THE HINDU
Tuesday, May 22, 2001, http://www.the-hindu.com/stories/06220007.htm
Not too late to save Enron project ,  Prem Shankar Jha 
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THE FINANCIAL EXPRESS
Tuesday, May 22, 2001, http://www.financialexpress.com/fe20010522/news1.html
Centre calls meet on May 25 to resolve termination notice crisis,  Sanjay Jog

The above article also appeared in the following newspaper:

THE INDIAN EXPRESS
Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/bus2.html
Centre calls meet on May 25 to resolve Enron's PTN issue, Sanjay Jog
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THE ECONOMIC TIMES
Tuesday, May 22, 2001,http://www.economictimes.com/today/22econ20.htm
FIs seek Centre's intervention in DPC-MSEB row
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THE ECONOMIC TIMES
Tuesday, May 22, 2001,http://www.economictimes.com/today/22econ14.htm
Maha seeks legal opinion on termination notice

The above article also appeared in the following newspaper:

THE TIMES OF INDIA
Tuesday, May 22, 2001,http://www.timesofindia.com/today/22indi30.htm
Maharashtra for legal opinion on termination notice 
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THE FINANCIAL EXPRESS
Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/corp7.html
Domestic DPC lenders seek Centre's advice on course of action 
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THE HINDU BUSINESSLINE
Tuesday, May 22, 2001,http://www.hindubusinessline.com/stories/14225601.htm
Dabhol lenders draw blank with Finance Ministry , Shaji Vikraman , Balaji C. Mouli 
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THE TIMES OF INDIA
Tuesday, May 22, 2001,http://www.timesofindia.com/today/22busi3.htm
Re-negotiation best: Deshmukh; lenders' SOS to Centre 
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THE HINDU BUSINESSLINE
Tuesday, May 22, 2001,http://www.hindubusinessline.com/stories/14225602.htm
Uncertainty over DPC presence at Godbole meet 
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THE INDIAN EXPRESS
Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/nat2.html
Pawar urges Centre to buy Enron power
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THE FINANCIAL EXPRESS
Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/news2.html
MSEB not to pay capacity charges until receipt of Rs 401-crore rebate from  DPC 
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THE ECONOMIC TIMES
Tuesday, May 22, 2001,http://www.economictimes.com/today/22econ04.htm
Finding new buyers key to DPC's future
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THE FINANCIAL EXPRESS
Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/top4.html
DPC to gain from ST waiver on naphtha,  Sanjay Jog
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THE ECONOMIC TIMES
Tuesday, May 22, 2001,http://www.economictimes.com/today/22worl05.htm
Enron sells stake in Dolphin to UAE Offsets

The above article also appeared in the following newspaper:

THE TIMES OF INDIA
Tuesday, May 22, 2001,http://www.timesofindia.com/today/22inte2.htm
Enron pulls out of major Gulf gas project 

THE INDIAN EXPRESS
Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/bus9.html
Enron walks out of $3.5-bn UAE project
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BUSINESS STANDARD
Tuesday, May 22, 2001,http://www.business-standard.com/today/opinion3.asp?menu=8
FOCUS: THE ENRON CONTROVERSY, Dabhol: more heat than light
A V Rajwade highlights some basic errors of omission and commission in the Enron deal
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THE TIMES OF INDIA
Tuesday, May 22, 2001,http://www.timesofindia.com/today/22edit1.htm
Business Unusual 
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THE FINANCIAL EXPRESS
Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/fed3.html
What happens when ignorance is bliss 
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THE FINANCIAL EXPRESS
Tuesday, May 22, 2001,http://www.financialexpress.com/fe20010522/fed1.html
Learning by undoing 
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THE INDIAN EXPRESS
Tuesday, May 22, 2001,http://www.indian-express.com/ie20010522/ed1.html
Enron unplugged
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THE HINDU BUSINESSLINE
Tuesday, May 22, 2001,http://www.hindubusinessline.com/stories/042221ed.htm
Messier and messier 
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BUSINESS STANDARD
Tuesday, May 22, 2001,http://www.business-standard.com/today/edit1.asp?Menu=9
Enr-off and Enr-out
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    BUSINESS STANDARD
Tuesday, May 22, 2001,http://www.business-standard.com/today/edit2.asp?Menu=9
The Godbole findings
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Financial Times; May 21, 2001
Enron to quit India over unpaid bills POWER PROJECT COOLING-OFF PERIOD LOOKS UNLIKELY TO SETTLE ACRIMONIOUS DISPUTE 
BETWEEN US  COMPANY AND BOMBAY CLI: KHOZEM MERCHANT
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Financial Times, May 21, 2001
http://globalarchive.ft.com/globalarchive/articles.html?id=010521000893&query=enron
 India's power struggles: Enron's plight could mark a turning point in India's attempts to attract foreign investment, David Gardner:
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Financial Times; May 22, 2001
http://globalarchive.ft.com/globalarchive/articles.html?id=010522001152&query=enron
India unplugged 
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Financial Times; May 22, 2001
http://globalarchive.ft.com/globalarchive/articles.html?id=010522000904&query=enron
Maharashtra pays the price for bad governance: Dispute with Enron has called into question its status as India's preferred home for
investment, KHOZEM MERCHANT
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Financial Times; May 22, 2001
http://globalarchive.ft.com/globalarchive/articles.html?id=010522000903&query=enron
Ally threatens to desert BJP coalition,  DAVID GARDNER
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THE ECONOMIC TIMES
Tuesday, May 22, 2001,http://www.economictimes.com/today/22edit09.htm
LETTERS TO THE EDITOR - Power corrupts...
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THE HINDU
Tuesday, May 22, 2001, http://www.the-hindu.com/stories/06220007.htm
Not too late to save Enron project ,  Prem Shankar Jha 

After months of tortured haggling and increasing bad blood, the Indian state and Enron, the giant American energy transnational, have reached a parting of ways. Having failed to get the Maharashtra State Electricity Board pay for the electricity it is buying from its Dabhol Power Compay; having failed to get the Maharashtra Government to honour its commitment to pay MSEB's dues in case the latter is unable to do so, and having failed to make the Central Government honour its  counter-guarantee of MSEB's dues, Enron has served a preliminary notice of termination. This gives the two parties six months to settle the dispute. After that the Government will have to pay Enron a large sum in termination costs. If the MSEB fights this and loses, the compensation and penalties could add up to Rs. 17,000 crores or one and a half times the cost of the entire project. Predictably, the air is full of brave statements by the Maharashtra Chief Minister, State officials, bank managers and Central Power Ministry officials, that this would be good riddance. The Central Government virtually said as much first by claiming that this was simply a dispute between a single power company and a State government; then by refusing to honour its counter-guarantee of MSEB's dues, and finally by not sending its representative to the first meeting of the renegotiating committee that the State Government thrust down Enron's throat on April 23. 

By doing all this it implicitly endorsed the view expressed by the Godbole Committee that the power purchase agreement was faulty; that Enron had inflated its costs and that the pricing system adopted was extortionate. The truth is that renegotiation alone cannot save the Enron project because it cannot bring the cost of power sold by it down to the level that the MSEB is being allowed by the State Government to pay. Here are the bald facts. Thirty one per cent of the power generated by the MSEB is stolen or lost during transmission. The balance 69 per cent is bought by 12 million paying consumers, of whom, by government orders, 10 million receive subsidised electricity. Chief of these are the so-called agriculturists who pay 16 to 25 per cent of the average book value cost of generation, the smaller of the small scale industries, which pay a fraction less than the cost of generation, and the bulk of the domestic consumers. The MSEB attempts to recover the loss by making industry and commercial establishments pay almost double the cost of generation. 

But since a disproportionate share of these consumers is in Mumbai, where they are served by Tata Electric Companies and BSES, in spite of charging 20 per cent more from industrial consumers than they do, the MSEB has been unable to recover costs through cross-subsidisation. Between April 1997 and March 2000, a succession of populist and irresponsible governments have forced the MSEB to dole out Rs. 2,800 crores worth of subsidies. In 2000, the MSEB was incurring a cash loss of about Rs. 5 crores a day, that is, 14 per cent of the cost of generation. This was the situation in which Dabhol's first phase came on stream in June 1999. Since at 90 per cent capacity utilisation it would have added only 6 per cent to power generation and, even at Rs. 5 per unit, the MSEB would have been able to cover the extra cost of Enron power by raising average tariffs by a mere 5.5 per cent. But there has been no increase in tariff since September 1998. That is the reason why the MSEB simply could not face the prospect of buying the additional power that Enron was capable of providing. It, therefore, sought to minimise its additional loss by buying barely a third of the Dabhol's generating capacity. But since the capital charge was fixed, it found that this did not save much. That was when it baulked at paying and began to look for a way to break the power purchase agreement. 

The Maharashtra Government's absolute refusal to reduce subsidies or curb power theft spells the death of private power generation, whether by Indian or foreign companies. This is because Maharashtra is no exception. Each and every State electricity board is being prevented today from charging an economic price for power by populist and unstable State governments, while the Centre looks helplessly on. As a result, two foreign companies, Cogentrix and Electricite de France, have already formally pulled out. Thirteen private power projects with a generation capacity of 6,275 MW have not invested a single rupee so far despite having achieved financial closure and obtained all necessary permissions. Among them is a third foreign investor, Daewoo. This has forced the participating banks to cancel their loans to 10 of them. 

In Maharashtra, two more large plants, Ispat's 1,082 MW plant at Bhadravati and Reliance's 437 MW plant at Patalganga, which were awaiting the outcome of the Enron struggle, will now almost certainly be given up. All this is happening when the country faces a 10 per cent overall and 32 per cent deficit in peak power supply. It is still not too late to salvage the Dabhol project on terms that are fair to the MSEB as well as Enron. The Centre can bring down the capital component of the electricity tariff by buying the CNG terminal, port facilities and re-gasification plant from Enron, and bringing in a strategic partner to run it as a separate enterprise. This will bring the cost of the power project down from $2.8 billion to $2.2 billion. The capital charge on the MSEB will come down by over 20 per cent and, since capital charges are 55 to 60 per cent of the tariff, the cost of electricity will come down by 12 per cent. 

