Jeff,

We shall forward to you shortly a copy of the message from Sandeep with the 
numbers you have 
requested.  What follows below are the extracts from two recent articles on 
the power situation in India
published by The Financial Times. 

The first article describes recent power outage in northern India affecting 
millions of people.
One possible line of defense is pointing out to the value of  output lost due 
to  power
shortages. It is obvious that the value of lost production exceeds the cost 
of power produced
by the Dhabol plant (expensive as it may be). The power cut affected 230 
million people.

The second article is Enron specific.

Vince

               
    
                     ASIA-PACIFIC: Power failure hits north India 
                     Financial Times; Jan 3, 2001
                     By ANGUS DONALD

                     Tens of millions of people were left without electricity 
in northern India
                     yesterday after a power grid breakdown. 

                     Electricity was gradually switched on in some areas and 
most parts of the
                     capital New Delhi, with 60 to 70 per cent of supply 
expected to be restored
                     by the end of the day, according to power grid 
officials. 

                     The Associated Chambers of Commerce and Industry 
(Assocham), a
                     leading business organisation, expressed "deep concern" 
and called for a
                     mechanism to prevent future disruption that could 
"cripple the economy". 

                     The power failure across eight Indian states, including 
New Delhi, disrupted
                     train services, water supplies and the telephone network 
and forced
                     hospitals to switch to emergency generators. 

                     The fault occurred on the Northern Grid, which provides 
electricity for 226m
                     people, and affected the states of Delhi, Haryana, 
Punjab, Uttar Pradesh,
                     Himachal Pradesh, Madhya Pradesh, Rajasthan and Jammu 
and Kashmir. 

                     A breakdown at a sub-station in Kanpur in Uttar Pradesh, 
India's most
                     populous state, caused an overload of power on other 
lines, which then
                     failed as well. 

                     Trains stopped running for most of the day and signals 
systems were
                     damaged. New Delhi international airport was also 
slightly affected before
                     its own power supply could be engaged. 

                     "We will probe into the reasons for the failure. It is 
most likely to be a
                     technical failure, but we will investigate why it 
happened," Suresh Prabhu,
                     the power minister, was quoted as saying by Press Trust 
of India. 

                     India suffers regularly from power problems because of 
lack of funding to
                     upgrade infrastructure. Theft of supplies is also a big 
problem. Thirty per
                     cent of the country's electricity is stolen, according 
to analysts. In New
                     Delhi as much as 50 per cent is stolen. 

                     Two years ago, a power failure blacked out Uttar Pradesh 
and Delhi for
                     hours. 

                     Assocham issued a statement, saying that increasing 
industrial demand
                     would exacerbate the problems already faced by India's 
inefficient power
                     sector. "The slow progress, particularly in 
strengthening the transmission
                     and distribution system, and ever increasing theft will 
contribute to
                     worsening the power supply situation further." 

                     Copyright: The Financial Times Limited

                                                          


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                     ASIA-PACIFIC: Energy group launches image offensive: 
Enron has a
                     plan to reverse its reputation as a profiteering 
multinational
                     operating in India, writes Khozem Merchant 

                     Financial Times; Jan 3, 2001
                     By KHOZEM MERCHANT

                     Enron, the US energy producer and a constant target of 
criticism in India, is
                     hitting back with a campaign to reverse its image as a 
profiteering
                     multinational. 

                     Its "myth and reality" offensive in local newspapers 
follows the west Indian
                     state of Maharashtra's decision to review the tariff it 
pays the Texas-based
                     company, whose Dollars 2.2bn electricity generating 
plant at Dabhol is
                     India's biggest single foreign investment. 

                     Maharashtra's tariff has more than doubled since 1993 
and is three times
                     greater than that charged by other independent power 
producers (IPPs).
                     The tariff has risen because of the depreciation of the 
rupee against the
                     dollar and the high but now falling price of naphtha 
fuel. The state also pays
                     a fixed capacity charge of Rs970m (Dollars 21m) a month, 
reflecting the
                     huge project cost and, controversially, irrespective of 
consumption. 

                     A showdown looks inevitable, reminiscent of a clash six 
years ago that
                     damaged India's appeal to foreign investors. A former 
official of the World
                     Bank, which has criticised the deal, says Enron is 
emerging "as the East
                     India Company of the 21st century" - a reference to the 
British trader that
                     colonised key areas of the Indian economy in the 19th 
century. 

                     The stand-off is the latest blot on India's power 
sector. The UK's PowerGen
                     and Cogentrix of the US have quit India recently, 
frustrated by long approval
                     procedures, inadequate payments mechanisms or because of 
higher
                     returns elsewhere. 

