THE ECONOMIC TIMES
Friday, June 01, 2001, http://www.economictimes.com/today/bn04.htm
DPC willing to prune internal rate of return, Anto T Joseph 
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BUSINESS STANDARD
Friday, June 01, 2001, http://www.business-standard.com/today/financ11.asp?Menu=5
DPC lenders plan 1-2% rate cut to save project 
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THE ECONOMIC TIMES
Friday, June 01, 2001,  http://www.economictimes.com/today/01infr01.htm
Prabhu meets Sinha to discuss DPC-MSEB  row
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/eco11.html
Prabhu meets Sinha to discuss DPC, MSEB dispute 
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THE ASIAN AGE
'No Counter-Guarantee On Power'
Friday, June 01, 2001,http://www.asianageonline.com/
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THE ECONOMIC TIMES
Friday, June 01, 2001, http://www.economictimes.com/today/01edit02.htm
Some light at last!
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/corp12.html
MSEB sells 2.5 m units to Tata Power, Sanjay Jog
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/fed4.html
Dabhol, the FDI we didn't need , R Jagannathan
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/news1.html
DPC expects MSEB to share 50% in $360-m loss on account of tariff cut ,  Sanjay Jog
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THE INDIAN EXPRESS
Friday, June 01, 2001, http://www.indian-express.com/ie20010601/bus2.html
Enron fallout: Fitch cuts India's rating to negative
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THE INDIAN EXPRESS
Friday, June 01, 2001, http://www.indian-express.com/ie20010601/bus1.html
As Enron backs out, NTPC steps in with 2 mega plans
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THE INDIAN EXPRESS
Friday, June 01, 2001, http://www.indian-express.com/ie20010601/ed1.html
Darkness over Dabhol
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MID DAY
Friday, June 01, 2001
http://www.chalomumbai.com/asp/article.asp?cat_id=29&art_id=11410&cat_code=2F574841545F535F4F4E5F4D554D4241492F5441415A415F4B4841424152
Enron knew about DPC plant's shortcomings, Deepak Lokhande
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MID DAY
Friday, June 01, 2001,
http://www.chalomumbai.com/asp/article.asp?cat_id=29&cat_code=2f574841545f535f4f4e5f4d554d4241492f5441415a415f4b4841424152&art_id=11400
Govt allows Enron third party power sale
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MID DAY
Friday, June 01, 2001,
http://www.chalomumbai.com/asp/article.asp?cat_id=29&cat_code=2f574841545f535f4f4e5f4d554d4241492f5441415a415f4b4841424152&art_id=11337
Enron shuts down plant, to issue termination notice
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THE ECONOMIC TIMES, Friday, June 01, 2001 
DPC willing to prune internal rate of return, Anto T Joseph 

THE Enron-promoted Dabhol Power Company has given a set of proposals to the IDBI-led domestic lenders in a final effort to continue with the power project at Dabhol. DPC is likely to make a similar presentation to its secured creditors like the Japanese and Belgian Exim banks on June 5 and June 6, and other foreign banks on June 7, in meetings scheduled to be held in Singapore. FI sources said DPC is now willing to bring down the internal rate of return from the existing rate which is more than 30 per cent as well as the dollar return of equity. All these will hinge around a reduction in tariffs, as demanded by MSEB and the state and central governments. The domestic lenders to the controversial project have agreed to consider a reduction in rate of interest. 

They have, however, shot down a proposal regarding delaying the phase II construction till the first delivery of LNG starts by 2001-end. If these proposals become a workable proposition for all the concerned parties, lenders may have to start disburse loans for the second phase of the project, that was withheld following the payment dispute. As part of the proposals, DPC has demanded that the lenders allow it to complete the project with some time and cost overrun. "Though the exact cost overrun is yet to be calculated, a rough calculation has put the figure at around $400 m," said FI sources. DPC is believed to be now optimistic about completion of the project with the help of lenders and with various adjustments that are yet to be agreed upon by concerned parties. FI sources said some foreign developmental financial institutions have already supported DPC's  proposals to continue with the project. The lenders said there was no discussion over transfer of assets either to the electricity board or any special purpose vehicle.
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BUSINESS STANDARD, Friday, June 01, 2001
DPC lenders plan 1-2% rate cut to save project 

Lenders to the $3-billion Dabhol Power Project are ready to make "sacrifices" to save the controversial project from sinking. According to sources, Indian lenders-Industrial Development Bank of India (IDBI) and State Bank of India-are considering between one and two percentage point cut in interest rates to bring down the cost of funds for the promoters. Other domestic lenders -- ICICI, Industrial Finance Corporation of India (IFCI) and Canara Bank-may also follow suit.

