Vince,

From the sound of the articles, it appears ENE is ready to exit India, or alternately to get into an arbitration battle.

I have scheduled some time with you at 10.30 to discuss.

Regards,
Sandeep.
---------------------- Forwarded by Sandeep Kohli/ENRON_DEVELOPMENT on 04/23/2001 07:59 AM ---------------------------


Nikita Varma
04/23/2001 07:20 AM
To:	Nikita Varma/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:	 (bcc: Sandeep Kohli/ENRON_DEVELOPMENT)

Subject:	From The Enron India Newsdesk - April 23rd newsclips



April 23, 2001, http://www.financialexpress.com/fe20010423/fed3.html
Godbole's report unearths absurd calculations , Maharashtra could use this to wriggle out of the Dabhol project 
Sucheta Dalal
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April 23, 2001,  http://www.financialexpress.com/fe20010423/news1.html    
DPC board set to authorise president, Enron MD to issue notice of termination, Sanjay Jog   
Scrapping of Power Purchase Agreement
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Monday, April 23, 2001, http://www.business-standard.com/today/corp8.asp?Menu=2
DPC seeks OK to exit power project , Tamal Bandyopadhyay & S Ravindran 
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April 23, 2001, http://www.cybernoon.com/index.html
Enron winding up operations in India? 
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State for consolidating all DPC arbitration notices, Sanjay Jog   
Monday, April 23, 2001, http://www.financialexpress.com/fe20010423/news3.html
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Monday, April 23, 2001, http://www.economictimes.com/today/23econ04.htm
Maharashtra to set up experts panel on Enron 

The article also appeared in the following newspaper

BUSINESS STANDARD
April 23, 2001, http://www.business-standard.com/today/state3.asp?Menu=32
Maharashtra to set up expert panel on Enron 

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April 23, 2001, http://www.economictimes.com/today/23econ07.htm
 'Enron is a national problem'
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April 23, 2001, http://www.cybernoon.com/index.html
CM takes Enron to Delhi today 
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Monday, April 23, 2001,http://www.outlookindia.com/full.asp?fname=Enron+%28F%29&fodname=20010430&sid=1

The Real Story Of Dabhol If a judicial probe, suggested by the committee, is ordered into the Enron deal, it could embarrass three governments    RANJIT BHUSHAN
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Monday, April 23, 2001, http://www.business-standard.com/today/state2.asp?Menu=32
MSEB revenue collections up at Rs 968 crore in March , Renni Abraham 
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THE FINANCIAL EXPRESS,April 23, 2001 
Godbole's report unearths absurd calculations , Maharashtra could use this to wriggle out of the Dabhol project , Sucheta Dalal

It is finally Quit India time for Enron. Though the controversial multinational has denied plans to sell its stake in Dabhol Power Company (DPC), informed sources say that it has sent feelers to China Light & Power and others to offload its majority holding.Getting out of India may be the best course for Enron. Though it has threatened a fight and invoked political force majeure, the Energy Review Committee headed by Madhav Godbole will certainly weaken its case. The committee points out that the many "infirmities" in the DPC approval process brings into question the "propriety of the decisions".

 It is clear that the $20m that Enron spent on educating India's policy-makers and bureaucrats did not even teach them the basics of techno-economic appraisal or due procedure with regard to large international contracts. The committee says it is "troubled with the failure of governance that seems to have characterised almost every step of the decision making process on matters relating to DPC. The failure of governance has been broad, across different governments at different points of time, at both the state and the central level, and across different agencies associated with examining the project and at both the administrative and political levels. It strains belief to accept that such widespread and consistent failure to execute assigned responsibilities is purely co-incidental".

Though the committee decided that it is not the proper forum to investigate these infirmities, its two key members, Mr Godbole, and former secretary in the Ministry of Finance, EAS Sarma, have asked for a judicial inquiry into the process of clearing the DPC project. Other members felt a judicial inquiry would delay the negotiation process and "not serve any purpose". There may be some merit in an argument against a further delay in renegotiating tariffs or facilitating Enron's exit, but the report certainly provides the Central Vigilance Commission (CVC) with all the grounds that it needs to start an investigation.

