THE HINDU BUSINESS LINE
Thursday, May 31, 2001 http://www.hindubusinessline.com/stories/14315601.htm

Enron willing to continue project Our Bureau 
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THE TIMES OF INDIA
May 31, 2001 http://www.timesofindia.com/today/31home3.htm

Dabhol pulls the plug; govt seeks buyers 
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THE ECONOMIC TIMES
Thursday, May 31, 2001  http://www.economictimes.com/today/31infr01.htm

DPC shuts plant, to issue termination notice
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THE HINDU
Thursday, May 31, 2001  http://www.the-hindu.com/stories/01310007.htm

DPC denies plant shutdown 
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THE TIMES OF INDIA
May 31, 2001  http://www.timesofindia.com/today/31busi6.htm

Enron MD, DPC president brief Indian FIs 
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THE TIMES OF INDIA
Thursday, May 31, 2001   http://www.timesofindia.com/today/31busi8.htm

MSEB doubtful over DPC's 10% tariff cut proposal 
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THE HINDU BUSINESS LINE
Thursday, May 31, 2001 http://www.hindubusinessline.com/stories/14315602.htm

CEA told to hold talks with States on DPC power 

THE ABOVE ARTICLE HAS ALSO APPEARED IN THE FOLLOWING NEWSPAPERS:

THE ECONOMIC TIMES
Thursday, May 31, 2001  http://www.economictimes.com/today/in06.htm
Govt in talks with states to buy DPC power

THE ECONOMIC TIMES
Thursday, May 31, 2001  http://www.economictimes.com/today/31infr02.htm
CEA to explore possibilities of DPC power sale

THE TIMES OF INDIA
Thursday, May 31, 2001  http://www.timesofindia.com/today/31busi7.htm
CEA told to explore possibilities of DPC power sale 
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THE ECONOMIC TIMES
Thursday, May 31, 2001  http://www.economictimes.com/today/mk01.htm

Enron spat bulks up stock prices of power companies Vijay Gurav & Anto T Joseph 
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THE ECONOMIC TIMES
Thursday, May 31, 2001  http://www.economictimes.com/today/31infr03.htm

Indian lenders meet to salvage Dabhol project
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THE FINANCIAL EXPRESS
Thursday, May 31, 2001  http://www.financialexpress.com/fe20010531/fed2.html

Powerful lesson From the California power mess 
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THE FINANCIAL EXPRESS
Thursday, May 31, 2001

Renegotiate - or prove corruption 
Failing which, parting with DPC is going to cost money - Sunil Jain
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THE FINANCIAL EXPRESS
Thursday, May 31, 2001  http://www.financialexpress.com/fe20010531/an1.html

Price of power should be left to regulators to decide Kandula Subramaniam
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THE FINANCIAL EXPRESS
Thursday, May 31, 2001  http://www.financialexpress.com/fe20010531/news2.html

IDBI recasting Rs 6,200 crore power portfolio - Atmadip Ray
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THE FINANCIAL EXPRESS
Thursday, May 31, 2001  http://www.financialexpress.com/fe20010531/top4.html

DPC seeks lower rates on loans, customs duty waiver on LNG -  Sanjay Jog 
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BUSINESS STANDARD
Thursday, May 31, 2001  http://www.business-standard.com/today/corp11.asp?Menu=2

Dabhol mothballs power project - Tamal Bandyopadhyay 
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BUSINESS STANDARD
Thursday, May 31, 2001  http://www.business-standard.com/today/economy9.asp?Menu=3

Centre clears third party sale of power by DPC 
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BUSINESS STANDARD
Thursday, May 31, 2001  http://www.business-standard.com/today/economy3.asp?Menu=3

DPC lenders call for ceasefire - Renni Abraham 
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THE INDIAN EXPRESS
Thursday, May 31, 2001  http://www.indian-express.com/ie20010531/bus2.html

FIs not to reduce interest rate for DPC
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THE HINDU BUSINESS LINE
Thursday, May 31, 2001   Enron willing to continue project Our Bureau 

 ENRON today updated Indian lenders about the status of the project and discussed ways for resolution of the current crisis. According to sources, Enron showed a willingness to continue with the project even after all the problems. Mr Wade Cline, Managing Director, is understood to have told the lenders that even though DPC had mentioned about taking a 10 per cent cut on its returns, it would not do so unilaterally. 

According to Mr Cline, the adjustments that Enron could make are contingent upon other parties too making an effort to make concessions. He made a presentation to the lenders about the current status of the project and the problems. Meanwhile, Dabhol Power Company today clarified that it has not ``shut down''    its plant. A spokesman said the plant continues to be ``operational'' as required by the power purchase agreement (PPA). He, however, confirmed that the Maharashtra State Electricity Board (MSEB) has not issued despatch instructions 12 noon on May 29. 

He also said the company is ``currently'' not planning to terminate the PPA prior to the lapse of six months after the serving of the preliminary termination notice. Sources said that even though MSEB is not purchasing power from DPC, the company is not likely to default on its payments to lenders. This is because DPC has some money left from the disbursements of the first phase of the project. It can use the money to service its debt. It can, however, not transfer the amount to the second phase without the lenders' permission. The company also has a sizable amount of ``completion equity'' over and above the base equity to bring in if it chooses to continue construction. 