The Indian lenders are also not averse to the idea of raising the moratorium on loan repayment by at least one more year The moratorium is currently pegged at one year. Besides, they are also willing to consider stretching the repayment schedule from the existing level of nine years to about 12 years. "The single point agenda is to complete the project. The lenders are ready to make sacrifices if that will help," said a source. To bring down costs, the Godbole Committee had recommended conversion of the foreign currency loans into rupee loans. 

However, at this stage, none of the Indian lenders are willing to do so as it would increase their exposure. But they could, at a later stage, convert the forex loans into rupee loans. Following the government's external commercial borrowing (ECB) guidelines, 25 per cent of forex loans can be converted every year following the pre-payment route. Both IDBI and SBI had cut interest rates earlier also. While IDBI slashed it from around 19 to 16.5 per cent, SBI cut it from around 17 to 15 per cent. The average interest cost for the phase I rupee loan is pegged at 16.5 per cent and that of phase II at 16.11 per cent. A percentage point cut in interest rate can translate to only about 2 paise lowering in tariff of the project. The lowering of six-month Libor from over 5.5 per cent two years back to 4.25 per cent now has also brought down the cost of forex loans for the project. The Dabhol project has already had a cost over-run of $150 million. 

However, this has not been borne by the lenders. Three Indian lenders -- IDBI, ICICI and SBI -- have a guarantee exposure to the tune of Rs  3,000 crore, besides funded exposure of around Rs 2,255 crore. In rupee terms, the three lenders have a guarantee exposure of Rs 1,039 crore to phase I and Rs 1,960 crore to phase II. 
The outstanding rupee term loans on the Indian lenders' books is to the tune of Rs 250 crore for phase I and Rs 1,156 crore for phase II. Besides, SBI also disbursed $141 million worth  of foreign currency loans in phase II. "The decision on moratorium on payment or maturity of loans can only be taken at the Singapore meeting on June 5-6, when the global lenders will discuss the future of the project. However, the Indian lenders can go ahead and cut the rates on the rupee loan on their own," a source said.
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THE ECONOMIC TIMES, Friday, June 01, 2001 
Prabhu meets Sinha to discuss DPC-MSEB  row
                                   
POWER minister Suresh Prabhu on Thursday met finance minister Yashwant Sinha in the context of the ongoing dispute between Enron-promoted Dabhol Power Company and Maharashtra State Electricity Board in a bid to break the deadlock over the cost of power and payment of bills. At the end of nearly an hour-long meeting, Prabhu declined to give any details about his discussion with Sinha. Sources said, among other things, the two ministers discussed the situation arising out of Wednesday's development in which DPC stopped generating power in the absence of any despatch order from the MSEB. Officials of both ministries were tight-lipped and refused to divulge any details about the meeting. (PTI)
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THE FINANCIAL EXPRESS, Friday, June 01, 2001 
Prabhu meets Sinha to discuss DPC, MSEB dispute 

POWER Minister Suresh Prabhu on Thursday met Finance Minister Yashwant Sinha in the context of the ongoing dispute between Enron-promoted Dabhol Power Company (DPC) and Maharashtra state electricity board (MSEB) in a bid to break the deadlock over the cost of power and payment of bills.At the end of nearly an hour-long meeting, Mr Prabhu declined to give any details about his discussion with Mr Sinha. Sources said, among other things, the two ministers discussed the situation arising out of yesterday's development in which DPC stopped generating power in the absence of any despatch order from the MSEB. (PTI)
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THE ASIAN AGE
'No Counter-Guarantee On Power', Friday, June 01, 2001

The Centre has ruled out any counter-guarantee to power projects even as foreign investors are approaching government expressing apprehensions in the wake of the
dispute between Enron-promoted Dabhol Power Company and Maharashtra State Electricity Board over the cost of power and payment of bills. "I will not say that they (foreign investors) do not have any apprehensions. They want to know about the fate of their projects. We are making it clear that our policy is transparent and unambiguous and we want foreign investment to supplement domestic investment," power minister Suresh Prabhu said.