CVC N Vittal has already received innumerable requests to investigate the deal, especially the beneficiaries of its education campaign. Though the political establishment may be reluctant to set up a judicial inquiry, the CVC can establish whether there are lapses on the part of "government functionaries including political executives" and ensure "appropriate action" against them. If it is indeed able to establish "undue influence" in signing the contract, then Maharashtra may be able to get out of a deal patently against the public interest without any monetary liability.

The Godbole committee has vindicated the stand of anti-Enron activists who have been opposed it since negotiations began in 1994. It establishes that Enron power is expensive per se, and the project needs to be re-negotiated, regardless of the causes for the Maharashtra State Electricity Board's (MSEB) financial distress. Also that DPC's extortionate tariffs are not merely because of the steep rise in petro-product prices and rupee depreciation, but mainly on account of its sweetheart deal with the state government. Enron's contract is clearly one-sided; it deliberately uses expensive raw material (ignoring World Bank warnings), has worked on fanciful demand-supply estimates and several legal requirements and permissions.

In fact, the committee has found that the MSEB has been paying Enron Rs 930 crore more than it should every year. This comprises overcharging of Rs 253 crore on account of the large regassification plant of which only 42 per cent of the capacity is used for DPC. There's also a Rs 100 crore extra billing to the MSEB for shipping and harbour charges although the cost of these facilities had been included in the capital recovery charge. By charging more than twice the operations & maintenance rate stipulated by the government of India, Enron collects approximately Rs 246 crore extra every year. It has also been collecting Rs 332 crore every year through inflated fuel consumption claims. Enron has been charging at 1878 kcal/kwh under the power purchase agreement (PPA) although the equipment manufacturer has guaranteed it a much lower consumption rate. This gives it a fat fuel arbitrage opportunity at the cost of the people of Maharashtra. 

The committee has also pointed to the strange practice of using four different exchange rates for different aspects of the project negotiation: a rate of Rs 32 per dollar was assumed for calculating debt service of rupee loans, Rs 34.5 per dollar as reference rate for Phase-I, Rs 39.35 per dollar as reference rate for Phase-II and a curious Rs 42 per dollar for calculating Government of India tariff. Forcing a reduction of these excessive charges has nothing to do with contract cancellation. All it needs is tough negotiation and public pressure on the political establishment. 

The Godbole committee has established that DPC's tariffs can easily be halved if excess payments are eliminated and unfair conditions such as the dollarisation of payments, the take-or-pay clause and escrow facility (which is in fact hampering MSEB's reform particularly in power distribution) are scrapped.The security of future payments to DPC under the restructured tariff would be based on increased cash flows from a reformed distribution system. The committee also gives Enron a difficult escape route. It says that if the multinational finds the conditions for restructuring too onerous, it should free MSEB from its contractual obligations and find buyers outside Maharashtra. The committee has tried to establish another precedent on all projects negotiated by government: "The public has a right to know what is being contracted on their behalf" and has recommended that all documents, including contracts related to all Independent Power Projects (IPPs), particularly DPC, should be published by the Maharashtra government within two months.

Also, having established that demand-supply estimates by the state government were fanciful, the committee has asked MSEB to defer all negotiations with power producers until demand levels in the state permit full absorption of power generation from such IPPs. It recommends that such negotiations should be in accordance with the least-cost plan spelt out by the report. This should also end the hectic lobbying by Reliance (Patalganga), Mittals (Bhadravati), the BSES (Saphale) and others to set up IPPs in Maharashtra.
----------------------------------------------------------------------------------------------------------------------------------------THE FINANCIAL EXPRESS, April 23, 2001    
DPC board set to authorise president, Enron MD to issue notice of termination, Sanjay Jog   
Scrapping of Power Purchase Agreement

The board of directors of Dabhol Power Company (DPC), which has already taken an aggressive posture, has proposed to authorise the Enron India managing director K Wade Cline and DPC president and chief executive officer Neil McGregor to issue notices for the termination of power purchase agreement (PPA) and transfer of Dabhol project in view of continuing default by the state and Central governments and Maharashtra State Electricity Board (MSEB).