According to sources, the Indian lenders today wanted to know from Enron whether it is actually willing to stay back and complete the project or walk away. It appeared they are willing to stay, but only without conceding too much. Top MSEB officials said as far as MSEB is concerned, ``DPC power may be available, but we would not take it. We are not recognising the PPA any more''. They said the board had given the option to the company saying it would buy power and make payments according to the PPA but on an ad hoc basis. The adjustments could be made at a later date. 

``However, they threw it back to us saying you cannot have your cake and eat it too. So we decided to keep the cake,'' a State Government official said. 

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THE TIMES OF INDIA
May 31, 2001  Dabhol pulls the plug; govt seeks buyers 
The Times of India NewsService and PTI

MUMBAI\NEW DELHI: The Enron-promoted Dabhol Power Company claimed on Wednesday that it has stopped generating power although it has not shut down its plant. Even as it continues to be operational as per the PPA, the Union power ministry says it is trying to find ways out of the impasse.

``The plant is operational, but not generating power as the Maharashtra State Electricity Board has not issued despatch instructions since Tuesday afternoon,'' DPC sources said. DPC clarified that ``currently the multinational was not planning to terminate the PPA prior to the lapse of six months.'' 

However, MSEB sources confirmed that Enron India chief K Wade Cline had conveyed the DPC lenders' nod over the termination to the committee members on Tuesday and had said, ``We will have to terminate the contract, if no solution is found to this grave crisis. As it is, even now DPC cannot see a way out.'' 

``DPC is reeling under tremendous pressure from its lenders who have already given the multinational a go-ahead for a wrap-up by terminating the contract,'' Wade had added. It had served a preliminary termination notice to MSEB on May 19. ``Even though there exists a cushion period of six months, the energy major will issue the notice,'' the official said. 

Meanwhile, in Delhi, the Union government's representative on the negotiating team with Enron/Dabhol A V Gokak briefed power minister Suresh Prabhu and representatives of other ministries concerned, such as finance and law, about negotiations in Mumbai, where he had advocated a compromise. Prabhu affirms the stand. He has told the Central Electricity Authority to discuss with the states if they wish to buy Dabhol's power and at what rate. The CEA has already begun doing so. It says it is also finalising `contingent arrangements'' for ``evacuating surplus power'' from Dabhol. Prabhu says the Union governmentremains ``committed to make all possible efforts to resolve the issues...in consultation with all stakeholders.''

He says that a ``commercially viable MSEB'' will be an``essential component'' of the settlement, whatever it is. That's a double-edged comment, since part of the reason for the Dabhol standoff is the MSEB's inability to pay for power at the rates it had committed to, and also an inability to allow itself to be bypassed in power sales. 

In Mumbai, DPC president Neil McGregor and Wade briefed representatives of Indian financial institutions on its estranged relationship with MSEB and the on-going  legal wrangle with it. ``The DPC top bosses made a presentation explaining their stand including doubts over Maharashtra Electricity Regulatory Commission's jurisdiction over the PPA and MSEB's decision to stop drawing power from the Guhagar plant,'' sources said. They said DPC was keen on finding a buyer for its phase II, who could be a central or state power utility or a combination of both, as MSEB has declined to buy power from the same.

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THE ECONOMIC TIMES
Thursday, May 31, 2001 DPC shuts plant, to issue termination notice


AMIDST a rash of allegations and legal wrangles, US energy major Enron-promoted Dabhol Power Company has shut down the $3-billion Guhagar plant and is set to issue a termination notice to MSEB. 

With MSEB not drawing power since Tuesday afternoon, the multinational had no option but to shut down the plant as MSEB is their sole customer, a member of the Godbole Committee said. "DPC is reeling under tremendous pressure from its lenders who have already given the multinational a go-ahead for a wrap up by terminating the contract," he added. 

He said Enron India chief K Wade Cline had conveyed the DPC lenders' nod for termination to the committee members on Tuesday and had said, "We will have to terminate the contract if no solution is found to this grave crisis. As it is, even now DPC cannot see a way out." DPC had served a preliminary termination notice to MSEB on May 19. "Even though there exists a cushion period of six months, the energy major will issue the notice," the official said. 

On the other hand, MSEB officials are not worried over the termination of the contract. "MSEB has already rescinded the PPA. So even if they terminate the contract, it hardly matters to us," they said.   Meanwhile, the Godbole Committee would meet MSEB officials on June 6, but DPC representatives have not been invited for the same. (PTI)

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THE HINDU
Thursday May 31, 2001 DPC denies plant shutdown 

Enron entity Dabhol Power Company denied in a late evening press statement that it had shut down its Plant and said, ``the plant continues to be operational as required by the Power Purchase Agreement.'' 

``However, the MSEB has not issued despatch instructions since noon yesterday,'' it said.

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THE TIMES OF INDIA
Thursday, May 31, 2001 Enron MD, DPC president brief Indian FIs 

MUMBAI: Enron India managing director K. Wade Cline and Dabhol Power Company (DPC) president Neil McGregor on Wednesday briefed representatives of Indian financial institutions on its estranged relationship with Maharashtra State Electricity Board (MSEB) and on-going legal wrangle with it. 