When the second phase of the plant is complete in six months or so, at 90 per cent of capacity utilisation, the cost of power will come down to Rs. 3.15 to 3.20 per unit. This will be the lowest for a new plant in the country. Second, since only three quarters of the equity and debt capital have been raised abroad, and approximately the same proportion of running costs is incurred in foreign exchange, only this proportion of the total tariff should be pegged to the exchange rate. This will substantially moderate the future increase in power costs for Enron. But even this settlement will require the State Government to raise the average tariff to a point where it will absorb the marginal cost of generating electricity from new plants. The Centre will have to point this fact and take measures to enforce this rule of pricing throughout the country. 
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THE FINANCIAL EXPRESS, Tuesday, May 22, 2001
Centre calls meet on May 25 to resolve termination notice crisis,  Sanjay Jog

THE BJP-led Central government, which has come under severe attack for its not-to-worry attitude, has finally decided to act and has convened a crucial meeting on May 25 to take stock of the situation in the wake of issuance of preliminary termination notice (PTN) by the Dabhol Power Company (DPC) to the Maharashtra State Electricity Board (MSEB). The meeting would be attended by the officials from the union ministries of finance, power, oil and natural gas, Maharashtra government and the MSEB. It is likely that the DPC officials would also be invited for the May 25th meeting in a serious bid to send a "positive" signal across the world. Union minister of state for energy Jayavantiben Mehta confirmed the May 25 meeting and told The Financial Express that the Centre would always try to help the state government find a way out.  "However, the signatories for the power purchase agreement - the MSEB and DPC - should  first try to overcome the crisis and then and then only can the Centre intervene," Ms Mehta said. "Various options can be considered to resolve the Dabhol imbroglio," Ms Mehta said in a telephonic conversation. However, she declined to divulge any further details.

Sources said that Ms Mehta, in the absence of cabinet minister Suresh Prabhu who is abroad, took a lead and briefed Prime Minister Atal Behari Vajpayee and finance minister Yashwant Sinha after the issuance of the PTN by DPC. Ms Mehta is believed to have stressed the need for a meeting of all parties involved in the Dabhol project. The May 25 meet was fixed as Mr Prabhu is expected to reach New Delhi on late May 23 or early May 24. In addition to this, the Centre wants to wait until it receives a briefing from its nominee and former bureaucrat AV Gokak who would attend the May 23 meeting of the Madhav Godbole renegotiation committee. In a related development, the MSEB on Monday has sent copies of the PTN to the respective union ministries for their perusal. MSEB's top officials, comprising chairman Vinay Bansal on Monday closeted with its legal advisors to examine the PTN and its impact. State chief minister Vilasrao Deshmukh said that his government has also sought legal opinion on the issuance of PTN.
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THE ECONOMIC TIMES,Tuesday, May 22, 2001
FIs seek Centre's intervention in DPC-MSEB row

FOLLOWING Enron-promoted Dabhol Power Company's issuance of the preliminary termination notice to the Maharashtra State Electricity Board, its Indian lenders have once again decided to seek the Centre's intervention to solve the imbroglio. "Like our earlier efforts, even this time, we wish that the Union government intervene and help defuse the entire crisis amicably," financial institution sources said. Indian lenders, led by Industrial Development Bank of India and a consortium of several banks -- including State Bank of India and ICICI -- have lent around $1.4 billion of DPC's $3-billion, 2,184-mw project in Dabhol. In fact, the sources said, IDBI, along with the global lenders, had written to Union finance secretary Ajit Kumar in the first week of this month, seeking the Centre's intervention to direct MSEB and the Maharashtra government to pay dues of up to Rs 213 crore towards November and December 2000 bills "We had also asked the Centre to convince MSEB, and restrain it from issuing a termination notice to DPC," they  said. 

However, Kumar in his reply, had put the ball in the lenders' court and asked the Indian FIs to take "the course deemed fit to them in this case". With reference to the notice, sources said the Indian Fis had been very critical of the move and that they had voted negative when DPC had sought for a mandate by May 18, during the three-day tele-conferencing of all the lenders. "We think the matter is a not a boxing match, but a commercial dispute, which could be solved by negotiations," they said. Expressing doubts about further funding to DPC, in view of the notice, sources said: "We have to think whether they can disburse the remaining 20 per cent funds of around $250 million following the PTN." The Indian FIs were also upset about the fact that DPC did not wait for the voting scheduled to be completed on Monday, as it had received the required mandate from ABN-AMRO-led offshore consortium. "We are sure that the foreign lenders must have exercised their vote on May 18 night itself, immediately after the end of the tele-conference," they added. "This proves that DPC had already made up its mind over the PTN, but such a hasty step will not deter us Indian  lenders to vote against the PTN," the lenders said. 

DPC had also convinced the foreign lenders that the state government had breached the PPA and the very fact that the government constituted the review committee indicated that it did not want to support the agreement, the sources said. Moreover, in DPC's April 25 London board-meet, an IDBI official had tried to convince the foreign counterparts to refrain from PTN, and requested DPC to resort to re-negotiation. (PTI)
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THE ECONOMIC TIMES, Tuesday, May 22, 2001
Maha seeks legal opinion on termination notice

 THE MAHARASHTRA government has sought legal opinion on the preliminary termination notice served by Enron promoted Dabhol Power Company to the State Electricity Board. "We have asked our officers to take legal opinion and accordingly we will pursue the matter," chief minister Vilasrao Deshmukh told reporters on the sidelines of the conference of chief ministers on WTO agreement here on  Monday. 

Stressing on resolving the tangle by way of renegotiating the power purchase agreement, he said that Mahrashtra State Electricity Board had not slapped another Rs 400 crore penalty notice on the US energy company. "No notice has been given. I talked to MSEB chairman who said that no notice has been given," he said. Earlier MSEB sources were reported to have said that the board had decided to go ahead with its decision to slap yet another Rs 400 crore penalty on DPC for mis-declaration and default on the availability of power. The proposed penalty is in the wake of DPC's inability to produce power on February 12 and March 13 as per MSEB's demand in stipulated time of three hours as per the power purchase agreement, they said. (PTI)
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THE FINANCIAL EXPRESS, Tuesday, May 22, 2001
Domestic DPC lenders seek Centre's advice on course of action 

THE domestic financial institutions (FIs) led by Industrial Development Bank  of India (IDBI) have asked the Centre to advise them on the further course of action, in the backdrop of both the Dabhol Power Company (DPC) and the Maharashtra State Electricity Board (MSEB) serving each other preliminary termination notices (PTN) for the $3 billion power project. This is despite the fact that Mr Ajit Kumar, finance secretary, in his earlier reply to the FIs' letter had put the ball back in the lenders' court, asking them to take "the course deemed fit for them in this case." The domestic lenders had also asked the Centre to convince MSEB, and restrain it from issuing a PTN to DPC. "Like our earlier efforts, even this time, we hope the Union government would intervene and help defuse the crisis amicably," sources in financial institutions said.

Indian lenders led by IDBI and a consortium of several banks including the State Bank of India and ICICI have lent around $1.4 billion out of DPC's total $3 billion 2,184 mw project in Dabhol. In  fact, the sources said, IDBI, along with the global lenders, had written to the union finance secretary Ajit Kumar in the first week of this month, seeking Centre's intervention to direct MSEB and the state government to pay dues up to Rs 213 crore towards the November and December 2000 bills. With reference to the PTN, sources said the Indian FIs been highly critical of such a move and that  they had voted negative when DPC had sought a mandate by May 18, during the three day tele-conferencing of all lenders. "We think the matter is a not a boxing match, but a commercial dispute, which could be solved by negotiations," they said.
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THE HINDU BUSINESSLINE, Tuesday, May 22, 2001
Dabhol lenders draw blank with Finance Ministry , Shaji Vikraman , Balaji C. Mouli 

THE Indian lenders to the Dabhol power project, led by Industrial Development Bank of India (IDBI), have met with a cold response from the Finance Ministry to its request to the Government to help protect its loan exposure and to honour the power purchase and counter-guarantee agreements. The domestic lenders, who have a debt exposure of over $1 billion to the project, had sought the intervention of the Government to resolve the deadlock over the outstanding payment to the power utility from the Maharashtra State Electricity Board (MSEB) and the Maharashtra Government. Indian financial institutions and commercial banks will be in a spot of bother as they do not  enjoy the comfort of their exposure to Dabhol Power Company (DPC) being covered under the counter guarantee agreement. 

The threat to the FIs has now arisen because of the preliminary termination notice under Sec.17 of the power purchase agreement has been served by the project sponsor. The counter-guarantee agreement covers only the foreign lenders. According to the agreement, the foreign debt component equivalent to the foreign equity in the project is guaranteed free of cost. For the remaining part of the foreign  debt, the sponsor would have to pay an interest charge of 1.2 per cent on a reducing balance basis. 

The Indian lenders to the project is led by IDBI, which has advanced funds aggregating Rs 1,700 crore, and includes ICICI, IFCI, State Bank of India and Canara Bank. Besides the rupee loans, IDBI has provided a guarantee for a $200-million line of credit extended to DPC by the US Exim Bank. According to senior Government officials, the Ministry has taken the view that the Indian lenders would have to act on their own in this case as it is their commercial judgement which prevailed when the loan was disbursed at high interest rates to DPC. ``Prior to sanctioning of the loan, they never approached the Government. After the mess, they want the Government to bail out them. It only reflects their short-sighted approach,'' a Ministry official said. The consortium of lenders to the Dabhol project want the MSEB and the Maharashtra Government to increase the escrow cover and also the line of credit to DPC. The Maharashtra Government has, however, refused to oblige saying that the company had already invoked politicial force majeure.
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THE TIMES OF INDIA,Tuesday, May 22, 2001
Re-negotiation best: Deshmukh; lenders' SOS to Centre 

``The (best) solution lies in an amicable settlement,'' remarked Maharashtra CM Vilasrao Deshmukh to journalists' queries here on Monday  regarding the Enron standoff. The CM, who was here at the meeting called by the PM to discuss India's position at the WTO talks on agricultural trade, reiterated the basic point: His government was keen on negotiating and that was the only way out. The Maharashtra electricity board just cannot afford to buy Enron's generation at the current price, he said. Queried on the latest set of notices between the two parties, Deshmukh said what was being aired verbally is not so important. What is more to the point is a willingness to find a way out.

