THE ECONOMIC TIMES
Tuesday, May 15, 2001, http://www.economictimes.com/today/15econ03.htm
MSEB refutes allegations by Enron, DPC,  Girish Kuber 
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THE FINANCIAL EXPRESS
Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/news2.html
Crucial meet today to finalise Centre's reply to DPC notices, Sanjay Jog

The above article also appeared in the following newspaper:

THE INDIAN EXPRESS
Tuesday, May 15, 2001, http://www.indian-express.com/ie20010515/bus5.html
Finance secy calls meet to review Dabhol situation, Sanjay Jog
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THE ASIAN AGE
Tuesday, May 15, 2001, http://www.asianageonline.com/
Prabhu Will Discuss Enron In France, Ranvir Nayar 
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THE FINANCIAL EXPRESS
Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/news3.html
Recast counter-guarantees to attract FDI, says report, Anupama Airy
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THE FINANCIAL EXPRESS
Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/corp11.html
Merc to hear Prayas petition on May 16, Sanjay Jog
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BUSINESS TODAY
Tuesday, May 15, 2001, http://www.india-today.com/btoday/20010221/cf7.html
Enron Switches Off
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THE WEEK
May 20, 2001, http://www.the-week.com/21may20/events13.htm
Gridlock
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THE ECONOMIC TIMES, Tuesday, May 15, 2001
MSEB refutes allegations by Enron, DPC,  Girish Kuber 

THE MAHARASHTRA State Electricity Board on Monday in a letter to Enron refuted all allegations made against it by the company while invoking the political force majeure. Enron-promoted Dabhol Power Company on April 9 had invoked the political force majeure clause. DPC had indicated it was not in a position to fulfil its contractual  obligations to MSEB because of political circumstances  beyond its control. MSEB in a reply on Monday denied Enron's allegation of  'political circumstances' and said there was no reason why it should have felt insecure. "Such a step was necessary under the Power Purchase Agreement and related security documents to notify the board of 'certain events and to enforce our rights'," DPC had said. However, according to MSEB, such a step by DPC was uncalled for. For DPC, invoking the force majeure clause was necessary as 'certain events occurred that are beyond the reasonable control of the affected party (DPC)'. MSEB has expressed surprise in a letter on Monday. 

The energy major had dispatched the notice to MSEB, as an affected party, which had been subjected to "concerted, deliberate and politically motivated actions of state government, the Government of India and the Board, which will have a material and adverse effect on DPC's ability to perform obligations under PPA". "Given the cumulative effect of these political actions, DPC determined that the political force majeure declaration is an appropriate mechanism for providing that notice, and that is  an appropriate and necessary step in protecting DPC and  its stakeholders' rights," the statement added. However, for MSEB this was 'yet another move' from Enron to avoid paying Rs 402 crore penalty the MSEB has slapped on it for failing to supply electricity as per the agreement. MSEB, in today's letter, reiterated its suggestion to adjust December 2000 and Januray 2001 bills, against the Rs 800 crore penalty it has slapped on Enron for not supplying electricity as per demand. MSEB has refused to pay DPC's December 2000 and January 2001 bills worth Rs 213 crore.
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THE FINANCIAL EXPRESS, Tuesday, May 15, 2001
Crucial meet today to finalise Centre's reply to DPC notices, Sanjay Jog
 THE union finance secretary Ajith Kumar has convened a crucial meeting today to take stock of the Dabhol power imbroglio in the wake of completion of three weeks' deadline given by the offshore lenders for continuing with the suspension of loan disbursement. The meeting will also finalise the Centre's reply to the arbitration and conciliation notices served by the Dabhol Power Company (DPC). Mantralaya sources told The Financial Express that state principal secretary (energy) VM Lal and Maharashtra State Electricity Board (MSEB) technical director Prem Paunikar will attend the meeting and apprise Mr Kumar of the situation. The Centre, which has already appointed the Law Commission chairman Jeevan Reddy as a conciliator and proposed to adopt a conciliatory route, is expected to submit its replies before June 4 (within 60 days since the issue of notices on April 4).
Mr Kumar is likely to review the situation in the wake of suspension of loan disbursement by offshore lenders since April 25. The overseas lenders had agreed to show restraint in view of the Centre's indications of starting a fresh dialogue and constituting a committee for this purpose comprising its representative. The overseas lenders had demanded that the Centre discharge its guarantee obligations by honouring the December last payment within a week and that MSEB should hold back preliminary termination notice to DPC. The lenders also sought MSEB to immediately reactivate the escrow arrangements and asked it to arrange for increase in the amount of letter of credits from Rs 133 crore to Rs 357 crore. They also sought initiation of negotiation within three weeks.
The state government and MSEB have, however, stuck to their stand and have refused to pay the December (Rs 102 crore) and January (Rs 111 crore) bills to DPC on the grounds that it should be adjusted against the rebate of Rs 401 crore served for misdeclaration and default on the availability of power on January 28. The union finance ministry has also upheld this stand on the advise of the Attorney General of India. The Centre is expected to reiterate this stand while replying to the arbitration and conciliation notices. The state government and MSEB are also expected to reiterate their appeal to the Centre for its direct intervention in resolving the Dabhol impasse. The state government and MSEB have expressed serious concern over the statement by union power minister Suresh Prabhu that the Centre would clear third-party sale of Dabhol power if MSEB and the company submit a joint proposal identifying a 'willing' buyer. The state government and MSEB are of the view that the Dabhol- II power can be purchased by power-deficit states after renegotiating at an "acceptable" tariff. 
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THE ASIAN AGE, Tuesday, May 15, 2001
Prabhu Will Discuss Enron In France, Ranvir Nayar 