"The DPC top bosses made a presentation explaining their stand, including doubts over Maharashtra Electricity Regulatory Commission's (MERC) jurisdiction over the PPA and MSEB's decision to stop drawing power from the Guhagar plant," FI sources said here. 

They said that DPC was keen on finding a buyer for its 1,444 phase II, who could be a central or state power utility or a combination of both, as MSEB had declined to buy power from the same. Indutrial Development Bank of India (IDBI) executive director R.S. Agarwal told reporters after the meeting that MERC's ad interim order against the multinational, stopping it from activating the escrow account "had complicated matters". 

Confirming that the Indian lenders would participate in the June 5-6 Singapore meet, Agarwal was hopeful that the foreign lenders would not enforce their guarantees. The IDBI official was of the view that "a pragmatic approach, both by Indian and foreign lenders was necessary to evolve a consensus". FI sources said "MSEB's decision not to take power could perhaps force the off-shore lenders to pressurise DPC management to issue the termination notice". (PTI) 

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THE TIMES OF INDIA
Thursday, May 31, 2001 MSEB doubtful over DPC's 10% tariff cut proposal 

MUMBAI: Maharashtra State Electricity Board (MSEB) has expressed serious doubts over Enron-promoted Dabhol Power Company's (DPC) proposal to reduce its tariff by 10 per cent from the current average to Rs 3.15 per unit. "Agreed that they have mooted such a proposal verbally, we should not forget that it is ridden with assumptions, which are unacceptable to the board", MSEB sources said here on Wednesday. "As it is, from May 1999 to April 2001, we have already paid a whopping Rs 33,705.12 crore at an average tariff of Rs 5.52 per unit for consumption of around 61,060 million units", they said. 

DPC chief financial officer Mohan Gurunath met MSEB director finance B N Mishra in the morning to discuss the same, they said. Enron India managing director K Wade Cline at the Godbole committee meeting on Tuesday had given a verbal assurance that the multinational was ready to reduce tariff by 10 per cent. 

During the discussions, MSEB sources said, Wade Cline had informed the members that the tariff would be brought down if MSEB draws 2,184 MW of power at a 90 per cent plant load factor (PLF) on an annual basis. "This is not right. It is public knowledge that we do not require this much of power and the whole mess is about the same issue", the sources said.

DPC has also said that the reduction would be effected only if the exchange rate of US dollar against the Indian rupee remains constant at Rs 47 and also that international crude prices too stand at $25 per barrel, they said. "This has to be taken into account while the fact remains that the eastern region of India, on a 40 per cent PLF, has 60 per cent surplus and the cost of power is about Rs 1.80 to Rs 2 per unit", MSEB officials pointed out. They said even NTPC supplies power through the northern grid to Rajasthan, Harayana, Delhi and southern and western region at Rs 1.70 per unit. "Compared to these prices, we should know what we are up against", they said. 

Industrial Development Bank of India acting chief S K Chakrabarti recently said the US energy major was ready to slash its tariff by 10 per cent after the second phase of the 2,184 MW project is functional in June first week. "DPC has assured its Indian lenders that it was willing to reduce the tariff after firing of the 1,444 MW second phase. The per unit price would also reduce by another 10 per cent when the plant switches to liqueified natural gas as fuel", he said. 

Meanwhile, MSEB sources said DPC may not fire its 1,444 MW phase II on June 6 as the board has stopped drawing power from the Guhagar plant from 12 noon on Tuesday. (PTI)

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THE HINDU BUSINESS LINE
Thursday, May 31, 2001 

CEA told to hold talks with States on DPC power 

IN view of Dabhol Power Company's (DPC's) willingness to reduce the cost of power from its project, the Union Power Minister, Mr Suresh Prabhu, has directed the Central Electricity Authority (CEA) to initiate discussions with power-deficit States on the quantum and price at which they are willing to purchase DPC power. Contingent arrangements for evacuation of surplus power are being finalised, according to an official release. 

Interestingly, the Centre has chosen CEA and not Power Trading Corporation (PTC) for this job although this is precisely the latter's line of business. Further, PTC had undertaken a similar task a few months ago.  During the day, the Centre's representative on the negotiating committee, Mr A.V. Gokak, briefed Mr Prabhu on the proceedings of the committee's meeting on May 29. 

He is understood to have told the Minister that as part of the solution finding process, the committee was planning to scrutinise the Godbole committee report, review the tariff of the project over the period of the contract and quantify the surplus power available for sale outside the State once Maharashtra indicates its requirement from the second phase of the DPC project.

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THE ECONOMIC TIMES
Thursday, May 31, 2001
Enron spat bulks up stock prices of power companies Vijay Gurav & Anto T Joseph 

THE ENRON imbroglio seems to have acted as a catalyst for the share prices of power utilities. The ongoing payment crisis involving Enron's Dabhol Power, coupled with high expectations of financial performance of power utilities and market speculation of promoters hiking stake through the creeping acquisition route or open offer, have resulted in smart increases in stock prices of leading power companies. 

