---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 02/23/2000 
08:40 AM ---------------------------


Pinnamaneni Krishnarao
02/22/2000 01:10 PM
To: Vince J Kaminski/HOU/ECT@ECT
cc:  
Subject: News article on Enron


  India: Enron aftermath

   Business Line - 02/21/2000

   Abhay Mehta

   Copyright (C) 2000 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) - 
Asia Intelligence Wire

   Power Play

   A Study of the Enron Project 

   * Publishers: Orient Longman, New Delhi * Price: Rs. 195

   THE Enron power project at Dabhol in Ratnagiri district of Maharashtra has 
been mired in nationwide controversy ever since the
   inception of the project proposal in 1992; and the sordid tale ends only 
in 1997, with the Supreme Court of India refusing to even
   admit an appeal against the Bombay High Court decision, of December 1996, 
which while commenting that "This case has
   highlighted to the people as to how even after 50 years of Independence, 
political considerations outweigh the public interest and
   the interest of the State and to what extent the Government can go to 
justify its actions not only before the public but even before
   the courts of law" - yet dismissed a public interest petition against the 
project on the (purely technical) ground of res judicata, even
   though new facts, new arguments, new evidence of the violation of the laws 
of the land had been advanced by the petitioners.

   The fact that the fresh violations of the law were not even considered and 
recorded, despite the petitioners adducing the required
   evidence, can only be termed as strange, perhaps bizarre.

   Abhay Mehta's simple, factual documentation - in fact a chronological 
narration - of all events, including the process of bending all
   rules, of subverting the law for promoting a project involving 
unparalleled future liabilities for Maharashtra, indeed for the whole of
   India - is not only masterly, it is devastating.

   It is a short, pithy book which deserves to be read from cover to cover by 
all thinking citizens of this country. Barring the
   concluding chapter, the epilogue, there are no personal comments, only 
facts, disseminated from the original papers, mostly 'secret'
   documents.

   All documentation has been carefully, faithfully recorded, including 
extracts from supposedly 'top secret' minutes of cabinet
   committee meetings; and the specific violations of the law (which were 
opposed by a few public spirited civil servants, much to
   their disadvantage) have been pointed up. Apart from an introductory 
'Primer on Electricity' - introduced for the benefit of the
   layman, explaining some technical issues relating to electricity 
generation, transmission and distribution - and the background of the
   events of 1991, the foreign exchange crisis, and the aftermath of the 
crisis, the other fifteen chapters, three appendices and fourteen
   annexes of the small book (of 226 pages) packs in an enormous volume of 
factual information. The strange saga of the Enron
   project, and the sheer magnitude of the future problems this one single 
project poses for the country, need to be briefly recounted
   here, for essentially, it is the coming generation which would have to 
face the problem.

   The MSEB has contracted to buy - and if not used, to pay for - 2000 MW of 
electricity (for a period of 20 years) from the
   Dabhol Power Company (the legal entity set up by Enron, as an unlimited 
liability company registered in India, through a maze of
   intricate crossholdings of equity by half a dozen or more 'front' 
companies registered in various tax-free havens.

   Abhay Mehta has indicated the total payments to Enron over 20 years amount 
to $ 35 billion (at 1998 exchange rates, around Rs.
   1,25,000 crores) over the life of the project. One must record that: (a) 
crude oil/oil product prices have as of writing, more than
   doubled since the above calculations were made. A per the 'doctored' 
figures presented by the company (and its advocate), the
   charge per unit of electricity supplied, at the 1998 level of prices, was 
to 4.39 cent (per unit) as 'capacity charge' and 3.43 cents
   (per unit) for 'energy costs'.

   The former is indexed to the US inflation rate, and the latter to 
international fuel prices. The former may be assumed to have gone
   up only marginally (rounded to 4.4 cents per unit); we know that fuel 
prices have more than doubled internationally over 1999.
   Assuming the 'fuel costs' to have increased less than 100 per cent - even 
though international prices have more than doubled - we
   may assume (for 1999) energy costs of 6.85 cents per units, making for a 
total payment of 11.25 US cents per unit of electricity
   supplied by the Dabhol Power Company (DPC) to MSEB in late 1999, in Phase 
I of the project.

   Within another two years, at 2000 MW, the annual offtake (for 365 days X 
24 hours/day) would be 17.52 billion KWH; and at
   11.25 cents per unit, the total payment amounts to $1.97 billion annually; 
for 20 years, this workout to $ 39.4 billion.

   This is not counting any further inflation in either energy costs or 
capacity charge. At today's exchange rate - about Rs.43.5 per US
   dollar - in rupee terms this works out to wore than Rs. 175,000 crores (as 
compared to Rs. 125,000 crores indicated by Abhay
   Mehta). This is the cost to MSEB in rupee; and to the country in foreign 
exchange as payment to just one project authority, for
   supply of part of the power required in Maharashtra.