PTI adds from Mumbai: Following Enron-promoted Dabhol Power Company's issuance of the preliminary termination notice (PTN) to MSEB, its Indian lenders have once again decided to seek the Centre's intervention  to solve the imbroglio. "Like our earlier effort, even this time, we wish that theUnion government intervene and help diffuse the entire  crisis amicably", FI sources said. The Indian lenders, led by IDBI and a consortium of several banks including SBI and ICICI have lent around  $ 1.4 billion out of DPC's total $ 3 billion 2,184-MW  project in Dabhol. 

In fact, the sources said, IDBI along with the global lenders had written to Union finance secretary Ajit Kumar in the first week of this month, seeking the Centre's intervention to direct MSEB and the Maharashtra government to pay dues up to Rs 213 crore  towards the November and December 2000 bills."We had also asked the Centre to convince MSEB, and  refrain it from issuing a termination notice to DPC," they  said. However, Kumar in his reply, had put the ball in the lenders' court and asked Indian FIs to take "the course deemed fit to them in this case".
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THE HINDU BUSINESSLINE, Tuesday, May 22, 2001
Uncertainty over DPC presence at Godbole meet 

THERE is uncertainty about Dabhol Power Company (DPC) officials' attendance at the second negotiation meeting on May 23 chaired by Dr Madhav Godbole. The company had said that the Godbole committee report ``should not form the basis for any future discussions''. ``They (DPC) have not informed us about staying away from the meeting. So we will assume that they will be present. But if they do not come, it will be the end of the dialogue for negotiation,'' a senior State Government official said. The Centre's representative, Mr A.V. Gokak, will attend the May 23 meeting, the official said. 

DPC had objected to the absence of the Centre's representative at the last meeting. ``GoI did not even bother to send a representative to the initial renegotiation committee meeting on May 11,'' the company had said when issuing the preliminary termination notice. DPC's spokesperson declined to comment on being asked if the company's  representatives would attend the second meeting of the Godbole panel. Meanwhile, senior officials of the State Government have expressed concern over neglect in appointing the third conciliator to enable the conciliation process between the Union Government and DPC. ``The conciliation process has to be completed within 60 days, which means the deadline falls on June 7,'' a senior State Government official said. ``But they're still looking for the third person,'' he said. In its statement when issuing the preliminary termination notice on Saturday, the company has put down the Union Government's ``failure to respond positively to DPC lenders' written requests for assurances'', as one of the reasons for issuing the notice.
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THE INDIAN EXPRESS, Tuesday, May 22, 2001
Pawar urges Centre to buy Enron power

NATIONALIST Congress Party president Sharad Pawar has urged the Union Government to play a supporting role in the Enron controversy by purchasing additional power from the Dabhol Power Company (DPC). Speaking to mediapersons, Pawar said Maharashtra was not in a position to purchase 2000 MW of power from phase II of DPC and the Union Government should come forward to purchase it. He said the government could purchase power from DPC as several states were facing a shortage. The NCP leader said the DPC had not taken a wise step by sending a notice to the Maharashtra State Electricity Board (MSEB). It should have sorted the issue through negotiations. When specifically asked about the Godbole Committee set up by the Maharashtra government, Pawar said the views of Godbole on the issue were known to all. But three of the members resigned from the committee, putting a question mark on its functioning.

Pawar said it would be wise for both the DPC and Maharashtra government to solve the issue through discussions, instead of fighting a legal battle. Asked whether he would persuade the Union Government to change its stand, Pawar said Chief Minister Vilasrao Deshmukh and Energy Minister Padmasinh Patil were making efforts in the same direction. He said the DPC should also have brought down its purchase rates in view of the complications, adding that it would not be in the interests of Maharashtra if the matter was taken up to the tribunal. He said the issue would send wrong signals to the foreign investors, which will ultimately halt the economic growth of the country.
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THE FINANCIAL EXPRESS, Tuesday, May 22, 2001
MSEB not to pay capacity charges until receipt of Rs 401-crore rebate from  DPC 

THE Maharashtra State Electricity Board (MSEB), which would slap a rebate of nearly Rs 800 crore for misdeclaration and default on the availability of power in February and  March by the DPC, has threatened not to pay capacity charges until DPC makes the payment of  rebate of Rs 401 crore charged for the January 28 default. MSEB sources told The Financial Express that it has paid a whopping Rs 1,806 crore to DPC  towards capacity charges during May 1999 and February 2001, on a monthly basis.

However, the successive occurrences of shortfall in actual generation undermines the entire basis of the power purchase agreement (PPA) and the "MSEB is entitled to be discharged from further performance in terms of the PPA, due to DPC's failure to perform its obligations in terms of the PPA," sources said. MSEB on or about March 27, 2001 paid "under protest" the capacity payment of about Rs 83.04 crore for the month of February 2001, having taken a view that in terms of the PPA, the rebate would be adjusted in May 2001.  "However, given the fact that DPC has raised disputes in order to avoid and/or delay adjusting the rebates and the successive breaches by DPC, MSEB may be entitled to be relieved of its future   obligations - making capacity payments until such disputes are finally determined," MSEB sources  said.

In view of DPC's admission with regard to failure on its part and its incapability to adhere to the  provisions of Schedule 6, and/or the inability of the Dabhol plant to perform according to the Dynamic Parameters and Operating Characteristics, DPC is not entitled to insist that its December 2000 bill (Rs 102 crore) should be paid in full without any adjustment. According to the MSEB, the clear intent of Clause 11 (b) (ii) of the PPA is that DPC would compute the rebate in accordance with Clause 10.2 and the amounts would be duly adjusted in the months of January, May and September, and that, thereafter, if after such adjustment, further amounts are still payable to MSEB, the same would be paid and/or adjusted against future capacity payments. "This breaks down if DPC refuses to calculate the rebate, make necessary adjustments, make payment, and resorts to the dispute resolution procedure. Therefore, MSEB is entitled to adjust and/or withhold amounts as it has a legitimate claim against DPC," sources said.
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THE ECONOMIC TIMES, Tuesday, May 22, 2001
Finding new buyers key to DPC's future

THE MAHARASHTRA government and the Centre are exploring the possibility of an Indian company taking over the Dabhol Power Company, the subsidiary of US energy major Enron that is mired in a major power tariff dispute with the Maharashtra State Electricity Board. According to Maharshtra government officials, the sale of Enron's stake in DPC to an Indian company in the private or public sector is being seen as the honorable way out of the dispute between the company, the government and the MSEB. According to a source, the Maharashtra government is under pressure from lending agencies, foreign investors and the US government to save the $3-billion Dabhol project. Abandoning it could result in payouts of about Rs 17,000 crore to Enron, he said. 

Under the counter guarantees provided by the Indian government, compensation would include returns on investment made by Enron in the DPC project. Financial institutions like the Industrial Development Bank of India, ICICI and the State Bank of India could face major losses as they have given guarantees to international lenders, officials say. Maharashtra has already begun to cover its flanks by charging DPC with providing insufficient services and installing substandard equipment to prevent its facility from generating 95 per cent power. A penalty of Rs 401 crore was slapped on the company last month for not providing power to MSEB at a notice of three hours. It has now been decided that a notice for a similar penalty will be sent in June as well, officials here said. 

MSEB officials have been quoted as saying that no bills would be paid to the company after the April bill of Rs. 1.39 billion. The bills for the remaining months would be  adjusted against the penalty.  With Enron hardening its stand, it is possible the company could stop power supply from June, they indicated. Although the DPC has issued the preliminary termination  notice, the actual process of terminating the PPA could  take as long as six months. "This initiates the process of terminating the power purchase agreement with the Maharashtra State Electricity Board," DPC said. 

Simultaneously, it said it was open to "constructive" negotiations on the issue. The DPC is demanding that the Central government participate in the negotiations between Enron and MSEB or provide credit support to purchasers of its power as a  pre-condition to talks. "While a lasting and feasible solution to this issue may be possible, it can only occur if the parties contractually bound to purchase DPC power (MSEB with guarantees from state and central government) are willing to either purchase themselves or find "other" creditworthy entities," the company said. 

Enron also said the report of committee on renegotiating the power purchase agreement should not be the basis for discussions. The stalemate in the project follows the Maharashtra government disputing payments for power purchased by the MSEB from the DPC. The government cleared its February and March                                           outstanding of Rs 113 crore and Rs 134 crore respectively but under protest. The DPC currently produces 740 MW of power. This is to go up to 2,184 MW if and when the second phase of the project goes on stream. (IANS)
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THE FINANCIAL EXPRESS, Tuesday, May 22, 2001
DPC to gain from ST waiver on naphtha,  Sanjay Jog

THE Maharashtra government has waived the 5.4 per cent sales tax on   naphtha supplied by Indian Oil Corporation (IOC) for Dabhol Power Company (DPC).  Mantralaya sources told The Financial Express that the  decision would benefit not only DPC but also other  electricity utilities operating in the state. Although the  energy, finance and planning departments have cleared the file pertaining to this issue, it would be taken up for  the Cabinet's approval only at its meeting on May 23.  Sources said instead of considering the DPC's case in  isolation, the state government had taken a broader view  in offering the naphtha sales tax waiver to utilities operating in the state.