The last couple of weeks have seen considerable action at the power counters, including Tata Power and BSES. The Tata Power stock price has risen consistently from Rs 121 on May 14 to Rs 149 on May 29 on the Bombay Stock Exchange, a 23 per cent appreciation in 11 days. The stock price, in fact, has been on upward journey since mid-April and has appreciated more than 50 per cent from a low as Rs 98 on April 11. So what's driving these scrips?

Analysts point out that the DPC dispute has been an eye-opener, and the Indian power sector is finally undergoing a structural change. While power utilities are yet to announce their results for the year ended March '01, the current euphoria has also been attributed to high expectations about their performance. In case of Tata Power, the market speculation is that Tatas, the promoters, may be hiking stake in the company through the creeping acquisition route or open offer, thereby taking advantage of low valuations of the stocks in the current market, say sources. 

BSES, too, witnessed the similar trend. The BSES stock price has flared up by 21 per cent from Rs 185 on May 10 to Rs 224 on May 29 on the BSE. The counter has been witnessing increased institutional activities for the last few days especially on the back of the market speculation that Reliance may increase its stake further through a second open offer.

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THE ECONOMIC TIMES
Thursday, May 31, 2001
Indian lenders meet to salvage Dabhol project

INDIA lenders to Enron's troubled Dabhol power plant, led by State-run Industrial Development Bank of India, began a meeting on Wednesday to devise a strategy to salvage the $2.9-billion project. 

The lenders are discussing ways to counter a possible move by foreign lenders to enforce guarantees on their loans to the project. The main lenders to the project are IDBI, ICICI, State Bank of India, Industrial Finance Corporation of India and Canara Bank. The lenders are also discussing Tuesday's decision by the Maharashtra State Electricity Board to stop power purchases from the Dabhol unit. "This has complicated matters. We will have to discuss it in detail," said a senior banker who is attending the meeting. The project, which is around 90 per cent complete, has been funded with a debt of $2 billion. Of this, offshore lenders have contributed around $600 million and the remaining $1.4 billion by local institutions and banks. 

Most of the foreign loans are guaranteed by the Indian lenders, who fear their books would take a hit if their offshore counterparts call in their loans. Foreign lenders of the project are meeting next week in Singapore to discuss the fate of their loans. (Reuters)

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THE FINANCIAL EXPRESS
Thursday, May 31, 2001 Powerful lesson From the California power mess 

It may sound odd, but the California power crisis is no different from the standoff between the  Maharashtra state electricity board (MSEB) and the Enron promoted Dabhol Power Company (DPC). The mess in California's power sector has driven power companies to bankruptcy and prompted California Governor Gray Davis to change the nature of the industry. What prompted MSEB to stop paying DPC? The high cost of power from the project which the MSEB could not bear and could not pass on to the consumer. The California crisis was due to a price cap which meant that the utilities could not sell power to the consumers at the rates at which they had to buy it.

But the concept of price caps in not new and is applied in most countries in some form or the other. India's own Electricity (Supply) Act of 1948 subjects licensees such as BSES, Tata, CESC and AEC to caps, albeit on profit not price. If price caps were removed in California there would be no power shortage. But then the question would be: at what cost would this power have been delivered to the customer? Also, it needs to be asked why a company like BSES has not gone bankrupt if it  too has been operating under a cap?

The lesson for India to learn from the California crisis is probably contrary to the popular view that price caps are bad. In fact, caps/ceilings are important. Without these the nature of the industry allows companies to make runaway profits at the cost of consumers. If DPC had been subjected to a profit cap under the Indian law, there would never have been a crisis of the sort that MSEB is now facing. The second lesson, probably more important, is that before any market principles are introduced, both the particular industry and the civil society should be mature enough to deal with them. The US energy industry was far more developed and deregulation there was brought in to improve upon this structure. Even in a market like that, the operation of market principles without a full thinking through has wreaked havoc in a very short time. Imagine what blindly copying market  models might do in a far less developed and far poorer and politically sensitive market like India's.

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THE FINANCIAL EXPRESS
Thursday, May 31, 2001
Renegotiate - or prove corruption  Failing which, parting with DPC is going to cost money - Sunil Jain

Miracles, it is true, do happen, and so it is eminently possible that before the pre-divorce six-month  trial period is over, the Maharashtra state electricity board (MSEB) may just get Enron's Dabhol Power Company (DPC) to renegotiate a better deal with it. If it doesn't, it could land up paying anywhere between $3bn to $5bn to Enron. Going by the way things are, however, it doesn't look like the Maharashtra government and the MSEB are anywhere near any such meaningful renegotiation: indeed, it looks as if, in true Indian-style, precious time is being frittered in grandstanding. And in making stupid suggestions that fail to tackle the crux of the problem and haven't the remotest chance of flying.

Suggestions doing the rounds, for instance, include asking the National Thermal Power Corporation (NTPC) to buy the power. What sense does that make? If the power is too expensive for Maharashtra, how can it be cheaper for other states? By the way, anyone familiar with NTPC's functioning will know that states don't just buy power from it at one common pool rate -  the power from each NTPC plant is known in advance and so most states will refuse to buy Dabhol's expensive power.