The board of directors, which would meet on April 25 in London, also plans to appoint Mr Cline as its "true and lawful Attorney-in-fact" and authorise him to represent the company in the negotiation of all project contracts and financing agreements and their amendments and modifications.Top sources told The Financial Express that DPC would authorise Mr Cline and/or Mr McGregor to serve the preliminary termination notices and transfer notices to the state and Central governments and MSEB under clause 17 and schedule 11 of the PPA.

"In response to the continuing default by the MSEB of its payment obligations under the PPA, the failure of the Government of Maharashtra to honour obligations under its guarantee and state support agreement and failure of the Government of India to honour obligations under its counter guarantee, the company has sought recourse to dispute resolution and has initiated conciliation and arbitration proceedings," the company resolution said. "Consistent with this recourse to contractual remedies, the company now seeks the authority to serve preliminary termination notices and transfer notices pursuant to clause 17 and schedule 11 of the PPA from time to time and at any time upon the occurrence of an event giving rise to its right to serve such notices as determined by the company," the resolution added.

According to the resolution, the directors, the company secretary and officers of the company and each of them acting individually, are authorised and empowered to execute and deliver such documents and instruments and take such other actions as they deem fit to effect the purpose of the resolution, in the name and for and on behalf of the company. Against this backdrop, the state government and MSEB have been exploring the possibilities of issuing termination notice to the DPC for its failure to meet the contractual obligations under the PPA. The state government and MSEB sources said that such a notice could be served by the MSEB as DPC has not paid the rebate (penalty) of Rs 409 crore for misdeclaration and default on the availability of power on January 28 and February 13.

The state government and MSEB, which reviewed its position on Saturday at a meeting convened by the Chief Minister Vilasrao Deshmukh, are of the view that they have a strong case and substantial grounds to slap the termination notice to the DPC. The DPC's move to appoint Mr K Wade Cline as its "true and lawful Attorney-in-fact" deserves importance especially when the state government proposes to set up a negotiating committee to cut the per unit cost and gauge the possibility of sale of Dabhol power to the power deficit states.

Mr Cline would also be authorised to dispose of equipment that is worn out or obsolete or other equipment or fuel no longer expected to be used in the ordinary course in amounts exceeding Rs 64 crore or the equivalent in foreign currency in any financial year. Furthermore, Mr Cline would be in a position to enter into contracts and take any other actions for purpose relating to the day-to-day operation of the company's business or exercise its rights and discharge its obligations under the project contracts and the financing agreements
----------------------------------------------------------------------------------------------------------------------------------------BUSINESS STANDARD, Monday, April 23, 2001
DPC seeks OK to exit power project , Tamal Bandyopadhyay & S Ravindran 

The Enron-promoted Dabhol Power Company (DPC) is seeking the approval of its 25 lenders to pull the plug on the $3 billion power project in Maharashtra tomorrow (April 23).The meeting has been convened in London at the initiative of the company. The meeting is crucial as the DPC board is meeting on April 25 in London to discuss the issue of serving a termination notice to the Maharshtra State Electricity Board (MSEB).
 
DPC cannot go ahead with this unless it gets the go ahead from the lenders. While bankers said the lenders' meeting is about the second phase of the project, which is still under construction, state government officials clarified that since there is only one PPA covering both phases of the project, the lenders' decision will be applicable to the existing Phase I also. The second phase of the project involves 1,444 MW generation capacity, whereas Phase I of 740 MW is already operational."According to the loan agreement, even if only four per cent of the lenders agree to terminate the contract then DPC can do so," highly placed sources in the lenders' consortium said from London. 

This in effect means that only one lender has to agree for DPC to serve a preliminary termination notice.Following the notice, there is a cooling off period of six months for both parties (the MSEB and DPC) to find a mutually acceptable solution, which may take the form of a re-negotiated PPA, sources added. Sources also said that there are two separate meetings scheduled with lenders. The Monday meeting will be attended by all the lenders including multilateral funding agencies like Japanese Exim Bank and OPIC. The second round of meetings schedule for Tuesday will be only with the global loan arrangers ANZ Investment Bank, CSFB, ABN -AMRO, Citibank and the State Bank of India (SBI).Two representatives each from the Indian lenders, IDBI, ICICI and SBI have already left for London. 
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AFTERNOON, April 23, 2001
Enron winding up operations in India? 