 "The objective is to refrain these utilities from procuring naphtha from Gujarat. Had these utilites   procured naphtha from Gujarat, the latter would have earned a revenue of over Rs 40 crore  annually," the sources added. Analysts said the state government's move would draw criticism  especially from the anti-Enron lobby. According to them, although it is a coincidence that the file in  this regard was cleared after the issuance of preliminary termination notice (PTN), the government  would have to convince its constituents which have been pressing for the scrapping of the Dabhol project. 

Ironically, the state finance and planning department had, in the past, questioned naphtha sales tax   waiver on the grounds that its approval for DPC in particular would not be possible as the Shiv  Sena-BJP alliance government had already reduced the sales tax on naphtha from 15 per cent to 4  per cent in 1995. However, the department relented and is believed to have agreed to clear the file by making it clear that the waiver will be applicable to all utilities and not DPC in particular. Since  January this year, DPC has been pressing for the full waiver of sales tax on the 1.2 million tonne of  naphtha procured from IOC during the calender year 2001. 

The company had pointed out that any tax levied on the naphtha purchases will lead to tariff  increase and would add to the burden on the consumers "as the cost of fuel is passed to MSEB  under the power purchase agreement". DPC had said MSEB would have to bear an additional  burden of about Rs 71.5 crore in 2001 as a result of the net impact of local sales tax. "Given the effect of a tariff increase for electricity consumers in the state, ... grant us full exemption of tax on  local purchase of naphtha by issuing necessary notification under section 41 of Bombay Sales Tax  Act," the company president and ceo Neil Mcgregror had in one of his recent communications to  the state government said. Further, the energy department and MSEB had supported the DPC's  stand and had said MSEB was not in a position to take the additional burden in view of its present  precarious finances. The MSEB had requested the state energy department that the finance department should clear sales tax waiver to DPC "as a special requirment." 
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THE ECONOMIC TIMES, Tuesday, May 22, 2001
Enron sells stake in Dolphin to UAE Offsets

US Enron has bowed out of a $3.5-billion project to route Qatari gas to the United Arab Emirates and sold its stake in Dolphin Energy, the project chairman and US firm announced on Monday. Enron sold its stake to the UAE Offsets Group for an undisclosed amount. Richard Bergsieker, the US firm's Middle East MD, told a news conference in Abu Dhabi that Enron did not believe it could add much to the project in its current stage. "As the project had evolved into a strong upstream gas supply project and gas transport and delivery, we don't believe there is a lot of value that Enron can add," he explained. "The project requires longterm equity investment  in upstream and Enron is frankly not an upstream company." 

DEL chairman Ahmed Ali al-Sayegh had earlier said Enron had agreed to transfer its 24.5 per cent stake in Dolphin to UOG for an undisclosed amount, raising the UAE firm's stake to 75.5 per cent. TotalFinaElf holds the remaining stake. Patrick Rambaud, TotalFinaElf's senior vice-president for the Middle East,  said his firm has formally asked UOG to increase its own  stake in the project. Sayegh, however, said UOG is seeking a different partner. "We are studying the TotalFinaElf request...(but) there will be another partner in the project," he said. "Starting  tomorrow, we will begin negotiations with the global firms  who have shown interest in acquiring a state. They are more than eight companies." He refused to name the firms but said "everybody who is working in the Gulf is interested. We are not in a hurry to choose a partner." Qatar and DEL in March signed a "commercial term sheet agreement" which outlined the conditions of the upstream agreement for the long-awaited $3.5bn project. The two sides aim to sign a production-sharing agreement  by the end of the third quarter '01. Sayegh said they would stick to that deadline. "The latest date is mid-September," he added. 

Qatar, which sits on the world's third largest gas reserves, is seeking to boost its natural gas exports to the Gulf after investing billions of dollars to tap its vast gas riches. The gas deal will entitle DEL to develop a tract of Qatar's giant North Field and produce up to two billion cubic feet per day. UOG is to invest $2 billion in developing the tract, drilling and setting up of production facilities. The remaining $1.5 billion would be invested to lay a pipeline and set up receiving terminals at Dubai's Jebel Ali and Taweelah in Abu Dhabi. First gas is targeted to reach the UAE capital Abu Dhabi by late '04 or early '05. 1-1.5 billion cfd of Qatari gas would be used by utilities in Abu Dhabi and the remainder supplied to Dubai. DEL has started inviting local, regional and international companies to prequalify for five contracts between May 19-23 following the establishment of a technical project team to oversee the implementation of the first cross-border gas pipeline project in the Middle East. Engineering and construction management firms will have two weeks to submit their prequalification statement for each contract after the date of the official announcement. (Reuters)
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BUSINESS STANDARD, Tuesday, May 22, 2001
FOCUS: THE ENRON CONTROVERSY, Dabhol: more heat than light
A V Rajwade highlights some basic errors of omission and commission in the Enron deal
The general impression propagated by the critics of the Enron-promoted power project, and often accepted by the man on the street, is that MSEB and, as a by-product, the citizens of Maharashtra, are victims of very high-cost power; that the agreements were signed at the behest of corrupt politicians; and that, therefore, the best course of action is to tear up the agreements and forget about it. But the first phase of the power plant has been in operation for a few years, and the second phase is also reportedly 92 per cent complete. These are genuine productive assets that the economy will eventually need, and cannot be wished away. Nor can the country afford to renege with impunity, solemnly undertaken financial obligations. In my regular weekly column (World Money, which appears on Mondays), I have been a supporter of foreign investment and had criticised the initial stance of the BJP-Shiv Sena government, which had terminated the contract, only to revive the project on a much bigger scale, on the basis of the efforts of a renegotiation committee appointed by it. 
The controversy has once again become front-page news, given the inability of MSEB to pay the dues of Dabhol Power Company (DPC). In turn, the MSEB has served notices for what it claims are dues from DPC because of defaults, and the whole matter has become a first-class mess. The recent report of the Godbole Committee is certainly a step in the right direction, and the government has appointed another group, once again led by Mr Godbole, to renegotiate the contracts with DPC/Enron. Theoretically of course there are three possible culprits - politicians, a devious Enron that corrupted them, or a system whose competence (and professional commitment) was less than adequate to evaluate the project properly. 
To be sure, the committee has, while commenting on how the tariff was shown to be within government of India norms, felt "this combination of circumstances to be beyond the realm of coincidence". This is the closest it has come to questioning the motives of those involved. But before drawing conclusions, consider some basic issues. Demand estimation: The report concludes that gross errors were committed in estimating the total amount and nature of the demand for power in the state. The growth in the high tariff group has been very limited (surely this was foreseeable - at a particular MSEB tariff, industry finds it cheaper to generate captive power), while low-tariff demand has grown steadily. 
Again, the report argues that, on the supply side, MSEB had enough generating capacity available for the so-called "base load", to meet which plants have to run 24 hours a day. MSEB really needed generating capacity, even according to its own demand projections, for the intermediate and peak loads. While the fuel envisaged to be used in DPC is ideal to take care of this, the plant load factor (PLF) used for cost and tariff calculations is completely unrealistic for such a power plant. Were these major errors in demand estimation and so on or political failure or system weaknesses? 
Return on equity: If there were gross errors in the demand-supply projection side, the assured 16 per cent return on equity, (at 68.5 per cent PLF) after tax, is also open to serious questioning. What is truly amazing is that the return was the same in percentage terms irrespective of whether the equity was contributed in rupees, dollars or perhaps even yen -and that too in the respective currencies! The Maharashtra government is not responsible for this: it is government of India policy, cleared at the highest ministerial levels. Before adopting the norm, did we use concepts like Capital Asset Pricing Model (CAPM) which show that equity market returns in all countries are not identical; that they crucially depend on the risk-free rate of interest which is different for each currency. 
Again, there are robust benchmarks available for quantifying the political risk that a foreign direct investor faces (for example, the premium charged for different countries by the Multilateral Investment Guarantee Association of the World Bank). Was such analysis done before the 16 per cent tax-free norm, and exchange-rate protected returns, were assured? If not, who is responsible? The discount rate: I started thinking about the discount rate used in the Power Purchase Agreement (PPA), for the calculation of the fixed charge, on a simple issue. If for the first phase, the fixed charge is Rs 95 crore per month or, say, Rs 1,000 crore per annum, and is payable for the next 20 years, what should be the rate of discount at which the present value of these payments would be roughly Rs 3,000 crore, which is the cost of the first phase? 
Moreover, the bulk of the fixed charge is indexed to the dollar-rupee exchange rate - in other words, for all practical purposes, the fixed charge is a dollar-denominated outflow as far as MSEB is concerned. It seems that nowhere is the discount rate used for calculating the present value of the fixed charge outflows specified or documented! Empirical analysis seems to indicate that the rate is about 17 per cent per annum! It is worth noting that even in the dark days of monetary tightness in 1996, a 17 per cent discount rate would be too high for simple rupee obligations guaranteed by the government of India - it is absurd for discounting a stream of what are effectively dollar payments. 
Elementary financial economics requires that for calculating the present value of a dollar stream, the discounting rate should be based on the US treasury bond yields of corresponding duration. This has never been more than 7 per cent after 1994. For the desired present value, therefore, the correct fixed charge needs to be perhaps 40 per cent of what it is now! There is a similar logical flaw in the dollar-denominated O&M charges being subject to Indian inflation. While the latter point has been commented on in the report, the former has not been adequately weighed. 
To be sure, this is something of a technical issue and one cannot expect the average minister to understand it. The actual discount rate used has inflated the fixed charges enormously: one suspects that Enron knew this, hence the obvious efforts to hide the number. But surely the MSEB and other officials and advisers dealing with the negotiations, should have appreciated the crucial importance of the number, and insisted on ascertaining the discount rate? It could of course be argued that the political pressure was such that the civil servants were silenced from voicing any objections they may have had on the various issues. Is there any evidence in the notings on various papers to support that the issues of financial economics pertaining to the case had been pinpointed? How is it that the impracticability, nay impossibility, of more than half of MSEB's revenue being escrowed for a single plant was not noticed by anybody? Were not at least some of the issues important and significant enough for the financial health of MSEB, and indeed the Maharashtra government, for at least one bureaucrat to stand up?
 A way out: The Godbole committee has recommended a package of proposals to resolve the tangle. One would like to add a suggestion worth exploring. This is based on what happened in the now celebrated dispute between Procter & Gamble (P&G), the US multinational, and Bankers Trust Company (BTC) in the United States. P&G had entered into various, complex derivative contracts with BTC. When it incurred huge losses, it sued BTC on the grounds that it was persuaded to sign contracts the implications of which it had not understood properly, and that therefore the amounts already paid by it should be refunded and the contracts voided. 
Admittedly, this was a novel plea to be taken by a litigant of P&G's standing. Unfortunately, the case was settled out of court with BTC paying $ 100 million-plus to P&G. But if P&G can claim that it did not understand the implications of a financial contract, so surely can MSEB, particularly in relation to discounting rate or the return on equity, and demand the contracts be voided or renegotiated? But it is the Godbole Committee that should have the last word on the issue: "The Committee would like to state strongly that none of the solutions espoused for IPPs ... and DPC in particular is tenable without the reform of MSEB, especially its distribution business." That, perhaps, is the crux of the controversy.
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THE TIMES OF INDIA, Tuesday, May 22, 2001
Business Unusual 