And now, since the NTPC proposal has been shot down, it's being proposed that the Power Trading Corporation (PTC) buy the power. That's another stupid suggestion since PTC has no assets of its own and the only way it can buy and sell Dabhol power is to have a central government guarantee - and this time, it'll be for the full 2144 MW capacity and not just the 696 MW Phase-I. 

Right through the last few months of debate and the setting up of the Godbole renegotiation committee, sadly, the Maharashtra government's attitude has been, "Of course Enron will renegotiate " where else will it go". The day Dabhol served its termination notice, a visibly puffed-up Mr Godbole told a news agency he was "confident" Dabhol would come for the next meeting of his committee! Imagine the man's vanity. All these weeks, Enron is engaged in getting its lenders to allow it to terminate the project, and Mr Godbole just dismisses this as shadow boxing.

What's behind this arrogance? The view that MSEB can just terminate the Dabhol project, and walk away. Scot free. Because, as various non-government organisations (NGOs) have pointed out, the project costs are way too high, and Enron's making far too much money - and so, the logic goes, the project can be terminated without paying the termination charges of $3bn to $5bn. 

Now I don't doubt that a large part of the excessive profits story is true. But the MSEB still will have to pay the termination charges - after all, there's nothing in the law that says charging excess profits is illegal. And if the contract isn't bad in law, you have to pay the termination charges. Ask any lawyer.

The only way that the Maharashtra government could get away scot free would be by proving that Enron bribed officials and politicians to sign a one-sided contract. They'll have to show that MSEB officials said that the LNG (liquefied natural gas) charges were, say, 45 per cent higher than those offered by competitive suppliers, and the Maharashtra chief minister said it didn't matter. Or that MSEB officials said that guaranteeing to buy 90 per cent of Dabhol's power was unacceptable, but the political bosses overruled them. That is, they would have to establish that Enron's 'education fund' was used liberally to get the contract (remember L K Advani's innuendo before the BJP came to power?).

Problem is, this can't be done. For, no matter how keen the current government is keen to embarrass the BJP-Shiv Sena combine, the fact is that its role in the original project is equally large. Sharad Pawar, a big plank of the current Maharashtra government, was chief minister when Dabhol Phase I was signed. The essential character of Phase-I did not change even when the BJP-Shiv Sena signed Phase-II of the project and, in the bargain, gave Enron such a sweetheart deal, way beyond perhaps even the US corporation's imagination. The only way the Maharashtra government could get out of the project without paying would be to prove corruption - but that would mean arresting Sharad Pawar, who signed the first deal, and Manohar Joshi, who bettered his largesse in the second (re-negotiated) deal.

Since this is not going to happen, why are we even fooling ourselves that termination is a painless alternative? The only way forward is to renegotiate the project the same way that all borrowers do with their bankers: "There's no way that I can pay these prices, so let's renegotiate." After all, the standard spiel is, "If I go broke, the only way that you can get your money back is through a long court process. So let's get off the high (moral) horse, and get down to some realistic renegotiation, shall we?" A word of caution: let this one yield some genuine results, unlike the charade played out last time by the BJP-Shiv Sena.

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THE FINANCIAL EXPRESS
Thursday, May 31, 2001
Price of power should be left to regulators to decide Kandula Subramaniam

THE Dabhol Power Company (DPC) and the Maharashtra state electricity board (MSEB) are currently in news on what should and should not be done by the two parties on contractual obligations. Come to think of it, the structure and concept of power purchase agreements (PPA) in India are completely bereft of logic. Th e agreement is between two parties to sell to a third party, with the third party (which is the consumer) having no clue whatsoever on what has gone on between the first two parties and how they have arrived at the quantum and cost of power that is being supplied to them.

The battle between DPC and MSEB fits into this slot. The power purchase agreement (PPA) between DPC and MSEB for the 740 mw first phase of the project is one of the most elusive documents and some even joke that even the central government not have the actual agreement. Why has this document not been made public? The answer to this will probably require an indepth investigation and even the central government cannot wash their hands off the project as they are equally party to the deal as they have provided a counter guarantee to the payments that MSEB has to make to project in the event of default. It just cannot be true that they did not  know what they were signing for when they issued the guarantee.

MSEB yesterday has initiated what could be the end game for the project after it put a stop on buying power from the project. Both MSEB and DPC slapped each other with termination notices and both sides are not party on continuing with this seven month old drama anymore. When MSEB claims that they do not need the power from DPC, they may well be correct. Even with MSEB buying minimal quantity of power from DPC (in the region of 190mw), there was hardly any shortfall during the peak periods.

But the story is really not here. The story is in what happens from here on and what does MSEB (or the centre) have to pay out to DPC to have an amicable solution so that DPC can make a clean exit. The financial side of the story is just one aspect of the story with the foreign lenders having a triple tier facility to recover their money-state government guarantee, guarantee from Indian financial institutions (IFIs) and domestic banks as well as the all important counter-guarantee. They are not interested in reducing the cost to MSEB. 

Recent news reports suggest just this. The problem is on the head of IFIs and banks which at the time of closure prompted them to think that this was the best financial deal and even yielded hefty increments to  executives responsible for closing the deal. Not only have they directly put money into the project without much of a recourse (except probably the assets), but they have also guaranteed the foreign banks for having shown the confidence (after the guarantees of course) to put money in the project! With so much at stake did they not know how one sided the entire deal was? 