The fallout of the current controversy surrounding American energy major Enron over its power project in Maharashtra will figure high on the agenda of Union power minister Suresh Prabhu who is paying a four-day visit to France. Though Mr Prabhu is arriving in Paris on an invitation by the Paris-based industrialised countries' club, the Organisation for Economic Cooperation and Development, he will  also use the opportunity to meet French ministers and power companies to seek French investments in the Indian power sector. On Tuesday afternoon, Mr Prabhu will meet the junior French minister for industry, Christian Pierret, to discuss bilateral matters, especially French investments in the Indian industry. Mr Pierret is believed to be very keen to promote French investments in India and has expressed a keen desire to visit the country. (IANS)
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THE FINANCIAL EXPRESS, Tuesday, May 15, 2001
Recast counter-guarantees to attract FDI, says report, Anupama Airy
 THE Centre should eliminate existing unused counter-guarantees and free up capacity for new projects in the generation and transmission and distribution (T&D) sector. Moreover, in order to restore investors confidence and promote foreign direct investment (FDI) in the power sector, the Centre should consider providing guarantees till the time the state electricity boards (SEBs) become creditworthy.These are some of the recommendations made by leading investment banker, Credit Suisse First Boston (CSFB) in a recent presentation to the power ministry on 'Foreign Direct Investment in the Indian Power Sector'. Says CSFB, "The current market situation in India is not attractive to investors, when compared with other alternatives." This, it said, was mainly due to inconsistent regulatory framework, uncertain power purchase agreement (PPA) tariff structure, and the poor financial health of SEBs, leading to payment concerns amongst the independent power producers (IPPs) over there being no credit worthy offtaker of electricity.
Taking note of the FDI experience in India's power sector, CSFB has noted that little progress has been achieved even after 10 years of power sector reform and opening up of the sector to foreign investment. Besides this, it added, there has been an uneven implementation of reform from state to state."Enron's Dabhol plant was the only thermal 'mega project' under production, construction, for which there lies a bumpy road ahead with extremely visible ups and downs. This would have an impact on FDI going forward," notes CSFB.
As per CSFB, only a few power projects have been able to close or are under construction and IPP development has virtually stalled. Moreover, nothing has happened in the T&D sector. It attributed this to the weak financial position of SEBs and the lengthy negotiation and re-negotiation process. However, as against this, CSFB has pointed that energy market consolidation and liberalisation has resulted in tremendous opportunities in developed markets such as the US and Europe. Moreover, upcoming privatisation programmes in countries like Singapore, the Phillipines, Korea, Thailand and China, would directly compete with India for FDI. 
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THE FINANCIAL EXPRESS, Tuesday, May 15, 2001
Merc to hear Prayas petition on May 16, Sanjay Jog
THE Maharashtra Electricity Regulatory Commission (Merc) would hear on May 16 a petition filed by the Pune-based non-governmental organisation (NGO) Prayas to declare the power purchase agreement (PPA) between the Maharashtra State Electricity Board (MSEB) and Reliance Patalganga Power Ltd (RPPL) for the 447-MW project as "null and void."  Prayas claimed that MSEB and RPPL had not sought prior approval for amending the PPA in February 2000 after the establishment of Merc, and thereby have violated the Electricity Regulatory Commission (ERC) Act, 1998, and also the Merc regulations.Through this amendment, the MSEB has agreed to provide escrow cover and certain other benefits to the Patalganga project. These amendments were made in view of the state government's decision to withdraw its permission granted for the third party sale to the RPPL and accord escrow cover.
Prayas has prayed that MSEB should seek Merc's approval before entering into or amending or approving any power purchase-related contract such as PPA, escrow agreement, fuel supply agreement and financing agreements with RPPL or any other generating company. Prayas said the Merc, as per section 22 of the ERC Act, 1998, is empowered and dutybound to regulate the power purchase and procurement process of the transmission and distribution utilities, including the price at which power shall be procured from the generating companies, stations or from other sources for transmission, sale, distribution and supply in the state.According to Praya, as per Merc Regulations 1999, no. 73, any generating company proposing to enter into any agreement for supply of electricity between the generating company and any buying party shall get the Merc approval for the tariff before entering into such contract. "From these provisions in the ERC Act, 1998, and Merc regulations, 1999, it is evident that no utility or generating company can amend the PPA without prior approval of Merc," Prayas opined.
Prayas' petition deserves special importance, especially when the Madhav Godbole energy review committee has recently observed that neither the RPPL nor the Ispat Group (promoter of the 1,082-MW Bhadravati project) would be able to match the load requirements of Maharashtra, "as both are structured as base load plants, with high plant load factor." The Godbole committee had said that allowing RPPL and Ispat Group to proceed, "would only result in a problem similar to DPC re-emerging in future years." The committee has therefore recommended that MSEB should defer its PPAs with RPPL and Ispat Group and re-examine then in accordance with a least-cost plan, in any case, till such time as the demand levels in the state permit full absorption of power generated from such independent power producers (IPPs). The Godbole committee has observed that the MSEB needs to justify its projections in more detail as to the type of demand, before proceeding further with these projects. 
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BUSINESS TODAY, Tuesday, May 15, 2001
Enron Switches Off
CEO Sanjay Bhatnagar's exit could well be one more indication that the US major has gone cold on India.