Marred by controversies since inception, the US-based energy major Enron-promoted Dabhol Power Company (DPC) board will meet this Wednesday, April 25, in London to decide the fate of its 2,184 MW project in Dabhol, including winding up of its operations. "The top most item on the agenda is to empower DPC Managing Director Neil McGregor to wind up operations in the country," state government sources told PTI on Saturday. When contacted, DPC spokesperson declined to comment on the agenda of the London meeting and added, "I will not like to comment on speculations." 

Sources said a team comprising three top officials of Maharashtra State Electricity Board (MSEB) including chairman Vinay Bansal would attend the high-profile board meet. Bansal told PTI that MSEB has decided to give a "fitting reply" and present its case concerning the Rs. 401 crore penalty that the loss-making board slapped on DPC on February 28, for not generating required power within the stipulated time as per the Power Purchase Agreement (PPA). 

This London meet comes two days after the international and domestic financial institutions sit together (April 23) to discuss DPC's future course of action in the wake of non-payment of dues to the tune of Rs. 223 crore by MSEB and also to take into account the aforesaid penalty.Over the payment of dues of December 2000 and January of Rs. 102 crore and Rs. 111 crore respectively, sources said, both the state government and MSEB had offered to make a "protest" payment as per the PPA, but DPC, India's first fasttrack power project, refused to accept on that condition. 

Currently, Enron India holds 65 per cent in the US $900 million DPC project, which includes MSEB's 15 per cent while General Electric and Bechtel hold 10 per cent each. The controversial "now on now off" project began in 1992 but ran into rough weather after the Shiv Sena-BJP came to power and was scrapped only to be revived after renegotiating the PPA. Fresh trouble arose in October last when MSEB began defaulting over the "enormous" billing following which DPC invoked the state and centre's counter guarantee and also recently sent three international arbitration notices and invoked the political "forced majeure" implying inability to conform towards any financial commitment.
 
DPC had yesterday stated that it had no plans to reduce its stake below 50 per cent but according to Enron Corp's Chief Executive Officer Jeff Skilling the company would be interested in talking to potential buyers for its stake. Skilling, according to an international financial daily, said the multinational continues to see strong growth in North America, Europe and Australia indicating a possibility of exiting from India
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THE FINANCIAL EXPRESS, Monday, April 23, 2001
State for consolidating all DPC arbitration notices, Sanjay Jog   

The Maharashtra government has decided to appeal to the Centre for consolidating all arbitration notices served DPC for the "continuous default of contractual obligations" and name a common arbitrator for the state government, the Centre and MSEB.The Maharashtra government team led by the chief minister Vilasrao Deshmukh, at its meeting with the union finance minister Yashwant Sinha and union power minister Suresh Prabhu on Monday, also proposes for the appointment of a non-Indian arbitrator with a view to cutting the cost substantially.

During arbitration proceedings initiated by the DPC after the repudiation of Dabhol phase-I by the previous Shiv Sena-BJP government in 1995, a non-Indian arbitrator, Mr Kumara Swami was appointed as an arbitrator after a suggestion by a senior counsel Fali Nariman. State government sources told The Financial Express that it would write a letter to the DPC regarding arbitration proceedings after Monday's meetings. The state advocate general Goolam Wahanwati will be suggesting a suitable arbitrator for the state and central government and MSEB. 

The advocate general will also suggest solicitors and Queens Counsel, who may be engaged in London for this purpose. Incidentally, Mr Prabhu, who was present at the "janata darbar" organised by the Thane branch of Shiv Sena, told reporters that the Centre would provide necessary assistance to the Maharashtra government to find a solution to the Dabhol imbroglio.Furthermore, the state government would formally appeal to the Centre to nominate its representative on the proposed committee to negotiate with the DPC in a serious bid to reduce the per unit cost and assess the possibility of sale of Dabhol power to deficit states. The government has suggested the names of Housing Finance Development Corporation chairman Deepak Parekh and former union energy secretary EAS Sarma, who were members of the Godbole energy review committee. 
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THE ECONOMIC TIMES, Monday, April 23, 2001 
Maharashtra to set up experts panel on Enron 
 