While the common perception is that the DPC-MSEB row started from October of 2000, the seeds of the crises were actually sown earlier in the year when the Maharashtra state electricity commission (MERC) rapped MSEB for buying expensive power from DPC. They, in fact, disallowed around Rs 400 crore of expenditure on account of non-compliance of merit order despatch. This could well have prompted MSEB to rethink on the project as MERC would have again rapped MSEB on buying expensive power. As one of the electricity commissions has correctly put, "...for a regulated monopolist the major expenditure item is power purchase cost and the gains achieved in the purchase of power cost is through reduction in power costs through a judicious merit order selection as well as control of sale to low-value realising customers and in turn increasing sales to high value consumers."

Why did MSEB wait for over six months before it went again to MERC to resolve the problem. As per the ERC Act, state electricity regulatory commissions (SERCs), apart from being required to "to promote competition,  efficiency and economy in the activities of the electricity industry", under section 22 (2)(m) of the Act also have the mandate to regulate the assets, properties and interest in properties concerning or related to the electricity industry in the state including the conditions governing entry into, and exit from, the electricity industry in such  manner as to safeguard the public interest. 

These are very powerful clauses which can be put to use if required by any state. A case to point is the recent tariff order by the Andhra Pradesh Electricity Regulatory Commission (APERC) which ordered APTRANSCO to maintain a data room wherein certified true copies of all PPAs shall be kept for inspection and as regards Spectrum and GVK "the two IPPs which started generation well before DPC" the power purchase cost was reduced to the extent of disallowance of income tax and double counting of incentive amount.

Orders such as these may well give nightmares to the promoters of the projects, but the fundamental point  again is that these PPAs were all done in utter secrecy and as in the case of DPC, when problems started  mushrooming, it prompted all the negotiators to wash their hands off any responsibility. The problem about PPAs and IPPs in India is that the government started getting in principles of market when there were none.In fact world over the power industry is a highly regulated industry with consumers interest being paramount. 

In India, it seems that investor interest is paramount. This does not mean that consumer should decide what power he or she should buy as this is simply impossible due to the nature of the industry, but a regulator could well to that job. State regulators throughout the country have been crying out loud to bring in efficiency of supply through merit order despatch. The loophole that regulators in India face is that they cannot be proactive, that is, step in when they see a problem. They have to be approached to look into problems - by which time it could well be very late. The case of DPC-MSEB could be a fine example which shows this loophole in the law.

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THE FINANCIAL EXPRESS
Thursday, May 31, 2001
IDBI recasting Rs 6,200 crore power portfolio - Atmadip Ray

Mumbai, May30: THE Industrial Development Bank of India (IDBI) is revamping its entire power  portfolio of Rs 6,200 crore in the wake of the Dabhol Power Company (DPC) crisis. Though, it is routine procedure for financial institutions to revisit their portfolios, IDBI's current move of revisiting its power portfolios assumed significance especially after the recent DPC imbroglio.

IDBI, which has an exposure to 52 independent power projects (IPPs), has been reviewing around 15 power projects for quite some time now and the fate of these projects is under a cloud as they are unlikely to adhere to the parameters required for financial closure.

IDBI, had already in March, 2001, decided to cancel the financing of 11 IPPs as these companies have failed in their diligence process. These projects have failed to attain the required parameters pertaining to financial closure, fuel-linkage and power purchase agreements. Out of its entire power  portfolio amounting to Rs 6,200 crore, Rs 3,200 crore accounts for these 11 projects.

Among the projects are Spic Electric, Sujana Power and Tri Shakti in Tamilnadu, Daewoo Power and GBL Power in Madhya Pradesh, RPG Dholpur and Chambal Power in Rajasthan.   IDBI has a current exposure of Rs 6,200 crore in the power sector. Out of this, nearly Rs 3,200 crore is accounted for by 11 IPPs. IDBI has extended financial assistance to 52 power projects in  the country. Among this, 11 projects are operational and currently generating power. Fifteen other  projects are under implementation.

The reason cited for revamping the financing of these power projects is that the lack of a mutually  acceptable escrow mechanism between the power companies and the term-lending institutions is delaying the achievement of financial closures for these projects. Another issue with all these  projects is the allocation of escrow cover by the State government and the list of projects that  would be covered within the escrowable capacity.

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THE FINANCIAL EXPRESS
Thursday, May 31, 2001
DPC seeks lower rates on loans, customs duty waiver on LNG -  Sanjay Jog 

THE Dabhol Power Company (DPC) on Wednesday shifted its burden of solving the ongoing controversy to the Central government and Indian financial institutions (IFIs)  regarding the 10 per cent tariff cut. DPC officials, at a meeting with the MSEB officials on Wednesday, said the 10 per cent tariff  reduction will be possible only if the Centre fully waives the customs duty on liquified natural gas (LNG) and the FIs bring down the interest rates from 16.5 per cent to 12 per cent.