Is India serious about the business of business? Two recent developments raise this question, and the answer may well determine whether India can achieve its true economic potential or will continue to lurch along, doing  the best it can under the circumstances. The first is the Dabhol Power Company's issuance of a pre-termination notice to the Maharashtra State Electricity Board. This is  the first step in a process that could eventually culminate  with Enron pulling out of India. Many people might celebrate that, since the deal has been riddled with  controversy right from the start. So, we should perhaps  remind ourselves why the need was felt for such a project  - because lack of power was accepted as one of the  primary infrastructural problems in India. After all these years, things have only got worse. Thanks to politically-dictated tariffs, inefficiency and widespread theft, our state electricity boards collectively owe central  power utilities Rs 26,000 crore. Given the financial woes of their primary consumer, the SEBs, producers can hardly be blamed for seeking some sort of financial safeguards before they set up shop. The question then arises whether the safeguards Enron sought were prohibitive. It is high time the Centre takes a clear stand on the issue. It should either clearly state that the Enron deal is good for India, in which case it should bend over backwards to save it. Or it should flatly say the deal is unviable, and mount a public relations campaign to minimise the effect of the contract being scrapped on other potential investors. But before that, it should explain why a Central counter-guarantee was issued in the first  place.

The second development is the steadily intensifying confrontation between the government and the trade unions. As in the case of Enron, there are two clearly polarised camps talking at, not to, each other. Predictably enough, the unions are upset about the proposed move to make it easier for organisations to fire workers. The fact that there is also a proposal to treble the retrenchment compensation from 15 days to 45 days per year of completed service is being ignored. The logic of reforming labour laws is well-known: it is necessary to make Indian industry globally competitive; it will make both the labour and capital markets more flexible, which will create faster growth; states which are ostensibly labour-friendly only end up driving away industry and increasing unemployment. Repeating these arguments, unfortunately, amounts to preaching to the converted. People who support labour law reforms already know all this, while the trade unions simply aren't willing to listen. So what can be done? The only way out is for the government to bypass the self-appointed representatives of the disadvantaged, and start hardselling reforms directly to this constituency. It should step up the communication effort, rather than trying to present reforms as a fait accompli, which can only generate suspicion and resentment. It should admit that in its effort to be a benevolent parent, it botches up too many things. So it makes more sense for it to focus on just a few things, like education, law and order, health and nutrition, and providing safety nets for the dispossessed. If the government can improve its performance in these areas, it might find people less fearful at the thought of taking  responsibility for themselves.
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THE FINANCIAL EXPRESS, Tuesday, May 22, 2001
What happens when ignorance is bliss 

Ministry of Power ignored Planning Commission's advice on direct sale ,  G V Ramakrishna

One of the solutions to the problems associated with the power purchase agreements (PPAs) between independent power producers (IPPs) and the state electricity boards (SEBs) now being proposed is the direct sale of power by IPPs to blue-chip industrial customers. The Godbole Committee also is reported to have suggested that this should be explored in the case of the Dabhol project. The idea is not new. It was in fact proposed when the writer was a member of the Planning Commission in 1994 and was ignored by the power ministry in its preoccupation with the Enron  project and the need to justify the one-sided agreement as the only way of solving the power shortage in the country.

The proposal made in 1994 also addressed the objection now being raised by the SEBs that such direct sale will diminish their revenues from industrial high tariff users and their capacity to cross-subsidise the cost of power supplied to the low- or zero-tariff consumers in the domestic and agricultural sectors. The proposal was based on four parameters: SEB power capacity, pattern of supply to various users, the tariff structure and the extent of cross subsidisation. These parameters would determine how much additional power each state can afford and the extent to which direct supply can be made to industrial users. The outline of the proposal is as follows:

If, say, the existing power capacity in a state is 4000 mw and 25 per cent goes to industrial users, 35 per cent to the domestic sector and 40 per cent to the agricultural sector, and the tariff structure requires government support even after cross-subsidisation, then the state should be told that if the SEB was prepared to yield 50 per cent of its industrial demand to the IPP for direct supply, with the SEB charging for wheeling the power, the tariff rates should be raised for the non-industrial sectors and the state should be prepared to subsidise the loss of revenue, if it actually occurs, to the SEB. The new capacity will then be determined not arbitrarily but with reference to ground realities in each state.

In short, the states will get additional power to the extent they need and deserve. There will be no excess capacity created by the IPP as in the case of Maharashtra after DPC started generating in the first phase itself. It was also pointed out that by yielding a given percentage of demand from existing industrial users  the loss of demand would materialise only when the new project is completed by the IPP in about three years' time and not immediately. In the meantime the state could attract new industries with reference to the additional capacity that will become available to it at the end of three years and, if such new demand materialises, there will be no net loss of demand or revenue to the SEB.

The new arrangement will involve tripartite agreements between the IPP, the industrial consumers and the SEB which will agree to wheel the power at a predetermined rate. The IPP can have the comfort of getting a PPA with the industrial consumers based on acceptable bank guarantees or escrow accounts of the consumers. The consumers will have the comfort of getting the required quantity of power of the right quality. The SEB will also have time to set up new distribution facilities to wheel the power through dedicated lines if necessary, and also to the new industries that will be set up to take the loads that will be released by hiving off the existing industrial users. SEBs can be net gainers by getting wheeling charges and by getting a more rational power tariff structure or government subsidy for cross-subsidisation. 

Having thus established the quantum of additional capacity to be established in each state, which can be calculated with reference to the parameters mentioned above, the IPPs should have been asked to send competitive bids for the determined capacity and not have memoranda of understanding (MoU) for their own notional capacities at their own rates without any competition. This arrangement will enable states to get the right amount of additional power at competitive rates and also not need any state or central government guarantees and will be a purely commercial transaction. There will also be no occasion for the state to have surplus capacity arising from IPP-determined capacities based on government guarantees.

The other advantage will be that new capacities will be in the range of 400 to 6000 MW and they  can also be distributed among the states with reference to their demand patterns and willingness to rationalise their tariff structures. The states and their consumers will get power at competitive rates and in the quantities they need and deserve. The Planning Commission proposal had also worked out illustratively how the working of the proposal will determine additional capacities in a few states and the beneficial impact on the finances of SEBs in these states.

No one has asked the power ministry to explain why this suggestion was not accepted. It was obviously for the reason that this would scuttle the arrangements they were keen to have with IPPs for gold-plated projects of high capacity beyond the states' needs and at exorbitant rates of return. As the saying goes, you can wake up a sleeping man but not one who is pretending to be asleep. As a result of the power ministry ignoring the proposal of the Planning Commission the country is paying a high price and eventually the taxpayer and the consumer will carry the burden in one form  or another.

Direct transfer to industrial consumers at this stage will be possible only if the power rates are acceptable to the consumers who are not committed to take the power at rates determined under the one-sided agreement with Enron. In fact they are asking for direct supply from some of the cheaper sources and the SEB is unwilling to pass on these demands to existing cheaper sources and to buy power from the mast expensive source. 
 (Mr Ramakrishna is former chairman of Sebi and the Disinvestment Commission)
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THE FINANCIAL EXPRESS, Tuesday, May 22, 2001
Learning by undoing 

Taxpayers will pay for government's folly 

For a lay person looking at the continuing controversy on Enron's Dabhol Power Company (DPC)  it might appear that it is the Maharashtra state electricity board (MSEB) and the state government that are at fault for not meeting their contractual obligations under the power purchase agreement (PPA). It would therefore seem natural that DPC has issued a pre-termination notice to MSEB  since MSEB is not paying up on time. But is the story that simple? No. There are two reasons for saying this. The first relates to the structure of the PPA, and the second to the groundwork done by MSEB to sustain the project. Both Madhav Godbole and EAS Sarma - chairman and member of  the committee that advised the state government on the future course of the project - are of the  view that a proper investigation should be carried out on the entire deal and into how such a PPA was agreed to. This suggestion did not find a place in the final report as it was regarded to be beyond the committee's terms of reference. Even after signing the PPA, the MSEB did nothing to improve its financial position to withstand the impact of the project. This has now started to tell on the state which was once regarded as a haven for investments.