 IN order to resolve the imbroglio over payment crisis between the Maharashtra State Electricity Board and US energy major Enron-promoted Dabhol Power Company, Maharashtra will set up an expert committee for negotiations even as the multinational is contemplating winding up of its operations in the country. "We are now going for negotiations and will form an experts committee in which Maharashtra expects the Centre to participate," chief minister Vilasrao Deshmukh told reporters after attending a condolence meeting to pay tributes to late Nasscom president Dewang Mehta here on Sunday. "All the four parties -- namely the state, Union government, Enron and MSEB -- should come together for negotiations; otherwise it cannot be a complete exercise," he added. 

Deshmukh and the MSEB team are scheduled to meet Union finance minister Yashwant Sinha and power minister Suresh Prabhu on Monday in New Delhi to discuss the stalemate and find a acceptable solution for the same. "I am meeting Sinha and Prabhu to request them to take an initiative and send representatives for the negotiations committee," he said. Deshmukh's meeting with the Centre comes at a crucial stage as DPC's lenders would be meeting in London, on the same day, to decide upon the future finances of the controversy marred 2,184-mw project in Dabhol. 

Moreover, the DPC board is also scheduled to meet on April 25 in London to decide the fate of its $900 million project in Dabhol, including winding up of its operations. The meeting would discuss the topmost item on the agenda, which was to empower DPC managing director Neil McGregor to wind up operations in the country. DPC has already slapped one conciliation notice on the Centre and three arbitration notices on the state government over non-payment of dues amounting to Rs 213 crore plus interest towards the bills due for the months of December 2000 and January 2001. 

Asked whether the Centre had send any feel over a possible clubbing together of the arbitration and conciliation processes, Deshmukh replied in the negative. Deshmukh said MSEB chairman Vinay Bansal along with two senior officials would attend DPC's board meeting in London. Bansal had said on Sunday that MSEB would present its case concerning the Rs 401-crore penalty that the loss-making board slapped on DPC on February 28, for not generating required power within the stipulated time as per the PPA. Currently, Enron India holds 65 per cent in the $900-million DPC project, which includes MSEB's 15 per cent, while General Electric and Bechtel hold 10 per cent each. (PTI) 
----------------------------------------------------------------------------------------------------------------------------------------THE ECONOMIC TIMES, April 23, 2001 
 'Enron is a national problem'
 
UNION power minister Suresh Prabhu on Sunday said the Centre would render all possible help to resolve the Enron crisis faced by Maharashtra which is "haunting the entire country". Prabhu said he would meet the state chief minister Vilasrao Deshmukh in New Delhi tomorrow to discuss stalemate over the payments due to the US energy major-promoted Dhabol Power Company by the Maharashtra State Electricity Board. Referring to Godbole committee report's finding that DPC was keen on offering MSEB's 15 per cent stake to the National Thermal Power Corporation, Prabhu said: "The Centre has not received any such proposal regarding participation of the central power utility." (PTI) 
----------------------------------------------------------------------------------------------------------------------------------------AFTERNOON, April 23, 2001 
CM takes Enron to Delhi today 
 
Chief Minister Vilasrao Deshmukh will discuss the Enron imbroglio with Union Finance Minister Yashwant Sinha and Union Power Minister Suresh Prabhu in Delhi today. He will request the Centre to appoint a representative to the committee that the state government is setting up to carry on discussions and negotiations regarding the Dabhol Power Project of the US-based Enron Power Company. Today, a special meeting of representatives of all those finanicial institutions which have extended loans to the Dabhol Power Project is also being held in London. A meeting of its directors will be held on Wednesday to discuss the fate of the $900 million project which has been under a cloud ever since its inception. 

