilities. "This includes the regulation of the price or tariff at which power shall be procured," they contend. As per section 22 (2)(N) of the Electricity Regulatory Commission Act of 1998, the state regulator has been conferred powers to "adjudicate upon disputes and differences between licensees and ultities and refer the matter for arbitration." On May 25, MSEB had moved merc challenging the agreement's legal validity and seeking cancellation of the PPA and claiming nearly Rs 700 crore as damages from DPC.

Terming the move as a "logical step", a state official said MSEB had sought Justice from MERC as it had exclusive legislative jurisdiction to adjudicate disputes between two power utilities. With such an emphatic regulation, on what grounds would DPC insist that its PPA with MSEB did not come under MERC, the counsels said. "After all, DPC and Maharastra State Electricity Board are both power utilities and the only dispute redressal forum available is the regulator," they said.

Interestingly, counsels are of the view that if DPC does not attend the hearing or refuses to comply by the regulator's notice, then MSEB would have to prove its "service of summons" upon which the Commission is entitled to give an ex-parte hearing on the matter. The 60 page petition, with nearly thousand pages of annexures, prays that MERC should adjudicate MSEB's disputes with DPC, including the Rs 401 crore rebate payable by the us multinational and mainly misrepresentation of facts involving the ramp-up procedure from a cold start to full capacity.

The loss-making board has also referred numerous notices, the "political force majeure", the preliminary termination notice, DPC's demand for the escrow cover and its subsequent defaults in ramping up generation as per demand. Maharastra State Electricity Board has also sought the regulator's direction over whether it should take up international arbitration, process for which is on, with DPC in London."With a suitable order, MERC will now tell us how to deal with the arbitration, escrow cover, damages etc," an Maharastra State Electricity Board official said.
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THE TIMES OF INDIA, Monday, May 28, 2001
Defusing Dabhol 

In the present brouhaha over the Dabhol power project, it's all too easy to lose sight of one fact: there is life  beyond Enron. And the eventual denouement will have implications far beyond this particular project. At stake is India's image as a credible investment destination. Little is gained by winning a war if you then end up losing the peace. It's important to remember that, because positions on both sides seem to be hardening. The Madhav Godbole Committee has criticised the power purchase agreement in no uncertain terms. The demand and realisation projections on which the deal was based have been described as a ``fairy-tale''. Two committee members have called for a judicial enquiry into the entire issue, to determine whether Enron received any "undue favours". But three members disagree, at least partly because judicial inquiries in India take forever and rarely achieve anything. Enron, in turn, has flatly told the Centre  that it is unwilling to negotiate on the basis of the Godbole  Committee's report. Meanwhile, the Maharashtra State Electricity Board (MSEB) has slapped a termination notice of its own on Enron's subsidiary, the Dabhol Power Company (DPC), and is demanding compensation of over Rs 800 crore. The MSEB contends that DPC failed to supply power at short notice and wrongfully withheld rebate payments. DPC claims that the MSEB is wilfully misinterpreting the power purchase agreement. Clearly, both sides are now engaged in trying to stare the other guy down. In earlier instances, it was a safe bet that Enron would blink first. But if the signals emanating from the company's headquarters in Houston are any indication, that can't be taken for granted this time.

Let's assume the worst-case scenario - that the talks do fail. What message would that send out to the international community? India could, of course, argue that the deal was flawed, but that would be tantamount to acknowledging that the negotiators who clinched the power purchase agreement were either criminally incompetent, or venal, or both. The fact that the deal was signed by a different administration after the previous agreement was scrapped would only weaken India's position, as would the dismal fate that has befallen virtually every high-profile foreign investment in the power sector. There would be a real danger of India ending up with egg on its face, apart from having to pay hefty fines. Of course, it may not come to that - in fact, let's hope it doesn't. Talks are still on, and the ideal situation would be for all parties concerned to reach a mutually satisfactory agreement. Failing that, India should seek an out-of-court settlement which would at least leave it with the fig-leaf of being a country which respects  contractual obligations. It should then finally start acting on all the brave talk of sweeping power sector reforms, which would hopefully prove that we still mean business. Does that mean that the people responsible for this frightful mess should be allowed to just walk away? Of course not. There are many lessons to be learnt from the Enron fiasco, including the importance of accountability and transparency at every step of liberalisation. But the first priority has to be to put out the fire and contain the damage. Investigating the arsonists can wait till later.
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THE HINDU BUSINESSLINE, Monday, May 28, 2001
Dabhol project: Politics of power , S. Padmanabhan 