If the idea that the PPA be re-opened is accepted, the DPC forfeits all contractual rights. The counter-guarantee will also automatically become nothing more than a scrap of paper. It is, therefore, not surprising that DPC is not keen on following the recommendations of the Godbole report. Enron, the main promoter of the project, is keen to wash its hands of the project and repay its foreign lenders so as to maintain a clean image internationally. There should be no heartburn for the Indian financial institutions on this score, since this is precisely what they agreed to when they financed the project and also offered guarantees to international lenders. In case the central government gets pinned down to paying the termination amount, the taxpayer, whose money it is which will be paid out, has a right to ask why, by whom and for what reason such a lopsided PPA was entered in the first place. Why should the consumer be paying now for mistakes made by politicians and government officials who were ostensibly walking up the so-called "learning curve" in the privatisation of power?
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THE INDIAN EXPRESS, Tuesday, May 22, 2001
Enron unplugged

An effective dialogue can still save the Dabhol project

WHATEVER else might be said about Enron's preliminary notice to terminate its Dabhol power project contract, it does at least help to concentrate minds. A  solution to the problem must be found in six months. That is the time available before a final termination notice becomes due and final accounts have to be settled. So Maharashtra and the Centre no longer have the option of letting things drift. A decision has to be taken and taken soon. It will help that process if Maharashtra and the Centre develop a joint approach. That has not appeared to be the case so far. The Union Power ministry has given the impression that the excessive cost of Dabhol power is really Maharashtra's problem and there is not much it can do to help. That was the message from the absence of a representative of the Centre at the May 11 meeting of the re-negotiating committee. But with loans worth $1.4 billion from domestic lenders at risk from termination of the project, and IDBI, ICICI and the State Bank of India hitting the panic button and urging the Finance ministry to get involved, the prospects for focussed action by the Centre have improved.

Another round of talks with Enron is scheduled this week. There appear to be two solutions to explore. Some experts have suggested that if Maharashtra does not need more power and is struggling to pay for what is available from DPC at present, the only way out, when DPC Phase II goes on stream, is for the power to be sold outside the state. The Union Power ministry has apparently studied alternative scenarios for the purchase of DPC power but not found them feasible. When Enron says, despite the termination notice, it remains interested in a constructive dialogue it has new buyers in mind and rules out the other solution which is the one Maharashtra has been working on. Chief Minister Vilasrao Deshmukh insists on renegotiating terms and is supported in this by the Godbole committee which has pointed out how the high cost of DPC power can be brought  down. Enron is set against renegotiating terms but needs to be persuaded to be open minded and to look at the amended terms Maharashtra is proposing.

Reworking terms, such as all costs being dollar-denominated, looks like the only realistic way to break the impasse. If Maharashtra cannot afford to purchase DPC power it is highly unlikely any other state government will; and private corporations will undoubtedly look for and find better options. The basic issue is as Deshmukh  says, the ''exorbitant power tariff''. The first solution - selling power outside Maharashtra - fails on that ground. An effective dialogue with Enron will have to be conducted at a different level. It is more than a dispute about a commercial contract. The political leaderships in New Delhi and Washington will be concerned about the fallout from this dispute on investment flows. New Delhi would like to see more foreign investment come to this country and Washington would like to see India's doors remain open to foreign and American investment. So both capitals should consult about ways of ending the dispute quickly.
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THE HINDU BUSINESSLINE, Tuesday, May 22, 2001
Messier and messier 

GIVEN THE LEVEL of acrimony and mutual distrust, it is no surprise that Dabhol Power Company chose to issue a preliminary termination notice to the Maharashtra State Electricity Board, initiating the process to invalidate the power purchase agreement. It is only the latest in a logical sequence of steps  taken by Enron, the principal promoter of Dabhol Power Company, over the last few months. The MSEB and the Maharashtra Government find themselves in a corner only because they have been responding with too much of chest-thumping, macho rhetoric and too little of business and tactical sense. At all times Enron seemed to be one step ahead of the MSEB. 

There is a lot at stake in what happens to the project. The MSEB, the Maharashtra Government, the Centre and a whole lot of financial institutions -- IDBI, ICICI and SBI -- are in for trouble if Enron goes ahead and terminates the power purchase agreement. That Enron was moving towards quitting the project was evident in April when DPC invoked the political force majeure clause, while Enron also sought the lenders' approval to issue a notice of termination. Quitting the project also ties in with Enron's decision worldwide to get out of managing assets and instead concentrating on trading in energy products. 

Right from the time Enron was invited by the then Sharad Pawar Government in 1992, the Dabhol project has been dogged by controversies. All political parties are equally responsible for the mess as politics has dominated the decision-making at all times, when pure economic and business sense should have prevailed. The present Democratic Front Government in Maharashtra, wanting to get back at the Shiv Sena-BJP, got carried away and chose to fight its battle through the media. 

Even now, there is time for negotiation. But for this the MSEB and the Maharashtra Government, not to mention the Centre, should display sincerity. The effort should be to reopen the power purchase agreement, with Enron's consent rather than unilaterally, and see how the tariff can be brought down. One, it is generally believed that the cost of the regassification facility is for the entire five million tonnes per annum of gas that Enron proposed to import and not for the quantum of gas that will be used by the power plant. The  negotiations should ensure that the fixed cost covers only that part of the  regassification facility which is used by the power project. 

Two, the rate of return for Dabhol Power Company is widely believed to be about  30 per cent, when other independent power producers get only around 16 per cent. It must be seen if this can be brought down, at least to 20-25 per cent. However, even if the tariff is brought down substantially to, say, Rs 3.30 per unit, it is doubtful if the MSEB will have the revenues to pay for all the power generated at 85 per cent plant load factor. For that to happen, the MSEB should  be reformed -- the technical losses and theft must be drastically cut, and the  tariff rationalised to eliminate cross-subsidy. 

The preliminary termination notice may also be a chance for the MSEB and the  Maharashtra Government to extricate themselves. However, they will need the cooperation of the Centre and the financial institutions. The notice should not just be treated as an act of brinkmanship by Enron. The American power utility's willingness in coming to the negotiation table will be known tomorrow, when the Godbole Committee is expected to meet. If and when Enron decides to terminate the power purchase agreement, it is estimated that the State will require about Rs 15,000 crore to pay off the utility. 

Maharashtra has to convince all concerned that this is the best way out, then auction the power plant and the gas terminal separately. In the process, it may still end up with some loss. But that may be the better option than being saddled with an asset with which the MSEB has no idea what to do. The MSEB and the State Government should use this opportunity to convince the international lenders and investors that their problem is only with the present owners of the power plant and that Maharashtra is as investor-friendly as ever. For this to happen, politicians should take the backseat and let professionals, perhaps a reputed consultant, not former or serving bureaucrats, do the  negotiations.
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BUSINESS STANDARD, Tuesday, May 22, 2001
Enr-off and Enr-out

The Dabhol power project seems to be heading for a denouement, along two parallel  tracks. The company itself, there can be no doubt, is getting ready to dump the project and   pull out, just weeks before trial runs are due to start on the 1,444mw second phase (the  first phase of 740mw has already stopped producing power). Dabhol Power has presumably seen the obvious: that there is no way in which either the Maharashtra State Electricity Board or the Maharashtra government will be able to meet  their contractual obligations and guarantees on power purchase. In its present form, therefore, the project is as good as dead and one might as well recognise the fact. 

Can the project be revived, and if so on what sustainable terms? A re-negotiation committee has been put together and will meet Dabhol's representatives on Wednesday. But three members of the committee have already walked off, citing one reason or other, so the re-negotiation process hasn't got off to a propitious start. Then, given the unpromising history of earlier re-negotiations and the incompetence with which MSEB has handled its original negotiations, it is far from clear whether anything substantial can be extracted from Dabhol - especially if Dabhol is clear about the legal ground on which it stands. 

One must presume that Dabhol's promoter, Enron, and its American lawyers have sewn up a watertight deal, without the bungling that has typified the Indian handling of the matter.  So it is likely that the cost of killing the project will be heavy indeed, and perhaps  unbearable, for both MSEB and the Maharashtra government. Keep in mind the cost of the project ($2.9 billion, or about Rs 14,000 crore) plus the present value of future profits foregone - and profits are said to be in the region of 30 per  cent of equity, every year. The numbers are staggering. Is there a way to not pay such a bill? Yes, there are two possible options. One is for MSEB to reform its power tariff structure (90 per cent of its customers are subsidised), cut its transmission losses (which are as high as 30 per cent), and then to persuade the central  government to allow Dabhol power to be sold to other users as well. 

The Godbole committee's first report, submitted some six weeks ago, suggests that if handled this way, Dabhol can still be made a workable proposition - provided some re-negotiation of tariffs is done. Dabhol has said it is willing to re-negotiate, but with its typical in-your-face style has asked for the moon in return (among other things, tax breaks of all kinds). Since agreeing to such terms will only add to the existing scandal of past mis-negotiations,  and since MSEB is not about to reform itself in a hurry, the prospects for successful  re-negotiation of a reasonable and workable tariff are slim. The second way of avoiding footing an impossible bill is to go the extra-commercial route, and use diplomatic pressure so as to force the company to compromise substantially. But since Enron is among the firmest supporters and biggest financiers of the new US  president, it is difficult to see diplomatic pressure achieving very much, unless President Bush recognises a one-sided deal when he sees one, takes into account the bad odour that might settle on other American companies and Indo-US relations in general, and leans gently on Enron to compromise. However, these are will-o'-the-wisp hopes and prayers, and no strategy can be predicated on their success. What does that leave with MSEB and the Maharashtra government? The answer is: the Godbole report. On which, read on. 
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BUSINESS STANDARD, Tuesday, May 22, 2001
The Godbole findings

The Godbole committee's first report, submitted on 10 April, is an eye-opener to what can only be called a massive scandal. It leaves several players - MSEB, successive  Maharashtra governments, the Kirit Parikh re-negotiation exercise, the Central Electricity Authority, and other players in New Delhi - with no clothes on. MSEB claimed that it had negotiated a tariff that was lower than would result from applying the central government's standard formula. But this was patently fraudulent, because the comparison was based on wrong numbers, incorrect technical parameters and unequal assumptions (one rupee-dollar rate for the Dabhol tariff, another for calculating the  government formula), all of it designed to establish what was not true. 