Yesterday, Mr. Prabhu declared at a 'Janata Darbar' in Thane that the Centre would extend all help to solve the Enron crisis. This is in the backdrop of pending bills to the tune of Rs. 213 crore which the state fowarded to the Centre against payments for the months of December 2000 and January 2001. Confirming that there was no proposal from the state government to handover the project to the Centre, Mr. Prabhu said that the situation of the electricity boards in the country was precarious. The Centre had decided to assist Maharashtra upto Rs. 250 crore every year to improve customer services. 
----------------------------------------------------------------------------------------------------------------------------------------OUTLOOK, Monday, April 23, 2001

The Real Story Of Dabhol If a judicial probe, suggested by the committee, is ordered into the Enron deal, it could embarrass three governments    RANJIT BHUSHAN

"The Committee has prima facie found infirmities in several decisions taken in respect of the Enron project at different points of time by successive governments and agencies in the Centre and state."
--Energy Review Committee headed by former home secretary Madhav Godbole

This could well be the real Enron story
A five-member high-powered committee headed by Madhav Godbole-and including former Union economic affairs secretary E.A.S. Sarma, hdfc chairman Deepak Parekh, teri chairman RajendraPachauri and Maharashtra government official Vinay Mohan Lal-has recommended a judicial probe into the entire Enron power project deal saying it signified "the utter failure of governance that seems to have characterised almost every step of the decision-making process relating to the Dabhol project". The report, which was submitted to the Maharashtra government last fortnight and has been acquired by Outlook, is severely critical of former chief minister Sharad Pawar (with the Congress then), the 13-day bjp-led Union government which reworked the deal in 1996, Shiv Sena supremo Balasaheb Thackeray and his government in Maharashtra headed by Manohar Joshi

"The utter failure of governance seems to have characterised almost every step of decision-making relating to the Dabhol project." Madhav Godbole Committee Report

An investigation, if ordered, could embarrass at least these three governments The report clearly upholds the allegations of money being paid by Enron to politicians and bureaucrats for clinching the deal. According to the committee, the deal reveals failure of governance, both at the Centre and state, and across different agencies. "It strains belief to accept that such widespread and consistent failure to execute responsibilities is purely coincidental," the report said, proposing a set of measures to be implemented if something of the project was to be retrieved. Godbole and Sarma also felt that the panel should categorically recommend the government of India to order a judicial inquiry. This was finally adopted by it. Says a Congress leader: "Enron could well become the biggest political issue in Maharashtra and put to question liberalisation, particularly in the power sector."

The proposal has already struck panic. Says ncp's Praful Patel: "If the Enron decision has at all been detrimental, it is because of the haste with which phase 2 was cleared by the Shiv Sena-bjp government. Now with the state having already entered into an agreement with Enron, the important thing is to resolve it amicably. A judicial inquiry will be an eyewash because it's not an issue of corruption but that of perception." 

Pro-market Congressmen privately admit that it was their governments at the Centre and the state which invited Enron, even though the second phase was cleared by the bjp-Shiv Sena combine. Says Congress spokesperson Jaipal Reddy: "Right now we're too involved with the Parliament deadlock  over Tehelka." Pro-liberalisation Congress MPs also fear that such witch-hunting could send wrong signals to foreign investors. Non-Congress MPs from Maharashtra, meanwhile, claim that the Godbole Committee was instituted with the express purpose of politicising the Enron issue. "I think I know Vilasrao Deshmukh's gameplan," says an MP from the state. But some MPs like Congress' Prithviraj Chavan question the cloak of secrecy that's surrounded the deal: "I've maintained for long that there should be a judicial committee to examine this".

The committee report also says that had the Enron project been subjected to a techno-economic appraisal, as envisaged under provisions of the Electricity supply Act of 1948 and related legislations, the infirmities could have been avoided.Since this wasn't done, questions about a concerted effort towards exercising undue influence at every stage of the project are bound to arise, the exhaustive 93-page report points out.

"I'd highlight the speed with which the 13-day Vajpayee government cleared the project minutes before it quit," says Congress MP Prithviraj Chavan. 


The Enron project had been held out as an exemplar of the impending liberalisation in the early '90s and, despite several controversies, is now an established power project at Dabhol, 150 km south of Mumbai. In July 1992, Enron signed an MoU with the Maharashtra State Electricity Board (mseb) to set up a 2,550 MW station as part of the government's 'fast track' projects.