DPC is also pressing for the restructuring of total lending arrangement by the FIs so that the period of repayment can be extended without wanting to share its part of the burden. DPC's stance comes at a time when the Maharashtra State Electricity Board (MSEB) stopped power purchase from Tuesday noon.  Sources told The Financial Express the Centre should take the initiative to waive the 5 per cent customs duty on LNG for aiding the tariff cut and pass on the relief to MSEB. DPC has been lobbying with the Centre for the last six months for customs duty waiver on LNG as it had planned to commission the block B (722  mw) of Dabhol phase-II from June 7.

However, the DPC's plan in this regard hangs in the balance in view of MSEB's decision not to  purchase power following the revoking of the power purchase agreement. Sources said the DPC was of the view that the FIs, which have reduced the interest rate from the 21.5 per cent to 16.5 per cent last year, should further cut the interest rate to 12 per cent. The company is believed to have opined that this would also give a much needed relief at the time of repayment.

On the last occasion, when FIs especially Industrial Development Bank of India had cut the interest rate, the DPC had immediately passed on the relief to the MSEB. However, this had resulted in a relief of a paltry 2 paise in Dabhol tariff for MSEB. The MSEB team, led by its finance director NM Mishra, on Wednesday asked the DPC to further give the basis for tariff reduction. The officials of Crisil and Infrastructure Development Finance Corporation (IDFC) also attended the meeting. The team was eager to know how much burden the DPC would bear to carry out tariff reduction.

MSEB is believed to have expressed the opinion that the DPC was not at all serious in bringing down the tariff as it was only "passing the buck" to the Centre and the FIs. MSEB insisted that the company should submit necessary formula supported by data on its proposal for 10 per cent tariff cut.  MSEB also wanted that the company should also explain how the tariff cut would give a relief to the MSEB and ultimatetly to its customers.

DPC officials, comprising its chief financial officer Mohan Gurunath, Rajesh Shivraman, Gaurav Washne and Bechtel's Firoz Nagarwala assured that the company will talk to its principals, Enron, and get back to MSEB with the necessary data. Meanwhile, DPC has said "It has not shut down the Dabhol plant. The plant continues to be operational as required by the power purchase agreement. However, MSEB has not issued
despatch instruction since 12 noon on May 29."  In a related development, the Madhav Godbole committee will meet the MSEB officials on June 7 in the absence of DPC representatives.

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BUSINESS STANDARD
Thursday, May 31, 2001
Dabhol mothballs power project - Tamal Bandyopadhyay 

The Dabhol Power Company has decided to put its $3-billion, 2,184 mw power project in cold storage. The company's top brass today told Indian lenders that the 740-mw phase I of the project  has already stopped commercial production as of 12 noon today. It has also suspended construction work for phase II. 

After all issues are sorted out, the plant mayresume commercial production only in January 2003 when the LNG facility is ready. In effect, there will be delay in commissioning of the plant and the lenders will be required to reschedule their exposure for phase II. Test runs for phase-II were earlier scheduled to commence on June 7. 

Commercial production of phase II was originally slated to kick off in December 2001. K Wade Cline, managing director, Enron India, Neil McGregor, CEO and president of DPC and Mohan Gurunath, chief financial officer of the company made a two-hour presentation before the senior executives of Industrial Development Bank of India, ICICI, State Bank of India, Industrial Finance Corporation of India and Canara Bank at the IDBI headquarters today. 

However, a DPC release said: "DPC has not shut down its plant. The plant continues to be operational as required by the power purchase (PPA); however, MSEB has not issued despatch instructions since 12 noon on May 29, 2001." An industry source said, "The plant is not shut down but it has stopped commercial production." At the same time the company hinted at making sacrifices to save the project at today's meeting with lenders. The DPC executives even spoke about bringing down the rate of return (on investments). The company is set to challenge the Maharashtra Electricity Regulatory Commi- ssion verdict of restraining DPC from arbitration proceedings on the ground that the energy regulatory commission came into existence in 1999 well after entering into the PPA with MSEB. 

DPC is said to have explained to lenders that it has refused to accept MSEB's cheque in payment for past dues as acceptance of such payment would amount to agreeing with the latter's stand on rescinding the PPA. In case the commissioning of the phase II of the project gets delayed to 2003, the lenders will have to restructure their loan exposure with a longer moratorium as the company would not be in a position to start the repayment schedule.  

The global lenders which are meeting in Singapore next week will decide whether to accept the time over run and reschedule the loans. Meanwhile, DPC told the lenders that its doesn't expect Indian lenders to make any sacrifices in of reducing the interest rates.

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BUSINESS STANDARD
Thursday, May 31, 2001
Centre clears third party sale of power by DPC 

In a last ditch effort to break the DPC-MSEB logjam, the government today proposed that power deficient states can buy directly from DPC, in effect clearing third party sale by the company. In a statement issued today, Union power minister Suresh Prabhu said, "In response to discussions with the negotiating committee and the reported willingness of DPC to reduce the cost of power, directions have been issued to the Central Electricity Authority (CEA) for discussions with power deficient states on the quantity of power they can absorb and the tariff at which it can be sold."