Darkness at Noon
Enron's India odyssey which started with the largest American FDI in India is ending in a whimper. (Debojyoti Chatterjee)

That was back in 1996. Rebecca Mark was the face of US energy major Enron in India then. Her charm swayed India's industry and wowed its politicians-from  reluctant union ministers to the Shiv Sena's firebrand  leader Bal Thackeray. Mark managed to wrest the controversial Dabhol Power Project back from the jaws of defeat. Enron then was on a roll in India. Five years later, today, it could roll off the map. Two years after Mark's own fall from grace at Enron's Houston headquarters, the US major seems to be winding down its once-ambitious Indian operations. Suggest that to Enron's spokesperson in Houston and the answer is a terse: ''No comment.'' But tap Enron  watchers and insiders and the picture becomes clearer. Enron's operations in India and in several other emerging markets seem to have become a major headache for the company. Want to know something else? These are the very projects that Mark was gung-ho about. Surprised?

Well, don't be. Not only is Enron miffed about its aggressive forays in emerging markets, most of which  were spearheaded by Mark, but it's also weeding out  many of Mark's old faithfuls in the company. The most recent being Sanjay Bhatnagar, the dapper former CEO of Enron India, who moved to head Enron Broadband Services in Singapore as recently as in January 2001. Last fortnight, Bhatnagar quit the company. Just three months back, Bhatnagar's predecessor in India and an Executive Vice-President of Enron Corp, Joe Sutton, left the company. Sutton had played a key role in Enron's negotiations-both with the Sharad Pawar government in Maharashtra and then with the Shiv Sena government. A quick recap: Enron's Dabhol project was first cleared by the Pawar government in 1993; then when the Shiv Sena-BJP alliance came to power, it rescinded the approval on the grounds that the tariff for Enron's power was too  high; finally, Enron mustered all its lobbying power and got the project approved again. But controversy still dogs Enron and its Dabhol project, the latest being the payments crisis involving Maharashtra State Electricity Board (MSEB).