Subsequently, when the Shiv-Sena-bjp came to power in Maharashtra it filed a writ against the project. This curiously led to renegotiations with Enron. The committee has quoted a Bombay High Court order on the renegotiated deal.  "Once it (GoM) decided to revive the project, it acted in the very same manner its predecessors in office had done. It forgot all about competitive bidding and transparency. The speed with which the negotiating group studied the project and made its proposal for renegotiatons, which was accepted by Dabhol, is unprecedented." Says Chavan: "I would particularly like to highlight the speed with which the 13-day Vajpayee government at Centre endorsed the renegotiated project minutes before it resigned."


Since the commissioning of the plant in May 1999, the mseb has paid Rs 1,607 crore for the power it has bought from Dabhol. If the same watttage of power had been bought from Indian-built power plants fired by indigenous coal, the payment would have been approximately Rs 736 crore. In the first year-and-a-half of its operation itself, the dpc had drained the Maharashtra exchequer of nearly Rs 1,000 crore.

The Central Electricity Authority (cea), in fact, pointed out that the Dabhol plant was not the least costly option. The mseb had other inexpensive alternatives like the four units of Kaparkheda, but they were in a preliminary stage. The report notes: "...if the mseb had made efforts to seriously pursue these projects, they might not have remained in their preliminary stages". It adds that the members were of the opinion that "the mseb and the Maharashtra government erred seriously, based on information available at that time, in proceeding with the dpc as a base-load factor even when its capacity was reduced." The failure seems to have been compounded by the laxity of the Union power ministry, finance ministry and the cea. It quotes the cea as saying that since the Union finance ministry found the tariff reasonable, no further examination was required

Strangely, Bal Thackeray's Shiv Sena, when it came to power together with the BJP in Maharashtra, filed a writ in the court and then renegotiated the deal. 

After the new Shiv Sena-bjp government took over, its CM, Manohar Joshi, appointed a renegotiating committee in 1996 which made the right noises, actually managing to reduce the tariff. But certain things remained inexplicable. No fresh clearances were required from the cea, which also said that "since no cost increase was involved...fresh formal clearance wasn't necessary." Says the committee: "This only adds strength to the suspicion that the cea didn't consider the economic aspects of the project at all. Indeed, given the non-availability of any official record of the meeting on June 24, 1994, with the Committee and the nature of this letter dated December 23, 1994, the Committee is doubtful whether the economic aspects of dpc were discussed at all.''

The credibility of the Shiv Sena-bjp government has been seriously questioned. "The Committee finds it unexplicable (sic) why there was no mention of any reduction in capital cost of the project from $2,828 million to $2,501 million as agreed by dpc in the summary report of the renegotiating committee," the panel observes.Says lawyer Prashant Bhushan: "It is strange that the Shiv Sena-bjp government first filed a writ in the court and then coolly renegotiated the deal." The committee further spells out the losses incurred through the deal. "Subsequent to the commissioning of the dpc, the financial deterioration of mseb has been rapid. While the mseb was in profit in 1998-99, it plunged into huge losses of Rs 1681 crore in 1999-2000." 

Significantly, the World Bank in 1993 had predicted the system's inherent weaknesses. In a letter written to the then power secretary, R. Vasudevan, a top bank official had said that "after a detailed review of the analytical framework and costing assumptions, we reconfirm our earlier conclusion that the Dabhol project, as presently formulated, is not economically justified" and that in "our assessment the project is too large to enter the mseb system in 1998. The proposed base-load operation could result in uneconomic plant dispatch, as already existing lower variable cost coal power would be replaced by the higher cost lng power."

Enron's persistence and the 'gullibility' of the Indian side can be gauged from high-ranking Enron official Joe Sutton's letter to a key Indian official, Ajit Nimbalkar: "I recently met with the World Bank and have been following the articles in the India papers. I feel that the World Bank opinion can be changed. We'll engage a PR firm and hopefully manage the media from here on. The project has solid support from all other agencies in Washington."

The key question in the Enron deal is whether a developed state like Maharashtra needs outside intervention in the power sector at all? For the first time the Godbole committee has raised objections about the viability of such a project. According to the report, the mseb has been one of the better performing boards in the country and has, despite a faulty transmission and distribution (T and D) system, managed to consistently earn net revenue surpluses on an accrual basis.