                     "India has lost time and opportunity and has driven 
returns down by six
                     percentage points," says Gerry Grove-White, former India 
general manager
                     of PowerGen, which has sold its 655MW plant in Gujarat 
to China Light &
                     Power of Hong Kong. 

                     India's national plan for the five years to 2002 says 
generating capacity
                     must rise by 40,000MW to about 120,000MW. But since 
1992, IPPs have
                     added only 3,000MW and 2,500MW remains under 
construction. This is
                     insufficient to support official projections of 6 to 8 
per cent economic
                     growth. 

                     Enron was a bellwether of India's liberalisation, 
winning fast-track project
                     approval in the early 1990s. Phase 1, a 740MW plant 
fuelled by expensive
                     naphtha came on stream in May 1999, and phase 2, a 
Dollars 1.87bn plant
                     of 1,624MW capacity that will run on cheaper liquefied 
natural gas (LNG),
                     will be completed this year. Only two of seven other 
fast-track proposals
                     have achieved financial closure. 

                     From the outset Enron encountered attacks, culminating 
in Maharashtra's
                     then nationalist government cancelling the project 
before renegotiating
                     terms no less onerous. Vilasrao Deshmukh, chief minister 
of the successor
                     government, says the power purchase agreement is 
unaffordable. 

                     Enron, whose attackers also include cultural 
chauvinists, wants to maintain
                     good political relations in a hostile but lucrative 
environment. Enron views
                     India as a testing ground for its evolution from a 
traditional manager of
                     power plants to a broad-based trader of commodities, 
such as energy, gas
                     and bandwidth. 

                     To support these ambitions Enron hopes to trade energy 
between power
                     surplus and deficit states, once legislation is passed 
this year. It is building
                     an LNG terminal and pipelines to trade imported natural 
gas. And it is
                     laying a 15,000km fibre-optic network to trade bandwidth 
space in a country
                     desperately short of this new economy commodity. 

                     In any event, Enron believes it has a watertight 
contract. It is supported by
                     many that believe any subversion of the contract would 
confirm investor
                     perception of Maharashtra, India's financial and 
industrial hub, as an
                     unreliable destination for investment. 

                     Mr Deshmukh - who has avoided the language of his 
predecessor, which
                     threatened to "dump Dabhol into the Arabian Sea" - is 
under pressure from
                     radical members of his wobbly coalition. But his options 
are limited.
                     Scrapping the project would be ruinous for an 
economically troubled state
                     that would have to compensate shareholders. 

                     Maharashtra State Electricity Board, the local utility 
and Enron's main
                     client, is obliged to dispatch or "off-take" 90 per cent 
of Dabhol's output. Yet
                     MSEB has never honoured these guarantees. Its off-take 
has averaged 60
                     per cent since the plant opened and, in effect, MSEB has 
been paying a lot
                     more while consuming a lot less power. 

                     One reason off-take is low is because the state's tough 
new regulator has
                     told MSEB to buy from cheaper sources. Enron says the 
tariff would be
                     Rs4.02/kWh if MSEB's off-take averaged 90 per cent. But 
with off-take a
                     third lower, the average tariff is Rs4.94 per unit, and 
often higher. In
                     October, the tariff was Rs6.91 per unit, when off-take 
was about 49 per
                     cent. Enron says tariffs should come down when phase 2, 
run on cheaper
                     LNG, starts. 

                     These cost pressures have forced MSEB to take up only 
half of a 30 per
                     cent equity option in phase 2. Enron has acquired the 
balance and
                     mandated bankers to find a buyer. 

                     Enron's difficulties have undermined the appeal of IPPs, 
which have failed to
                     deliver the flood of investments. Potential IPPs feared 
they would never be
                     paid by state generating boards that have become a 
byword for corrupt
                     management of power. 

                     Reform of state electricity boards, whose uneconomic 
pricing means
                     industrial users subsidise poor farmers, as well as 
transmission and
                     distribution (T&D) services to check huge theft and 
technical losses, is
                     overdue. "Given the limited resources, money would be 
better spent on T&D
                     rather than on new plant," says Oliver Blackaby, 
managing director of N M
                     Rothschild in India, which is advising Karnataka on the 
privatisation of its
                     distribution network. 

                     For the moment, attention is fixed on Enron's ability to 
satisfy the
                     competing interests of investors and clients. As Sanjay 
Bhatnagar, chief
                     executive officer of Enron India, said in a recent trade 
magazine, one of the
                     key lessons learned from phase 2 is "having flexibility 
to deal with
                     externalities". 

                     Copyright: The Financial Times Limited


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