Asked in court why there had been no competitive bidding, the answer (believe it or not)  was that MSEB was not competent to handle competitive bidding. But it was so wonderfully capable of handling direct tariff negotiations that it eventually gave Dabhol a higher tariff than Enron had initially sought, before the negotiations began! That's only for starters. There is much more in the Godbole report. On the basis of a passing comment in an FIPB meeting, that the project's costs were broadly in line with other similar projects, the power secretary in New Delhi tells the Central Electricity Authority that the CEA's techno-economic clearance is not required - though this is statutorily mandated. The CEA agrees to this untenable proposition, but later issues a vaguely worded clearance on the basis of a meeting whose minutes were not made available to the Godbole committee. 

The re-gasification project that was made part of the power project had a capacity to handle 5 million tonnes, though Dabhol itself needed only 2.1 million tonnes. A port facility had similar excess capacity. Yet the entire cost of these facilities was loaded on to Dabhol, along with the full cost of the 20-year gas supply contract. Thus, as the Godbole committee observes, what should have been a variable cost was converted to part of the fixed cost, which MSEB would have to service through a capacity charge, whether any power or gas was bought or not. Even the power requirements of Maharashtra were mis-calculated in order to over-ride a warning from the World Bank that the Dabhol power would not be needed. This was done by assuming that industrial demand for power would grow overnight at twice the earlier rate, and that MSEB itself would overnight see a dramatic worsening of its operating  parameters. There is still more in the report, but the point should be obvious. 

What the report shows is that the Dabhol contract can be subjected to legal test (as in fact two members of the Godbole committee recommend), on the grounds that it was improperly handled and violative of law and common sense If a favourable judicial decision becomes possible, that should help mitigate the costs of  winding up a truly scandalous project. For reasons that are not clear, MSEB and the Maharashtra government have chosen not to go down this route. Perhaps they have greater and continuing faith in the re-negotiation process. 

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Financial Times; May 21, 2001
Enron to quit India over unpaid bills POWER PROJECT COOLING-OFF PERIOD LOOKS UNLIKELY TO SETTLE ACRIMONIOUS DISPUTE 
BETWEEN US  COMPANY AND BOMBAY CLI: KHOZEM MERCHANT

The US power company Enron is set to withdraw from India after a row over unpaid bills that has overshadowed the country's biggest single foreign direct investment. The Houston-based company has issued a "preliminary termination notice" to its Bombay client, the Maharashtra State Electricity Board (MSEB), ending an acrimonious eight-year relationship. Enron's Dollars 2.9bn (Pounds 2bn) power project near Bombay was a symbol of India's economic reforms but critics, including the World Bank, said its tariffs were excessive and the company was portrayed as a profiteering multinational. Enron's announcement at the weekend concludes a disappointing chapter in the history of India's power sector, which lies at the heart of attempts to improve growth and ease poverty. The British company PowerGen and Cogentrix of the US also quit recently, frustrated by red tape or because they were seeking higher returns elsewhere. 

A six-month cooling-off period - as mandated in the power purchase agreement - follows but is unlikely to yield progress. Enron will then issue a final termination notice and present a claim for compensation. "This is the end-game for Enron. It is a great day for us," said Pradyumna Kaul, a management consultant and leader of Enron Virodhi Andol (Anti-Enron Movement). "India produces electricity from coal at a unit cost of about Rs1 (about 1.5p). Enron is using liquefied natural gas as a fuel and charging a unit cost of Rs5. Neither Indians nor Indian manufacturers can afford Enron's expensive energy," he said. 

Dabhol Power Company (DPC), which operates the Bombay plant and in which Enron has a 65 per cent share, said that "after months of working to find a solution, it is apparent that MSEB and the government of Maharashtra are unwilling to honour their commitments". DPC criticised the Indian government for its "unwillingness to assist MSEB and the Maharashtra government in either buying power, or providing credit support behind other buyers". MSEB owes the US company Dollars 45m for power consumed in December and January. But the utility is refusing to pay until its claim for Rs4.2bn (Pounds 63m) for "Enron's technical failures" is settled. 

Enron, which has come under increasing pressure from its international lenders to get tough with MSEB, has twice invoked the Indian government's guarantee on unpaid bills. But in the most recent instance, New Delhi refused to pay until MSEB's own claims were settled. Enron's tariff is typically three times higher than that of other independent power producers because of the high cost of naphtha and a depreciation of the rupee against the dollar. Phase one of Enron's project, a 740MW plant fuelled by naphtha, came on stream in May 1999, and phase two, a Dollars 1.87bn site of 1,624MW capacity designed to run on cheaper liquefied natural gas, will be completed in the next few months. Enron employs 11,000 people in India. www.ft.com/energy 

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Financial Times, May 21, 2001
 India's power struggles: Enron's plight could mark a turning point in India's attempts to attract foreign investment, David Gardner:

The soap opera of Enron in India has reached a critical moment. Once again, the US energy company is pitted against the state of Maharashtra, in western India. But the twist this time is that Enron is threatening to pull the plug on the Dabhol Power Company, the single largest foreign investment in India. It is, at first sight, a wearisome repetition of earlier episodes. The Dollars 2.9bn Dabhol deal has been in trouble before. In 1995, a rightwing Hindu nationalist coalition of the Shiv Sena and Bharatiya Janata party - now the majority of the ruling coalition in New Delhi - ousted the Congress party government in Maharashtra and tore up the contract its predecessors had signed. The project went ahead after Enron secured a sovereign guarantee from the government of India to cover any failure to pay by the Maharashtra State Electricity Board, Dabhol's sole customer. 

The first 740MW Dabhol plant is now functioning and a second 1,444MW phase is close to completion. But MSEB has been defaulting on payments since last December and wishes to renegotiate the contract with Enron, claiming the electricity tariffs are unjustifiably high. This weekend Enron began proceedings to terminate the agreement. The move triggers an arbitration process that could begin as soon as Wednesday between Dabhol and the MSEB. But Enron's actions are beginning to look like the first step towards withdrawal from the project, in which it has a 65 per cent stake. In the past 18 months, Cogentrix of the US, National Power of the UK, Daewoo of South Korea and Electricite de France have all withdrawn from the Indian power sector. Of eight so-called "fast track" power projects authorised by New Delhi in the past decade, Enron's is the only one to have been commissioned. 

Whatever the outcome, a great deal is at stake. The imbroglio could further deter a barely detectable trickle of foreign direct investment into India. It could blight India's urgent need to double its electricity generation. And it raises the question of the extent to which contracts are enforceable in India - which alone could raise the risk premium future investors may seek. Unless carefully handled, the controversy could damage India's ambition to raise growth by creating an investment-friendly environment, in spite of the success of industries such as software and pharmaceuticals. Kenneth Lay, Enron's chairman, said earlier this month that while his company had no immediate plans to sell its Dabhol stake, the dispute "sends a very bad signal to the rest of the world as to the difficulties of investing in India, which is not what India needs right now". Several ministers, including Yashwant Sinha, finance minister, have said they see no reason why Enron's experience should deter foreign investors. That is true only in the sense that there is very little foreign investment anyway. "The government is in denial," one minister admits. Publishing foreign direct investment figures has become "an annual embarrassment", he adds. India received an estimated Dollars 2.6bn in inward investment last year, or 0.24 per cent of worldwide foreign direct investment flows. Complete figures for 1999 show it received Dollars 2.2bn. China, its regional rival, received Dollars 63.4bn - including Hong Kong - according to the United Nations. In just as telling a contrast, Electricite de France, which pulled out of India after battling for seven years to advance its 1,000MW Bhadravati project, is proceeding with a series of power plants in China, Egypt and Mexico. 

"We say we want foreign investment in the power industry and the policy says 'yes, yes, yes'," says one civil servant who has soldiered long and hard to introduce reform. "But the practice, I'm afraid, is 'no, no, no'." The Enron project, its critics say, is particular. Although Dabhol's power purchasing agreement with the MSEB is confidential, it is widely believed to embody a "hurdle rate of return" - the after-tax, internal rate of return on equity in dollars - in excess of 20 per cent. The normal rate sought by the dwindling investors in India's power industry is 16-18 per cent. In addition, Dabhol's charges per kilowatt hour are higher than anticipated because its "load factor", or capacity usage, is much lower. The financially strapped MSEB is buying less and Enron's contract allows it to apply variable charges over the fewer units of output, raising the cost. There is an important sense, however, in which all this is academic. India's state electricity boards are de facto bankrupt. Whether the cost per unit is one rupee or 10, they cannot pay. 

The problem is user charges. Most Indian farmers get free power, much of India's urban middle class steals power and too many of India's populist politicians are frightened of agreeing on a minimum common tariff that might begin restoring the solvency of the state electricity boards and thus facilitate investment. Many industrial users that could pay, angered by cross-subsidies they are charged for the inefficient system, have switched to secure "captive" capacity of their own, an estimated 10,000MW of which is now in place. While India needs to boost installed capacity by about 100,000MW by 2010, with no one to pay for electricity a mere 464MW was commissioned last year, according to Power Line, an industry newsletter. "It is self-defeating to try to attract an Enron without first putting your house in order," one minister says. "It was always obvious that within the present set-up Maharashtra would never be able to pay." Hari Dhaul, head of the Independent Power Producers of India, says restoring the solvency of "the (state electricity boards) is priority number one; unless we do that, all talk of power and infrastructure is academic." The government made a start when Mr Sinha, in the February budget, announced a still-to-be-determined package of soft loans  for states that reform their electricity boards and begin introducing more realistic tariffs. But since then the government has floundered over a series of scandals - not a propitious climate for reform. The Enron case has the potential to become, if not another scandal, at least a blight. As a senior executive at a foreign power company puts it: "India needs modern infrastructure if it is ever to become a modern country. It needs foreign investment to do part of it but that will only come if the perception becomes that it is easy to invest in India." Copyright: The Financial Times Limited 
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Financial Times; May 22, 2001
India unplugged 

The latest threat from Enron, the US energy group, to pull out of its Dabhol power plant venture near Bombay illustrates both the shambolic nature of India's electricity system and the wider risks of investing in the country. The project had serious drawbacks. But unless energy companies can expect a commercial return, they will not invest in badly needed new infrastructure. Unless contracts are honoured, few foreign companies will consider India as a place to do business. The Maharashtra state electricity board, the Dabhol plant's only customer, is refusing to pay its bills, arguing that the tariffs are unjustifiably inflated. Prices are certainly high. The plant, fuelled by expensive naphtha, is running way below capacity due to unexpectedly low demand, further increasing unit costs. More difficult to judge is whether this is within the terms of the contract, since Enron is keeping the details confidential. 