Today, Dabhol seems like a $1 billion disaster and Bhatnagar's successor Wade Kline is not deterred from taking a tough stance in his negotiations with  the state government. Of course, some of that has to do with the fact that the current CEO of Enron, Jeffrey Skilling (who took over in 1999 from the high  profile Kenneth Lay, who is still the company's Chairman) wants to focus more on developed markets where the power sector is deregulated and pegged to market forces. He is also credited with the huge success of Enron's Tyeside operations in the UK.

One of the first things Skilling did was to review Rebecca Mark's business decisions, many of which were fuelled by her penchant for tapping the potential of developing markets. The fact that two of her projects-in India and in Croatia-backfired did not help. Two other forays led by Mark-in Kuwait and the Phillipines-had also come unstuck in the mid-nineties. Eventually, Mark moved out. Cut to India and things look rough. Recently, the outgoing US ambassador hinted that the Dabhol project, which is the single largest direct investment from the US in India, may turn out to be a huge disappointment. And observers don't rule out the possibility of the Houston-based energy major selling out or invoking penal clauses in its contractual agreement to exit what may have begun as a dream but has clearly ended up as a bad nightmare.
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THE WEEK, May 20, 2001
Gridlock

Dabhol Project: If Enron pulls out the costs will be heavy for Maharashtra By Harish Rao and Nandkumar Pudhari

The endgame has begun. The decision of the foreign lenders to authorise both Enron India's managing director, K. Wade Cline, and Dabhol  Power Company's (DPC) president and CEO, Neil Mcgregor, to issue termination notices, as and when appropriate, signals the first move in the decade-long power play. But company Chairman Kenneth Lay has apparently vetoed the idea of withdrawing from the project at least for now. Surprisingly, the government, which should have been happy to see Enron's back, seems to be developing cold feet. A few politicians have gone on record saying that Enron's threatened pull-out will not be in the country's interest! 

White elephant: Dabhol power plant

The project was jinxed from the very beginning. There was no way the country could absorb 2,200 MW of base load in the current scenario. The projections about the demand were clearly wrong. Pushing ahead for the second phase was another mistake. The demand for Phase-II may not emerge for another six to seven years. "While Enron has used every clause to its advantage, we have not done so," said Kirit Parikh, professor emeritus, Indira Gandhi Institute of Development Research. 

Over the last one year, Enron's image has taken a global beating, with the company being forced to  withdraw from Croatia, followed by its alleged involvement in the California energy crisis. If Enron does ultimately pull out, what is the liability of the state government? If merger and acquisition and takeover rules are applied, Enron will have to be compensated for the project cost as well as the discounted value of the future cash flow. It will be a hefty sum that the state government can't afford. As for the salvageable value of the project, the Enron Virodhi Andolan estimated the Dabhol Project's fair business value at Rs 350 crore. Enron's reported demand varies between Rs 1,800 and 2,800 crore. "Dabhol is a failed business model," said Pradyuman Kaul of the Andolan. "The project cannot be valued on a going
concern concept."

Even if the Maharashtra State Electricity Board (MSEB) takes over the project, running it will be a challenge, considering the high cost of operation. The already inflated Dabhol power project cost includes the LNG project cost as well. DPC has set up a 5 million tonne LNG plant whereas the power project requires only 2.1 million tonnes. The Godbole committee recommended hiving off the LNG project, so as to substantially reduce the cost of the power project. Even if the project cost is brought down, the operating cost is already on the higher side.