IT ALWAYS looked as if the Maharashtra Government had a definite plan while renegotiating with Dabhol Power Company (read Enron). The plan perhaps was to get some cosmetic changes in tariff and give DPC large benefits such as sales tax exemption for naphtha; reduction in interest rates of loans; and third party sales in the hope of getting the Centre to make NTPC and a few other Central utilities buy the costly power. This would look as if the contract has been renegotiated to ease the burden on Maharashtra when in fact the burden would have been distributed among several States and the Centre. The ultimate beneficiary would be Enron which would continue to keep a contract executed so blatantly against public interest. The  real objective of the Maharashtra Government and perhaps the Centre is to give  the controversy a decent burial. The party was spoilt by a statement by the Nationalist Congress Party President, Mr Sharad Pawar, criticising the re-negotiating Committee Chairman, Mr Madhav Godbole. The latter resigned, but was convinced to retract it. But it cannot be forgotten that it was Mr Pawar as Chief Minister of Maharashtra, who had bypassed a lot of objections to give the project to Enron. 

Now it has become convenient for the Maharashtra Government to say that the State is suffering because of the decisions of the BJP-Shiv Sena Government. While the role of the BJP-Shiv Sena Government in reopening and permitting Phase  II and integration of the LNG terminal, by which means Enron can recover the  capital costs many times over, is utterly deplorable, it can not be lost sight of that it was Mr Pawar's government that brought in Enron. As Mr Praful Patel rightly said in STAR News' Newshour, the project had the blessings also of the then Prime Minister, Mr P. V. Narasimha Rao, and his Finance Minister, Dr Manmohan Singh. All of them, pushing for reforms, wanted a project in double-quick time and they ignored the several layers of approval process. The real story is described in a civil suit filed in 1995 by the then BJP-Shiv Sena Government in the Bombay High Court. It is another matter that this civil suit was mysteriously withdrawn after the Enron head, Ms Rebecca Mark, met the powers that be in Maharashtra, including the Shiv Sena chief. 

The suit -- drafted by such eminent lawyers as, Prashant Bhushan, Nitin Pradhan, C. J. Sawant, the then Advocate General, and F. S. Nariman -- tells the interesting story of how the Pawar government went out of its way to favour Enron by giving approvals even after the elections were announced andconducted in the State -- a gross violation of the election code. To this day, neither the Congress nor the BJP-Shiv Sena nor the NCP governments has had the courage to speak the truth -- perhaps because all of them were beneficiaries. Here are a few passages from the suit to judge the actions of the Pawar government: 

A After the calling of elections for the Maharashtra State Assembly, after expiry of its full term, the following documents came to be executed namely (i) Amendment to PPA dated 2/2/1995, (ii) Consent Agreement dated 23/24.2.1995, and (iii) Fuel Management Agreement dated 25.2.1995. As mentioned above, all the aforesaid documents were in aid of and supportive of the PPA dated 8.12.1993 (later amended as mentioned above). 

Elections were called for by a press note dated 8.12.94 and a notification date 10.1.95 and were held from 9-12 February, 1995, but announcement of results was deferred in order to complete election process in other States which were to take place. It was this deferment of results which was taken advantage of and  the letters/agreements were executed and/or exchanged during this period. 

* By reason of Clause 2 of PPA, the status of the PPA was that of an agreement not enforceable by law until all conditions precedents had been fully satisfied and/or bona fide waived as provided in the PPA itself. However, by a letter dated 25.2.1995 these conditions precedents were waived. The so-called waiver was not bona fide but was deceptive and fraudulent. 

* The unholy haste with which the purported financial closure was sought to be achieved was clearly in order to reap the benefit of the huge sum of $20 million admittedly already spent by the principal shareholder of the First Defendant (Enron) described by them euphemistically as `educational expenses'; (the testimony of Ms Linda Powers specifically states that: 

``Moreover, our company spent an enormous amount of its own money approximately $20 million on this education and project development process alone not including any project costs... Why do we, and other developers include such things in our project? To win local support and support of the authorities, and contribute to the general improvement of conditions, and contribute to the general improvement of conditions in the area''. In the purported refutation also enclosed in the letter dated 18.8.1995 of the First Defendant, it is stated that $20 million included ``engineering, financing, legal, travel and administrative costs actually totalling a sum in excess of $20 million as of 29.3.1995.'') 

* 20.6.1992 -- (within five days of arrival in India and within three days of arrival in Bombay) The Enron team arrived in India on June 15 and spent two days visiting various sites in addition to meeting people in Delhi and Bombay. A  memorandum of understanding was signed between the Second Defendant  (represented by Mr Ajit M. Nimbalkar), then Chairman of the Second Defendant, Ms Rebecca Mark of Enron, and Mr Douglas Mcfadden of General Electric Corporation. 