 "I have told all foreign investors that counter guarantee is out of question. Success of any project is through making it commercially viable," he said. Mr Prabhu clarified that any kind of Central guarantee would not put pressure on the state electricity boards and commercial success of the projects would depend on making the SEBs financially strong and viable. He, however, promised all the Central help in working out a sound payment mechanism for the power projects to assuage the fears of both foreign and domestic investors.Meanwhile, Mr Prabhu met finance minister Yashwant Sinha in the context of the ongoing dispute between DPC and MSEB in a bid to break the deadlock over the cost of power and payment of bills.

At the end of nearly an hour-long meeting on Thursday, Mr Prabhu declined to give any details about his discussion with Mr Sinha. Sources said, among other things, the two ministers discussed the situation arising out of development in which DPC stopped generating power in the absence of any despatch order from the MSEB.
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THE ECONOMIC TIMES, Friday, June 01, 2001 
Some light at last!

NEW Delhi's intervention in the tussle between Enron and the Maharashtra government is a welcome development. The government wants the Central Electricity Authority to  find out whether electricity generated by Dabhol Power Company can be sold to states which need power badly if it can't be used by Maharashtra. This is a good idea - India is seriously short of reliable, quality electricity supply. Maharashtra claims that it doesn't need even the 740 MW now generated by DPC at going rates. This creates further trouble: the lower Maharashtra's offtake, the higher the unit price of DPC power. Once other power hungry states start buying up electricity from DPC, the price per kilowatt hour will fall sharply. 

The first step to getting DPC out of the hole that Enron, Maharashtra and successive Indian governments have dug it into, is to allow the utility to sell power to anyone who wants to purchase it at going rates. However, asking central utilities like the fledgling Power Trading Corporation to evacuate DPC power for sale outside Maharashtra won't solve the hassles of the sector for all time. The government should modify electricity laws to allow generating companies to sell electricity to all users immediately. An ordinance passed by New Delhi will do the trick - power is a concurrent subject, with central legislation overriding states'. But even if that happens, it is doubtful if there will be too many buyers for Dabhol power at its present price - about Rs 4 per unit with the plant running at high capacities. If the price is to be brought down further, the deal with MSEB will have to be renegotiated. 

The Godbole Committee says that some financial restructuring, de-dollarising of debt and equity, and so on can bring prices down by about 30 per cent from DPC's  minimum Rs 4 per unit rate today. Otherwise, as the GC points out, it will be impossible for the project to be viable at current tariffs. India desperately needs electricity to grow. For the power sector to grow, reforms are necessary at every level - renegotiations, yes, but also changes in laws and the rules of the game.
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THE FINANCIAL EXPRESS, Friday, June 01, 2001 
MSEB sells 2.5 m units to Tata Power, Sanjay Jog

THE Maharashtra State Electricity Board (MSEB), which has suspended the power purchase from the Dabhol Power Company since May 29 noon, has been selling 2.5 million units at a per unit tariff of around Rs 3.60 to Tata Power. MSEB sources confirmed these developments and told The Financial Express on Thursday that it will also sell its power to various states if they come forward with the proposal.  "We have sold over 5 million units since last three days to Tata Power whose Trombay plant is undergoing certain overhauling," sources said.

According to sources, MSEB's power supply has not been affected despite it has stopped power purchase from DPC. Thanks to the daily load availability of over 10,000 mw and a frequency of 49 per cent. MSEB has a generating capacity of nearly 9,767 mw in addition to this it receives in all 2,185 mw from the  National Thermal Power Corporation and Nuclear Power Corporation and nearly 190 mw from Tarapur automatic power station.Furthermore, sources said that there has been no peak load shortage neither there has been load shedding across the state mainly due to a much needed relief received after pre-monsoon rains and low uptake of power especially from the agricultural consumers due to prevailing drought conditions.  Similarly, MSEB's drive to contain power thefts have started paying off.

Moreover, the industrial consumers have shifted their load during night hours when the power availability is more but also at off peak rates. In a related development, Indian rupee lenders consortium headed by the Industrial Development Bank of India will hold meeting with the MSEB chairman Vinay Bansal on Saturday for apprising him their position over Dabhol impasse. IDBI along with Indian Financial Institutions (IFIs) have taken a stand that the legal issues be kept aside and make united efforts to save their funds crossing over Rs 5,152 crore blocked in the Dabhol project. MSEB sources said that the IDBI would also be briefed about the circumstances under which it has filed a petition in the Maharashtra Electricity Regulatory Commission after rescinding the power purchase agreement. "However, we still feel that MSEB and IDBI should work together to safeguard their interests as well as their money," sources added. 
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THE FINANCIAL EXPRESS, Friday, June 01, 2001 
Dabhol, the FDI we didn't need , R Jagannathan