Earlier today, the Centre's nominee in the negotiating committee, AV Gokak, met finance and power ministry officials to discuss the situation. This comes in the light of the MERC order restricting DPC from proceeding with the arbitration process till June 14. The Centre's decision comes after the negotiation committee meeting on May 29 and the reported willingness of DPC to reduce the cost of power by 10 per cent, which it had agreed to in a meeting with lenders. Even the Godbole panel had recommended third party sale of power by DPC. 

The sale of power outside MSEB would allow the company to spread its fixed charge over a larger base, thereby reducing the per unit tariff. The panel had however added that DPC should first relieve MSEB of all its contractual obligations relating to the power plant. The CEA, the statement said, has initiated discussions with the states in this regard. It added that contingent arrangements for evacuation of surplus power generated by DPC, if any, were also being finalised.  

Prabhu reiterated that the government was committed to making all possible efforts to resolve the issues concerning the project in consultation with the stakeholders. He however added that a commercially viable MSEB would be an essential component of the settlement arrived at. 

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BUSINESS STANDARD
Thursday, May 31, 2001
DPC lenders call for ceasefire - Renni Abraham 

Domestic lenders to the Dabhol Power Company (DPC) project on Wednesday decided to try and convince the Maharashtra government and the Maharashtra State Electricity Board (MSEB) as well as DPC to put in abeyance all notices and counter notices issued to each other so that the project is not put in jeopardy. 

Confirming this, IDBI executive director R S Aggarwal told Business Standard: "We have decided to meet the state government and MSEB at their convenience on June 1 or 2 in a bid to convince them about the futility of legal wrangling that could jeopardise the DPC project. We have also decided as a strategic plan to combine the domestic and international lenders as a united front so as to work out a resolution to the whole dispute." 

Domestic lenders including ICICI, IFCI, SBI, Canara bank and IDBI will be meeting international lenders in Singapore on June 5 and 6 where they will emphasise on the need to work unitedly for resolving the DPC imbroglio. In addition Wednesday's domestic lenders meeting also saw special invitee DPC making a
presentation to the domestic lenders to make its stand clear. 

Aggarwal noted: "DPC made a presentation and emphasised that a firm commitment for the offtake of power from phase I and II at 90 per cent plant load factor (PLF) was required from the government. They also added that once this was achieved, further discussions could be held with an open mind." In effect, DPC was pushing its case for the offtake of a total 1965 mw out of the total DPC project having a capacity of 2184 mw. The domestic lenders are also well aware of the state of Maharashtra's inability to offtake the 1,444 mw of additional power that would become available once phase II is commissioned and in general agreement that the central government would have to play a crucial role in ensure this power is absorbed.

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THE INDIAN EXPRESS
Thursday, May 31, 2001
FIs not to reduce interest rate for DPC

Indian financial institutions, led by Industrial Development Bank of India (IDBI), have flatly refused to reduce interest rate for Dabhol Power. The FI response came close on the heels of the DPC's demand to reduce interest rate from the present 16.5 per cent to 12 per cent and increase the repayment period in order to cut power tariff by 10 per cent.

 ''This is not possible (to reduce interest) taking into account our high cost of funds,'' top IDBI officials said. ''It's not possible to reduce interest rate exclusively for DPC as there could be similar demand from other companies too,'' officials said. ''Earlier, we have already reduced interest rates from 21 per cent to 16.5 per cent for all companies including DPC.'' DPC, at a meeting with the MSEB officials on Wednesday, said the proposed 10 per cent tariff reduction would be possible only if the Centre fully waives customs duty on the liquefied natural gas (LNG) and the FIs brings down the interest rates from 16.5 per cent to 12 per cent in the changed circumstances. DPC said the Centre should take an initiative to waive the customs duty from the existing rate of 5 per cent so that the company would be in a position to cut tariff. 

The company has been pursuing the Centre since last six months for customs duty waiver as it had planned to commission the block B (722 mw) of Dabhol phase-II from June 7. However, the DPC's plan in this regard hangs in the balance in view of MSEB's decision not to purchase power following the rescinding of power purchase agreement. 

The MSEB team, led by its finance director N M Mishra, asked the DPC to further give the  basis for tariff reduction. MSEB officials accompanied by the representatives of Crisil and Infrastructure Development Finance Corporation were eager to know how much burden the DPC would bear to carry out tariff reduction.

 MSEB is believed to have expressed opinion that the company was not at all serious to bring down tariff cut as it was only "passing the buck" on the centre and FIs. Meanwhile, DPC has said that "it has not shut down the Dabhol plant. The plant continues to be operational as required by the power purchase agreement, however, MSEB has not issued despatch instruction since 12 noon on May 29."

 "DPC wishes to reiterate that we will continue to follow the power purchase agreement and meet our contractual obligations, enforcing our rights under contracts and taking various disputes to dispute  resolution process."The project, which is around 90 per cent complete, has been funded with a debt of $2 billion. Of this, offshore lenders have contributed around $600 million and the remaining $1.4 billion  by local institutions and banks. Most of the foreign loans are guaranteed by the Indian lenders, who fear their books would take a hit if their offshore counterparts call in their loans. Foreign lenders of the project are meeting next week in Singapore to discuss the fate of their loans.

The main lenders to the project are IDBI, ICICI, SBI, Industrial Finance Corporation of India and Canara Bank.