The term sheet annexed to the MoU opens with the following: 

``Electrical Power Purchase Contract'' -- Contract for 20 years term between Power Venture and MSEB to be structured to achieve an all in price of US$ 0.073/kWh, comprised a fixed monthly capacity payment calculating at the Indian rate of inflation each year and a per-kWh energy payment equal to the per-kWh operating cost (as defined below). 

 (ii) Thus, the purported decision to set up a huge power generation project in the private sector with a foreclosed obligation on a statutory corporation to buy power from the private sector at a predetermined unprecedentedly high rate was taken in a great hurry without there being any public debate on the said issue  apart from there being any detailed consideration of the matter. 

* Before the PPA was executed in December 1993, the following events occurred:

 (a) The World Bank expressed its opposition to the project and advised that it was not viable, not in the interest of Maharashtra in particular and the country, the public and the consumers, in general. This objection was brushed aside by Enron which said, in a letter, that ``the World Bank opinion can be changed'', that ``we (Enron) will engage a PR firm and hopefully manage the media from here on'' (June 1993). 

* The Central Electricity Authority had drawn attention to several aspects of the MoU including: 

(i) The all-in price is a departure from the existing norms and parameters notified by the Government under Section 43 A(2) of the Electricity (Supply) Act, 1948. 

 (ii) Denominating the price in US dollars is also a departure from the existing norms. 

(iii) We take it that the price of 0.073 kWh will be applicable from 1996 when power would be available. 

* The PPA violates the tariff guidelines in force issued on December 8, 1993. The tariff guidelines permitted only a return of 16 per cent on equity but the PPA allows a return much in excess of 25 per cent. Second, the tariff notification puts a cap on Operation and Maintenance (O&M) charges at 2.5 per cent of the capital cost. In the case of the PPA the O&M changes were over Rs 90 crore annually which is over three per cent of the capital cost. The PPA was not even structured in accordance with the said notification. 

The tariff notification allows payments only for the actual fuel consumed and not for deemed consumption. In the present case the heat rate guaranteed by the Dabhol Power Company to the MSEB is 7605 BTU per unit while the heat rate guaranteed by GEC to DPC is considerably lower. Under the PPA about 25 per cent  of this difference and deemed consumption and actual consumption is allowed to be retained by DPC, contrary to the tariff notification. 

All these are but a few paragraphs of the 600-page civil suit. Perhaps had the then Maharashtra Government persisted with the arbitration the compensation would have been far less than what could be anticipated now. However, for reasons best known to the BJP-Shiv Sena combine, the suit was withdrawn and its government appointed a review committee which integrated the LNG plant with the power plant and gave the green signal for the second phase. The net result was a higher tariff than what was negotiated by the Pawar Government. 

The project has come a full circle now. Now the effort is on to distribute the burden across the country. This is evident by the Maharashtra Government turning to the Centre and its representative A. V. Gokak, and stating that the Centre is evaluating various options including of the Power Trading Corporation to buy the power from DPC and distribute it to all the States. But at what price? Not lower than negotiated under the PPA of course with cosmetic concessions by Enron and a lot of sacrifices by the State and the Centre. But is this what we want? 
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MID DAY, Monday, May 28, 2001
DPC rejects MSEB's legal notice

Enron's Dabhol Power Company (DPC) has rejected Maharashtra State Electricity Board's (MSEB) legal notice for 'rescinding' the PPA, saying 'it did not have the right to do so', as the two partners cross swords before state Electricity Regulatory Commission (MERC) tomorrow.  In a three-page response to MSEB's May 24 legal notice, Enron India managing director K Wade Cline has said " The legal notice is not acceptable to us, as according to the PPA, MSEB does not have the right to rescind the agreement", state government sources told correspondents today.The letter, dated May 26, also asks MSEB to comply to the 'sanctity' of the PPA, " please confirm that the board would also pay all DPC dues, including the disputed Rs 213 crore for December and January bills plus the interest".

In its notice, MSEB has questioned the legal validity of the entire PPA as per the Indian Contracts' Act (ICA) 1872 and later also went a step further by filing a petition in MERC. " Other than non-acceptance of our legal notice, DPC has continued its demand for an escrow account, knowing fully well that MSEB has filed a caveat in the Mumbai high court for not activating the same", sourcesinformed. DPC has also demanded an increase in LC (letter of credit) amount in line with the PPA, as MSEB was supposed to do 21 days before the firing of its second phase on June 6, they said