The question is not of scrapping the deal, but how and on what terms 

If there is one thing that stands out in the Dabhol power project controversy, it is the surprising unanimity all parties to the conflict have achieved: all of them actually want to get out. Enron, main promoters of the Dabhol Power Company, which got a cushy bargain with no risks, wants to walk out because it does not see itself as a power-plant runner in the long run. Nor does it want to be seen as the company that stole millions from a poor country by making suckers out of Indian politicians and bureaucrats while negotiating the power purchase agreement (PPA). Maharashtra state electricity board (MSEB), a self-declared victim, obviously wants to exit for reasons of its own long-term survival. The central and Maharashtra governments would like to close the chapter since they want to welsh on the guarantees that were foolhardily given to Enron. The only people who still have a stake in the PPA and the deal are mostly Indian financial institutions and banks. Even they are unlikely to hang on if they can see a way to pull their chestnuts out of the fire. If no one is ready to admit this, it is because everybody has egg on his face. It is, therefore, best to cut one's losses, learn the lessons and move on. 

The first lesson to be learnt is this: you cannot have a deal where the costs are stated in one currency and prices in another. In the Enron project, MSEB's power purchase costs were linked to the dollar when its revenues were in rupees. The only way it could have taken up this risk was if it knew that the rupee was actually going to strengthen against the dollar in the medium term - a historically invalid assumption. With dollar-rupee parities living up to past form, the project was a dead duck from day one.

Second, any deal done without keeping in mind a customer's willingness to pay the required price is folly. The Dabhol PPA makes its obvious that DPC considered MSEB the customer, when in reality it is the ultimate power users (factories, offices, farmers, households) who are the real customers. The deal would have worked only if MSEB believed it could raise tariffs by 100 per cent or more every year for several years, or if Enron was given the option to find its own customers and given a distribution area. This implies that the Enron deal could have worked only if power sector reforms had preceded the deal, and not followed it.

Third, nobody should ever try to guarantee profits to any commercial entity. While it may sometimes   make sense to give incentives (free land, tax relief) or even forgo revenues (through sales tax deferrals) to lure investment in any given sector, it makes no sense at all to offer to pay anyone money to ensure his profitability. But this is what the Maharashtra government and central counter-guarantees amounted to. If the power customer doesn't pay higher tariffs, the Maharashtra government (or its central counter-guarantor) would make up the shortfall for DPC.

Four, the Enron kind of foreign direct investment (FDI) is not something that needs to be encouraged. If governments have to bankroll the profits of a foreign company, if domestic institutions have to guarantee most of the loans, and if local customers are not prepared to pay the price for all that these things cost, what is the point in seeking such investment? McDonald's and Kellogg's are not here because they are guaranteed pots of money, but because they see a profitable market somewhere in the future. There is no reason why power should be any different. In future, if we are going to invite foreign investment, it must be on the basis of reforms that make investments inherently viable and not by profit guarantees. Power purchase contracts should be bid for on the basis of guaranteed rupee-based tariffs, subject to reasonable escalation clauses, and not capital costs or dollar-based inputs or returns.

To exit from the unholy mess, there are only three options: one, the government can negotiate compensation costs for Enron based on what it has invested and additionally give it a reasonable return on this capital. A new promoter may then have to be roped in to finish the project on the basis of a new PPA. He will then have to decide whether the existing contractors can be retained to complete the project on new or existing terms; and new avenues have to be found to make the project viable using cheaper and alternative fuels. The tab will, obviously, have to be picked up by the central and Maharashtra governments, MSEB and the lenders in some proportion. The key to resolving the deadlock lies with Enron: whether it will be mature enough to accept a compensation that is less than what its deal itself specifies.