The argument over unit costs, though, is in any case less relevant than it might seem as most of India's state electricity boards, including Maharashtra's, operate at a large loss. Many consumers pay highly subsidised rates. Many pay nothing. Bills go uncollected. Half of Delhi's electricity output is stolen, mostly to power middle-class air conditioners rather than light bulbs for the poor. Bankrupt state utilities are then periodically bailed out to the detriment of spending on health and education. India's state authorities urgently need to introduce a common minimum tariff and a more targeted form of subsidy. This may be unpopular, but the central government's offer of Dollars 5.6bn, raised via a bond issue, to pay off the electricity boards' debts should sweeten the pill. A new pricing regime is only the first step. Electricity generation, transmission and distribution should be unbundled and privatised. Contracts should be awarded through competition, not by arrangement with the relevant political party. This would require much more transparency than many of India's politicians have been ready to concede. 

Enron's difficulties over the Dabhol plant, the largest foreign investment in India, have persuaded other western companies to withdraw from similar projects. This will hardly help the country to overcome the power shortages that hinder economic development. But the effect will reverberate well beyond the energy sector. India receives a pitifully small slice of the world's foreign direct investment. Infrastructure weaknesses are certainly one factor. But as important is the readiness of Indian politicians to manipulate foreign business for their own ends. 
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Financial Times; May 22, 2001
Maharashtra pays the price for bad governance: Dispute with Enron has called into question its status as India's preferred home for
investment, KHOZEM MERCHANT

Bal Thackeray's legacy as the power behind the throne of Maharashtra, India's richest state, included an informal "flyover index". As leader of the Shiv Sena party
 that ruled Maharashtra in a coalition for four years from 1995, he sanctioned 55 new road bridge flyovers at a cost of Rs180bn (Pounds 2.6bn) in Bombay, the financial capital. The flyover index, it was said, reflected the inept government and fiscal profligacy with which his party's ruled ended in 1999. "I don't much care for
 finance and foreign investment, I don't understand these things," Mr Thackeray told the Financial Times last year. The Hindu militant's comments damaged investor sentiment already reeling from his warning of "blood on the streets" if he was arrested for his role in communal riots a decade earlier. Shiv Sena is a regional party named after the Hindu warrior god, Shiva. 

Debt and demagogy were the hallmarks of a man who embodied a regional assertiveness that was at odds with an emerging reformist economics. It was in this environment that the US power company, Enron, entered India with the country's largest ever direct investment and set the scene for a test of governance. As afrustrated Enron inches closer to quitting India after a protracted legal battle over contracts and payments, some are saying that here is an outstanding example of how there is an economic price to be paid for being badly governed. Maharashtra has also lost a car factory investment to Tamil Nadu and a business school to Hyderabad, both globally prestigious projects squandered amid charges of corruption. Now Maharashtra's status as the preferred home for inward investment - helped by Bombay's status as the leading business city in the country - is under pressure. Its volatile politics have undermined the rule of law and foreign investors
 are alarmed by official abuse of the sanctity of contract. "Good governance will bring in good investment; bad governance will attract bad investment," says Mahesh Vyas, executive director of the Centre for Monitoring Indian Economy, a think-tank in Bombay. 

Both Enron and the state were condemned for the way they put in place the Dollars 2.9bn investment. Maharashtra "got expensive power generation before solving the bigger problem of power distribution. This is bad governance and it led to bad administration," said Mr Vyas. The news has not all been bad. For instance, from a standing start Maharashtra is now second only to Bangalore as a centre for software services, in spite of the fact that it offers no obvious comparative advantage, such as Bangalore's excellence in engineering and sciences. This is partly explained by Maharashtra's historically sound civil administration, which despite the surrounding political volatility, continues to work for, rather than against, business. A reformist and inclusive tradition befitting a port city attracted social campaigners as well as businesses fleeing the declining colonial capital of Calcutta. 

Bombay's financial status, too, blossomed from its link with the Gujarati brokering class, whose influence has only now been tamed after yet another share-price rigging scandal. "With these advantages, complacency set in," says Professor Mangesh Korgaonker, who heads the management school at Bombay's acclaimed Indian Institute of Technology. The state's growth rate of between 6-8 per cent over the past decade outstripped national performance. "Maharashtra did not need to shout to gain investment, unlike its upstart rivals. But the historic advantage has been shaken," says Prof Korgaonker. This means that for the first time since the state emerged along with neighbouring Gujarat from the larger territory of Bombay in the 1960s, Maharashtra is losing out to rival states, where the rule of law and political stability are strong attractions. The upshot is a renewed urgency to shift the state's axis from low-value manufacturing to IT,
media and entertainment, such as "Bollywood", as well as financial services. 

The state is promoting these alternatives not only because of the potentially damaging consequences of the Enron dispute on foreign direct investment or because a flawed financial system may deter investors. It is doing so because of property prices that are among the steepest in the world and an overburdened transport network, which together raise the costs of doing business in Maharashtra. Implicit in this process is an attempt to secure best practices, via regulatory changes, in areas such as public accountability, investor protection and corporate ethics. "The quality of governance now has a market valuation," says Dr R Patil, the former managing director of the National Stock Exchange, a rare technology driven-bourse where Bombay's corrupt broker oligarchy holds no sway. "Bombay First" embodies these sentiments. Modelled on asimilar initiative in London, "Bombay First" is an attempt by the city's chamber of commerce and business to project the city as a regional financial centre. The aim is to compete with Singapore and Hong Kong. That implies legislative changes to gain an offshore status. It also means easing pressure on property prices by releasing land for development north of costly central Bombay. Some of the city's biggest financial names have already shifted operations north of Bombay, to a cluster known ambitiously as the new financial district. But as Prof Korgaonker says, where business is conducted may count for nothing without a change in how business is conducted in the new Maharashtra. 
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Financial Times; May 22, 2001
Ally threatens to desert BJP coalition,  DAVID GARDNER

The government of Atal Behari Vajpayee, reeling from a series of scandals and regional election setbacks, faced a new crisis last night as a key ally threatened to desert it. The crisis, the result of regional squabbling in the tiny, north-eastern state of Manipur bordering Burma, shows how vulnerable Mr Vajpayee's Bharatiya 
Janata party (BJP) has become to blackmail by its junior coalition partners. The Samata party said it would pull out of the New Delhi government after the BJP abandoned the Manipur chief minister in a vote of confidence yesterday in the regional assembly. The fall of the regional government also dramatised the loss of national authority of the BJP leadership, which had instructed its local members of parliament to support the Samata administration. Samata leaders in Delhi, however, chose to view the events as a "back-stabbing" by the BJP. Samata is still smarting from the resignation of its leader, George Fernandes, as defence minister, and Jaya Jaitley, its party president, caught up in a cash-for-arms scandal in March. The defection of 12 Samata MPs would further weaken Mr Vajpayee's coalition, at a time when several allies of the BJP are wondering whether they are being politically damaged by association with the Hindu revivalist party. 

Needing 272 MPs to command a majority in parliament, Mr Vajpayee would be down to 279 if Samata left. But that thin majority includes the 29 MPs of the secularTelugu Desam party of Chandrababu Naidu, the reformist leader of Andhra Pradesh. Even before the BJP's current troubles, Mr Naidu maintained a careful distance from the government while voting with the coalition. That distance appears to be increasing. One reason is that the BJP is increasingly turning for help to itsshadowy parent organisation, the Rashtriya Swayamsevak Sangh (RSS), even though other RSS front organisations in the trade unions and among farmers are leading a campaign to eviscerate the coalition's economic reform programme. The dismal outlook for reform, fears for the government's stability and the weekend threat by Enron, the US power company, to pull the plug on the biggest single foreign investment in India, combined to unsettle markets yesterday. The rupee slid by 4 paise to Rs46.98 against the dollar, close to the psychological barrier of Rs47. Concern about the Enron dispute, meanwhile, sharply depressed the share prices of leading banks with exposure to the Dollars 2.9bn Dabhol power project near Bombay, in which Enron has a 65 per cent stake. Enron announced on Saturday that it had begun the legal process of withdrawing from its contract with the Maharashtra State Electricity Board, frustrated at its failure to pay for Dabhol's power. The state authorities raised the stakes yesterday - slapping a second Rs4bn (Pounds 59m) penalty on Enron for breaks in supply - ahead of an arbitration meeting tomorrow. 
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THE ECONOMIC TIMES, Tuesday, May 22, 2001
LETTERS TO THE EDITOR
Power corrupts...

APROPOS of Enron's notice to the government of Maharashtra, Mumbai should act pragmatically instead of indulging in heroics and rhetoric. It should set its own house in order, improve MSEB's functioning and quickly privatise. If it fails to do these its threat to Enron will also be taken as just another case of demanding kickbacks. 
Mulo Gandhi, Pune 

The record till date IT is sad really that Enron had to issue its pre-termination  notice. We should now ask whether MSEB would be able to construct such a project in record time. Corruption is rampant in MSEB. They may say Enron power is not needed, but you cannot even get a new connection easily. Interruptions are commonplace in rural areas (sometimes up to four times a week). Power thefts are commonplace too. Each day, on average, we pay MSEB about Rs 6 per unit for commercial connections. But most people would be willing to pay Rs 7 or so if they got clean, uninterrupted power. We have seen, for example, the vast cost overruns of many  of the official water management projects. These overruns go up to 20 times, with delays stretching up to 10 years -with no guarantee no results even then. All told, the government is sending very wrong signals to the international community by raking up the Enron controversy. It should set its own house in order. 
Ram Kapse, By e-mail