   The really significant point to note in this connection is that this 
payment - and considerably more, depending on (a) future increase
   in'capacity charges' depending on US inflation rate, and international 
prices of LNGaphtha (for 'fuel costs'), and (b) depreciation of
   the exchange rate of the rupee vis-a-vis the US dollar - is obligatory; 
the assets of the MSEB, the Maharashtra government
   indeed, all assets of the Government of India (present and future) are 
mortgaged to Enron, by way of sovereign guarantees
   extended by both governments.

   The other significant point in this connection is that - as predicted by 
all independent Indian experts as well as the World Bank -the
   Enron project he forced the MSEB to cut its offtake of Tata Electric 
Company's and its own much cheaper thermal power
   already; in a postscript dated August 1999, Abhay Mehta has indicated that 
already, the MSEB had stopped buying between 200
   and 250 MW of power from Tata Electric (available at Rs. 1.80 per unit) 
and has had to backdown its own Chandrapur thermal
   power station (cost of this power being Rs. 1.20 per unit), while forced 
to buy more expensive Enron power at Rs. 5 per unit.

   The loss to MSEB on this count alone comes to Rs. 460 crore per year.

   This had in fact, been predicted earlier even by the World Bank.

   It is pointless here to go into the details of how precisely all this was 
contrived, by a deliberate campaign of 'disinformation', of
   blatant lies, of sidelining of expert opinion, not only of independent 
experts but also the GOI's own official advisers in this matter,
   namely, the Central Electricity Authority as well as that of the World 
Bank, which was resolutely opposed to this project. The
   detailed facts, the letters exchanged in the above context, the pressure 
tactics adopted, the flouting of all procedures norms, even
   statutory provisions of the Electricity (Supply) Act, are all carefully 
documented by Abhay Mehta.

   Mehta correctly concludes: "We frequently blame external agencies - like 
the World Bank - for all our problems, when, as a
   matter of fact, we ourselves are our own worst enemies. In the instant 
case, the World Bank not only advised the Government of
   India against the project, it stood resolutely firm in its assessment of 
the total inadvisability of this project. In fact, one must note
   here that in 1996, neighbouring Pakistan, which had entered into a 
somewhat similar MoU with Enron, cancelled the project (and
   the Power Purchase Agreement with Enron), for a $ 670 million, 782 MW 
residual oil-fuelled power plant, even though that
   Agreement had stipulated Enron power supply at a fixed rate of 6.4 US 
cents per KWH over a 30 year period. (Note the
   estimated rate of 11.25 cents per KWH for Dabhol power for the MSEB in 
December 1999, which works out to around Rs. 5
   per unit).

   One could go on; but one must leave the reader to go through Abhay Mehta's 
crisp, factual, matter of fact narration of the Enron
   saga, and switch over to the point made by him in the epilogue to the 
story, about 'The Next Round of Scams'.

   For quite some time, the ruling elite in India has been intent on 
'privatising' all public enterprises; and even 'utilities' are no
   exception. The 'unbundling' of infrastructure with a view to privatisation 
of all the 'profitable' segments. All this - as per the current
   'disinformation campaign' - is supposedly in the interest of 
rationalisation and greater efficiency of poorer supply.

   The author has referred in this context to the acquisition from the 
Government - by the Torrent Group - of the Ahmedabad and
   Surat Electricity companies at less than one-tenth of the market value of 
the assets of thee facilities. Again, much like the Enron
   saga, all objections by the Finance Department of the Gujarat government 
were overruled.

   And, Abhay Mehta has predicated that this onslaught - the break-up of 
power utilities into three segments, generation, transmission
   and distribution, - with a view to their privatisation is likely to be the 
new thrust by the ruling elite, for reasons that do not require to
   be spelt out.

   Though Mehta had the examples of the Torrent Group takeover of Ahmedabad 
and Surat Electricity companies, and of the break
   up of the Orissa State Electricity Board before him, yet his statement can 
be stated today to be prophetic; the UPSEB is now on
   the firing line. The recent strike by the workers and engineers of the 
UPSEB in protest of the announced UP government decision
   to trifurcate the UPSEB; and the Union Minister of Power, Mr. Rangarajan 
Kumaramangalam's statement that the UPSEB is a
   loss making, inefficient unit and that privatisation of the facilities 
after the trifurcation - need to be noted.

   That 40 per cent of the dues of the UPSEB are from the UP Government; that 
tariffs for UP electricity supply are fixed by the UP
   government and not by the UPSEB; that the UPSEB does not have the cash 
even for routine maintenance as a result of the above
   - these are facts that nobody is prepared even to consider. That the 
remedy for UPSEB lies in a different kind of reform and
   restructuring, is not even to be debated. The whole idea is to privatise 
the profitable segments, and to leave the public sector entity
   with all the problem areas, including rural energy supply. It is against 
this background that Abhay Mehta's book needs to be widely
   disseminated, read, and its implications understood.

   What is at stake is not a 'utility' here or a PSU there. What is at stake 
is the future of some 80 per cent of the have-nots in this
   country.

   What is at stake is the 'pillory' of the assets of the nation for private 
aggrandisement.

   Arun Ghosh