Mr Jagannathan is Editor, myiris.com
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THE FINANCIAL EXPRESS, Friday, June 01, 2001 
DPC expects MSEB to share 50% in $360-m loss on account of tariff cut ,  Sanjay Jog

DABHOL Power Company (DPC) has for the first time come up with a figure of $360 million, which it says is on account of the 10 per cent reduction in tariff. This amount was indicated by the DPC at a recent meeting with the Maharashtra State Electricity Board (MSEB) officials.  Interestingly, while the DPC expects MSEB to share 50 per cent of this burden, the MSEB, before accepting its part of the burden, wants DPC to give the basis on which this figure has been arrived at.According to DPC, the per unit tariff at 90 per cent availability, will be reduced to Rs 3.50-Rs 3.59 from the estimated Rs 4.30 after the commissioning of Dabhol phase-II to be run on the liquified natural gas (LNG). The DPC is of the view that the tariff cut will be possible only if the Centre waives 5 per cent customs duty on LNG and the Indian Financial Institutions (IFIs) restructure the repayment schedule and cut the interest rate to 12 per cent from the prevailing 16.5 per cent.

DPC has estimated a suspension period of nearly 18 months, comprising 12 months for the completion of renegotiations and six months for various other formalities. Sources said that the implementation of tariff cut, if at all agreed by both MSEB and DPC, would be possible after reworking the present power purchase agreement, which has already been rescinded by the MSEB. However, MSEB, which will have to share a burden of $180 million, has asked the DPC to explain with a backup data and formula on what basis it has arrived at a figure of $360 million. Sources told The Financial Express that the prima facie DPC has ruled out the possibility of cutting the tariff at Rs 2.50 per unit as demanded by the MSEB on the grounds that it would not even cover the fixed charges, leave aside the variable charges. However, MSEB, as reported first by The Financial Express on May 29, wants to stick to its stand that the tariff will have to be brought down at Rs 2.50 per unit.

Curiously, MSEB's stand has been supported by the Infrastructure Development Finance Corporation (IDFC) which is providing secretarial assistance to the Madhav Godbole renegotiation committee. MSEB is of the firm view that the tariff cut is quite possible only after the DPC delinks dollar linkage, separates its regassification unit from the Dabhol project and also sacrifices equity earnings in dollar terms. According to sources, DPC has also asked the MSEB to submit its formula and backup data to lower the per unit tariff at Rs 2.50. However, MSEB officials have told the DPC that it would share necessary data only after seeking approval of the renegotiations committee chief Dr Madhav Godbole.

The IDFC officials would meet Dr Godbole on this front and thereafter come out with the relevant data pertaining to tariff reduction at the next meeting slated for June 2 between MSEB and DPC officials. In a related development, MSEB and DPC are believed to have expressed serious doubts over Union minister Suresh Prabhu's directives to the Central Electricity Authority (CEA) to find buyers for the Dabhol power in the wake of the MSEB's decision to stop power purchase from Dabhol. They are reportedly doubtful over the feasibility and durability of this proposal as it would all depend upon the power demand and the payment capacity of the "buyer" state.
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THE INDIAN EXPRESS, Friday, June 01, 2001 
Enron fallout: Fitch cuts India's rating to negative

Fiscal imbalance, Enron row take toll on India's rating

International rating agency Fitch today changed the rating outlook on India's sovereign ratings from 'stable' to 'negative' citing  well-flagged concerns about fiscal policy, privatisation, deterioration in the foreign investment climate and the Enron fracas. Fitch currently rates the foreign and local currency obligations of India 'BB+' and 'BBB-' respectively.The negative rating outlook reflects the slow progress of the government in implementing privatisation and addressing the weaknesses in public finances, it said. The fiscal-monetary policy mix in India remains unfavourable, resulting in relatively high real interest rates and crowding out of private sector investment. Italso expressed concern over high government guarantees - which can become liabilities - to various projects in the wake of the Enron imbroglio.

Fitch also expressed additional concerns over the dispute between Enron, the country's largest foreign investor, and the government and worried that this may herald a broader deterioration in the foreign investment climate. Foreign direct investment remains extremely low in India (less than 1 per cent of GDP). Until the authorities display a concerted willingness to address fiscal imbalances, India will remain locked in a stop-go cycle of growth and the sovereign could slip into a debt trap, it said. The recent corruption scandal, involving the ruling BJP-led coalition government, threatens to exacerbate these trends and further slow economic reform, Fitch said. India's fiscal deficit at over 9 per cent of GDP is among the highest in the realm of rated sovereigns. Persistently high fiscal deficits have led to a build-up of the general government's debt burden, estimated to be over 60 per cent of GDP.