Maharashtra accounts for nearly one-fourth of the gross value of India's industrial sector. It's one of the few states to achieve 100 per cent electrification. Since '95, the mseb has been adding to its generation. "This improvement, which has been largely due to renovation and modernisation undertaken by the mseb, exceeded its own expectations at a time when the dpc was being considered," the report points out. Following a policy of cross-subsidy, roughly nine out of its ten users are subsidised.

But the gap between the average cost of supply and average realisation hasn't been much. In fact, the subsidy claim decreased from Rs 630 crore in 1995-96 to Rs 355 crore in 1998-99, until in 1999-2000 it increased nearly five-fold to Rs 2,084 crore due to the sudden increase in the gap by 26 paise per unit-from 15 to 41 paise-an increase of 173 per cent. "The increase in the subsidy claim by Rs 1,729 crore is due to the increase in the gap principally because of the increase in power purchase costs," says the committee, adding: "Without the dpc and without problems of T and D loss, the mseb could be financially healthy."

But can that happen now since Enron is here to stay? The committee has come up with some far-reaching recommendations: make public all Dabhol-related documents and agreements, restructure the Dabhol project itself to bring down the cost of power, restructure dpc financially, allow sale of dpc power outside Maharashtra, re-examine ppas in accordance with least-cost plans, and thoroughly reform the mseb.The committee know this can become reality only with political consensus and through forming of public opinion. The question is, can that be achieved in an unstable political environment?

With Priya Sahgal 

Making Of A Scam 

?	1992: Centre invites Enron to set up 'fast track' power project 
?	Dec 1993: First PPA signed with MSEB 
?	1994: Enron starts construction 
?	1995: Sena-BJP govt scraps Enron 
?	1996: State govt renegotiates project 
?	1996: 13-day Vajpayee govt approves counter-guarantee 
?	May 1996: State cabinet clears PPA 
?	May 13, 1999: Phase I commissioned 
?	Jul 1999: Financial closure for Phase II 
?	Oct 2000: MSEB defaults on payment, subsequently stops paying monthly bills 
?	Feb 6, 2001: Enron invokes Central government's counter-guarantee
----------------------------------------------------------------------------------------------------------------------------------------BUSINESS STANDARD, Monday, April 23, 2001
MSEB revenue collections up at Rs 968 crore in March , Renni Abraham 

The Maharashtra State Electricity Board's (MSEB) revenue collections in March 2001 stood at a record Rs 968 crore. This was largely due to the disconnection drive on defaulter connections -- pegged at nearly 20,000 disconnections a month -- which resulted in compliance by consumers. With the Dabhol Power Company (DPC) monthly financial burden issue now a topic of discussion among arbitrators on the negotiating table, the MSEB has turned to putting its house in order. 

As if to ward of any criticism of its fiscal condition that could be termed as the facilitator to the entire DPC tariff crisis, the state electricity board has put matters relating to its performance on record. For instance, MSEB has recorded the highest power generation in the year ended March 31, 2001, at 45930 units, compared with the previous year's 45582 units, making it the top SEB of the country in this respect. Similarly its power stations recorded the highest availability percentage at 86.1 up from 84.6 per cent last fiscal. Plant load factor is up to 72.78 per cent, compared with 71.7 per cent in 2000. 

The Parli power station has recorded the highest ever generation in the ten years of its life time in 2000 at 4545 million units, which made it eligible for the meritorious productivity award under the eligibility guidelines issued by the Government of India carrying a cash award of Rs 12.5 lakh. All other power stations in the state, without exception, also fulfill the eligibility criteria for the cash award, a senior MSEB official said. Similarly, the Chandrapur power station became the first power station of any state electricity board to get the ISO 9002 certification. 

A senior MSEB official said: "Earlier MSEB was suffering from too much interference in its day to day functioning. The agriculturists were touted as the major reason for its deteriorating accruals, while theft of electricity during the transmission and distribution stage was conveniently camouflaged under this head. In the recent past, the government has authorised MSEB to take steps to curb this misuse of power by its own officials, many of whom, including a chief engineer have suffered suspensions