According to Abhay Mehta, a crusader who has been following the Enron case, the cost of LNG quoted by the company is substantially higher than the prevailing market price. But it was also a fact that the price of LNG in the international market is manipulated by a handful of manufacturers and traders. This could have an adverse impact on the cost of power generated by the company. Even if MSEB wants to transfer this plant to, say, the NationalThermal Power Corporation, this factor alone may discourage the new buyers. In all this, what is the Central government's liability? Union Minister of State for Power Jaywantiben Mehta had stated in the Rajya Sabha in March that the Central government had given a guarantee for making payments to the DPC--if the MSEB and the state government fail to do so--in respect of capacity and energy payments as well as payments upon termination in respect of Phase-I (740 MW). However, this liability is subject to a ceiling of Rs 1,500 crore in a financial year.

Won't Enron's exit spook other investors from coming to India? No, says Mehta. "The Dabhol project is a symbol of inefficiency. By letting them operate, we are sending wrong signals to long-term investors. We are setting a bad precedent and forcing the foreign investors to believe that rules and laws can be changed by managing politicians." While Dabhol and Enron officials were unavailable for comment, opponents like Kaul suggest that Enron may like to leave Dabhol with dignity and without trouble from the lenders. Enron, according to him, will be more than happy to dump the project in MSEB's lap and salvage whatever amount they can get in the bargain.

Dabhol dilemma 
      Pros and cons of the Enron power project 

Pros
?	One of the few power projects that have been set up within the stipulated time period. 
?	Implementation of second phase is ahead of schedule. 
?	Project involves the single largest foreign direct investment in the country. 
?	It is a multi-fuel integrated power plant with jetty and LNG regassification terminal. 
?	Equity participation by GE and Bechtel.

Cons
?	Cost of the project is on the higher side. The cost of the construction of jetty and LNG terminal included in the total project cost, thus increasing the cost per 	MW, and, in turn, the power tariff. 

?	Cost charged by Enron for LNG is higher than the prevailing international price. Though LNG is considered to be one of the cleanest fuels, its price in the 	international market is manipulated by a cartel of LNG manufacturers and traders.

?	All disputes are to be settled by the Arbitration Committee in London, in accordance with English laws. 

?	Maharashtra government ignored the contrary opinion given by the World Bank on demand-supply
     	 projections. 

?	Power tariff designated in dollars and subjected to rupee-dollar exchange-rate fluctuations.

?	PPA structured in such a way that MSEB would be required to pay DPC Rs 508 crore a month, without  even drawing a single unit of power from the plant.




A peek into the past
The project being set up by the Dabhol Power Company (DPC) is promoted by the Enron Development Corporation (USA), which holds a 65 per cent stake. The project envisages two phases of implementation, for establishing a total capacity of 2,184 MW at Dabhol, on a build-own-operate basis (BOO). A Power Purchase Agreement (PPA) of a 20-year duration was also signed. 

The first phase involving 695 MW was completed in 1999. The second phase is nearing completion. The project is based entirely on imported fuel. Phase-I will use imported distillate oil. After the installation of Phase-II, the entire 2,015 MW capacity (now 2,184 MW) will be operated on imported LNG. The Central Electricity Authority cleared it in 1999 on the basis of the tariff notification given by the state government and the MSEB that the power tariff was lower than that stated in the PPA. However, the Madhav Godbole committee report stated that the payments made by MSEB were higher than those mentioned in the PPA.

The Enron project is the first and only project in India based solely on imported LNG. The annual foreign exchange outgo at the 1997 rupee-dollar rate is estimated at $1.45 billion, which has a built-in potential for increase on account of escalation. The total cost of the project is over $2.85 billion for both phases, of which $910 million relates to Phase-I. The arrangement between DPC and MSEB involves a guaranteed purchase of power at 90 per cent PLF (plant load factor) at rates calculated by a formula in the PPA, which has built-in escalation provisions. 

In addition, the Maharashtra government has guaranteed payment of dues under the PPA by MSEB to DPC. This is also counter-guaranteed by the Central government. The choice of Enron for the project was made not by inviting public bids, but by private negotiations with a single party. Now, by the state government's own admission, Phase-I entails a monthly fixed charge of Rs 95 crore. After the commissioning of Phase-II in 2001-02, MSEB will be required to pay at least Rs 508 crore a month to Enron, without drawing even a single unit of electricity. And this will go on for 20 years. 

This is the cost one has to pay for letting Enron invest in Maharashtra.

(The authors are with Project Monitor, a fortnightly newspaper on projects brought out by the Mumbai-based Economic Research India Limited.)