In addition, the government (both central and state) has guarantees outstanding amounting to 9 per cent of GDP. Fitch reiterates the point that such guarantees, issued to back mainly infrastructure projects, are contingent liabilities of the government. This has most recently been borne out in the case of Enron, where                    the US power company has invoked a central government guarantee for payment arrears accumulated by the MSEB. On the revenue side, the tax base remains small, while the expenditure profile remains rigid due to the high level of interest payments, subsidies, personnel and defence costs. Interest payments comprise                     nearly 50 per cent of revenues, leaving little to be spent on the much-needed infrastructure and social sectors.

Fiscal management is also questionable given the repeated slippage in its fiscal deficits in the past several years. Despite the weak state of public finances, Fitch is disappointed that the government is envisaging only a modest fiscal consolidation in 2001-02 and even this target could prove challenging, as growth                     and revenue projections seem optimistic. Although the budget contains some positive structural reform measures, the Tehelka scandal and State elections next year could put pressure on the government to delay these initiatives.
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THE INDIAN EXPRESS, Friday, June 01, 2001 
As Enron backs out, NTPC steps in with 2 mega plans

NTPC to set up coal-based plants in Maharashtra

WHILE private sector power producers like Enron are finding the going tough in Maharashtra, government-owned National Thermal Power Corporation (NTPC) has decided to set up two new mega power projects in the State. This is despite Enron's Dabhol project is sputtering and projects ofReliance and Ispat have failed to get government clearances.NTPC plans to set up two 1,000 mw plus coal-based power plants in Vidarbha and Konkan areas of Maharashtra with an investment of more than Rs 4,000 crore each. "NTPC does not have a power plant in the state, so in order to make our presence, we have shortlisted Mauda near Nagpur for setting up a power station with two units of 500 mw each," said NTPC executive director (western region) R D Gupta.

 "While private power producers have found it tough running power plants, government utilities seem to be quietly consolidating their position in spite of huge dues," said an analyst with a foreign brokerage. NTPC alone has dues of over Rs 16,000 crore from various state electricity boards. "The location for Konkan will be finalised soon as we are yet to select suitable land for the project," Gupta added. For the Vidarbha project, the Corporation has been able to finalise the prospects of coal availability and was awaiting State's response on procurement of water, Gupta said, adding "For the coastal plant, NPTC is looking for imported coal, which would be later blended with the Indian quality for usage." 

The State government, which is in a battle with Enron over the Dabhol project, had recently put on hold providing an escrow cover and signing of power purchase agreement with NTPC for the purchase of additional power from its new projects. The government has, in no uncertain terms, also expressed its inability to consider an escrow cover at this point of time especially when the Madhav Godbole energy review committee is in the process of finalisation of its report on reforms and restructuring of ailing Maharashtra State Electricity Board (MSEB). Simultaneously, neither the State nor MSEB were in a position to give any assurance on purchase of power from NTPC's upcoming projects especially when the State was meeting the power demand with the present installed capacity of over 12,000 mw.

The government had told the NTPC that the escrow cover would not be required in the wake of proposed implementation of Montek Singh Ahluwalia report on one time settlement of dues of state electricity boards (SEBs). Similarly, the government made it clear that it would not be possible for provide escrow cover in                     the wake of current 'precarious' financial conditions. NTPC pressed for PPAs for the supply of additional power of 1,345 mw from Kawas II (202 mw), Gandhar II (186 mw), Vindhyachal II (319 mw) and Sipat (638 mw). NTPC has already been providing around 1,900 mw to 2,400 mw to the MSEB.
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THE INDIAN EXPRESS, Friday, June 01, 2001 
Darkness over Dabhol

There can be no excuses for these monumental 'enwrongs'

NOTHING confirms the need for transparency in decision-making more forcefully than the Dabhol Power Company imbroglio. Operations at the power station have been stopped for a second time since the original contract was signed. In 1994, alleging corruption in the deal, the then Shiv Sena-BJP government ordered                        suspension of the project but soon backtracked and signed a new contract, three times the size of the first. This time the closure comes amidst claims of breach of agreement by the Maharashtra State Electricity Board and by the DPC. If renegotiation of the contract does not result from this impasse, both parties willconfront each other in court. Either way, what assurances are there that Maharashtra will be the winner this time? Very few, if matters proceed as they did in the past when contracts were negotiated and renegotiated with the DPC. The Godbole committee reveals there has been a comprehensive failure of governance in dealing with Enron, the US energy company which holds a majority stake in the DPC. For anyone wanting to understand why Maharashtra has 2184 MW of power it does not need and cannot afford, the Godbole report is essential reading. It has this to say: ''The committee is surprised at the breadth of governance failure which has occurred across time, across governments and across agencies, right from 1992 till as late as 1999.''

Successive governments of Maharashtra, the MSEB, the Central Electricity Authority and several Central government ministries are all indicted. It must be said that the judicial process also failed when many public interest petitions were filed but the courts chose not to intervene. A few errors in judgement on the part of government agencies would be understandable given the lack of experience at the time in negotiating commercial power contracts. But every one of the assertions relating to the benefits from the project, the effectiveness of negotiations, project design and size, the need for power and the competitiveness of the tariff proved to be false, according to Godbole. Some decisions did not even meet the test of common sense. Monitoring of compliance with negotiating committee recommendations was poor. Small wonder that corruption at every stage is suspected.

With greater transparency during the process, it is highly unlikely so many wrong assumptions and so many bare-faced lies would have gone unchallenged. The more open the process, the greater the chances of the whistle being blown before too much damage is done. But try telling officialdom to open up and repose itsfaith in public scrutiny. From the start NGOs, opposition parties, trade unions were denied information on unsustainable grounds of commercial secrecy. Even now MSEB refuses to divulge information in the public interest despite being ordered to do so by the Maharashtra Electricity Regulatory Commission. If Maharashtra does not learn from the past, it will repeat its mistakes a third time. All documents relating to the Dabhol project must be made public without delay and further  proceedings should be conducted in a completely transparent manner. There must be no scope for ''undue influence'', no more failures of governance.
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MID DAY, Friday, June 01, 2001
Enron knew about DPC plant's shortcomings, Deepak Lokhande

Enron could have been aware that the Dabhol power plant might be unable to generate electricity at full capacity within three hours of the plant's machinery being started, which was why the United States energy giant must have wanted the penalty clause removed from its Power Purchase Agreement (PPA) with the Maharashtra State Electricity Board (MSEB).  The MSEB has slapped a notice for a penalty of Rs 401 crore to be paid by the Dabhol Power Corporation (DPC), Enron's Indian subsidiary, after the DPC could not run its plant at full capacity in January when MSEB demanded power.

 Later, the MSEB also claimed the PPA with DPC was no longer valid on the grounds that the plant had been fitted with substandard machinery. The MSEB has taken up the issue with the Maharashtra Electricity Regulatory Commission (MERC) and won the first round by getting an interim stay order on activation of the escrow account by the DPC and halting arbitration proceedings in London.Several legal experts, including the attorney general of India, Soli Sorabjee, have opined that the MSEB is on strong legal ground with regard to the penalty notice and can humble the US energy major. It now appears that Enron must have been aware that the penalty clause might cause trouble and hence suggested it be removed from the PPA. Enron India Managing Director K Wade Cline has said the company would like to renegotiate the penalty clause.

Wade Cline showed a willingness to amend the PPA on May 30 when the state requested the Centre take over Phase II of the Dabhol power project. Speaking to select media persons at the Oberoi Towers on the evening of May 30, he said his company was welcome to the idea of sharing power with the National Thermal Power Corporation, but said Enron would also want permission to sell power to a third party.
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MID DAY, Friday, June 01, 2001,
Govt allows Enron third party power sale

The union government on Thursday allowed the Enron-promoted Dhabol Power Company (DPC) to sell power to third parties so as to sustain itself in the face of the dispute with the Maharashtra State Electricity Board (MSEB). The Ministry of Power has proposed that power deficient states can directly buy power from DPC.Power Minister Suresh Prabhu, in a statement in the capital, said this has been done in  response to discussions with the negotiating committee and the reported willingness of DPC to reduce the cost of power. He said directions had already 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, A V Gokak, the Centre's nominee in the negotiating committee, called on finance and power ministry officials to discuss the situation as the Maharashtra Electricity Regulatory Commission (MERC), in its order, had restrained the DPC from proceeding with the arbitration process till June 14.
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MID DAY, Friday, June 01, 2001,
Enron shuts down plant, to issue termination notice

Amidst a plethora of allegations, counter attacks and legal wrangles, US energy major Enron-promoted Dabhol  Power Company (DPC) is set to issue the much vexed Termination Notice to its partner MSEB and has also shut down the USD three billion Guhagar plant.With MSEB not drawing power since Tuesday noon, the multinational had no other option but to shut down as MSEB is their sole customer, a senior Godbole committee member said on Wednesday. "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 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 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 panel would meet MSEB officials on June 6 but DPC representatives have not been invited for the same.