THE TIMES OF INDIA
Tuesday, June 05, 2001, http://www.timesofindia.com/today/05busi24.htm
Enron India lenders meet in Singapore today

The above article also appeared in the following newspaper:

THE ECONOMIC TIMES
Tuesday, June 05, 2001, http://www.economictimes.com/today/05infr04.htm
Enron lenders to meet today in Singapore
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THE TIMES OF INDIA
Tuesday, June 05, 2001, http://www.timesofindia.com/today/05busi15.htm
FIs working hard to end DPC crisis 
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THE ECONOMIC TIMES
Tuesday, June 05, 2001, http://www.economictimes.com/today/05infr01.htm
Centre's Dabhol package to include sops to help cut tariff, Soma Banerjee 
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THE ECONOMIC TIMES
Tuesday, June 05, 2001, http://www.economictimes.com/today/05infr02.htm
India to respect global contracts: Prabhu 
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THE TIMES OF INDIA
Tuesday, June 05, 2001, http://www.timesofindia.com/today/05busi22.htm
Prabhu says power reforms enter new phase 
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THE ECONOMIC TIMES
http://www.economictimes.com/today/05pers01.htm
Scrap the PPA with Dabhol?, Dr R K Pachauri 
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THE ECONOMIC TIMES
Tuesday, June 05, 2001, http://www.economictimes.com/today/05pers02.htm
Bring this sorry saga to end, Abhay Mehta 
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THE ECONOMIC TIMES
Tuesday, June 05, 2001, http://www.economictimes.com/today/05pers03.htm
MSEB is willing to wheel DPC power, Vinay Bansal 
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THE FINANCIAL EXPRESS
Tuesday, June 05, 2001, http://www.financialexpress.com/fe20010605/corp13.html
Dabhol Block B not yet commissioned , Sanjay Jog
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THE TIMES OF INDIA
Tuesday, June 05, 2001, http://www.timesofindia.com/today/05indi23.htm
Ask DPC to pack off, demands Patkar 
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FINANCIAL TIMES, Tuesday, 5 June 2001
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3WV7KGKNC&live=true&tagid=YYY9BSINKTM&useoverridetemplate=IXLZHNNP94C
Enron 'frustrated' by India talks
By Julie Earle in New York and Khozem Merchant in Bombay
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THE ECONOMIC TIMES
Tuesday, June 05, 2001, http://www.economictimes.com/today/05edit04.htm
Power experts get it wrong, Sanjeev S Ahluwalia 
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THE TELEGRAPH
Singh Protest Puts Sonia In Bind On Enron , RASHEED KIDWAI
New Delhi, June 3: http://www.telegraphindia.com/archive/1010604/index.htm
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THE TIMES OF INDIA, Tuesday, June 05, 2001 
Enron India lenders meet in Singapore today 
Lenders to Enron Corp's troubled Dabhol Power Company begin a two-day meeting in Singapore on Tuesday to try and settle differences over continued support to a controversial $2.9 billion power project in India. Representatives of some of the world's largest banks like Citibank, ABN AMRO, and Bank of America, will be at the meeting. Indian lenders like the Industrial Development Bank of India, State Bank of India and ICICI will also participate. Market analysts speculate that the meeting will attempt to forge a joint stand on supporting the project which now produces 740 MW of power and is slated to increase it to 2,184 MW shortly in its second phase. But it comes against a backdrop of rising tension between Dabhol and the Indian state utility, the Maharashtra State Electricity Board (MSEB), which is the sole buyer of Dabhol's electricity. 
Indian lenders, who have lent the bulk of the funds to the plant, want to continue supporting the project. But they are being opposed by offshore lenders who want to withdraw their loans. Loans of around $638 million of the offshore lenders are covered by guarantees provided by Indian institutions. The Indian lenders, fearing for their profitability if the foreign banks pull the plug, plan to oppose any such move. But they have been forced on the backfoot by MSEB's decision last week to stop buying power from Dabhol and terminate its 1995 contract with the company under which it agreed to lift the entire output. 
The MSEB has complained that Dabhol produces costly power while Dabhol has blamed MSEB for defaulting on payments worth $48 million. Last month, Dabhol issued a preliminary notice to terminate its contract to sell power. It has also filed for arbitration in London. This provoked MSEB to haul Dabhol before a local regulatory body, the Maharashtra State Electricity Regulatory Commission (MERC), which issued a temporary order staying the arbitration proceedings. The dispute has already affected India's image among foreign investors. 
Last week, global rating agency Moody's expressed concern over slippage in the Indian government's reform programme and cited the Enron's dispute as an example that the country may be losing credibility with foreign investors. "The dispute indicates that India's government may not be willing to live up to its contractual obligations. As a consequence, this would further deter foreign direct investment from coming into the country," Moody's said. Union Power Minister Suresh Prabhu tried to dispel those fears in an interview with Reuters on Sunday. "India is always in favour of making sure that international contracts are respected," he said. "There is no need for concern." (Reuters)
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THE TIMES OF INDIA, Tuesday, June 05, 2001 
FIs working hard to end DPC crisis 
The representatives of Indian financial institutions on Sunday left for Singapore to attend the two-day lenders' meeting beginning June 5 in a last ditch effort to defuse the escalated financial crisis between the Maharashtra State Electricity Board (MSEB) and Enron-promoted Dabhol Power Company (DPC). The FIs team is led by Industrial Development Bank of India (IDBI) executive director R S Agarwal, who is also DPC board member. The group also comprises representatives of State Bank of India and ICICI. 
The domestic lenders would update their foreign counterparts about the current imbroglio and legal tangles including MSEB's petition filed in Maharashtra Electricity Regulatory Commission (MERC) and the board's simultaneous decision to stop drawing DPC power from May 29 noon. ``One thing worrying the Indian FIs is the foreign lenders' probable decision to encash their securities, which runs into more than Rs 2,500 crore'' a senior state official said here. ``I think, the divide between the domestic and foreign lenders will widen on this issue. The former are desperately trying to save their guarantees from being encashed'', he added. 
Last week, IDBI acting chairman and managing director S K Chakrabarti had said the total exposure of Indian lenders was Rs 6,600 crore. IDBI's exposure was Rs 2,158 crore including guarantees worth Rs 1,528 crore and rupee loans of Rs 630 crore, he had said. FIs had last evening, held a meeting with MSEB, trying to comprehend the state electricity board's views and stand on resolving the crisis before embarking on the visit to Singapore. ``MSEB has firmly told us that it will be able to draw power from DPC's first phase only at a renegotiated lesser price and it wanted the Centre to take over phase II'', FI sources said. The foreign lenders have already taken a tough stance on the issue and had also approved the preliminary termination notice in the April 23 meeting held in London, the sources added. 
Prime Minister Atal Bihari Vajpayee is understood to have asked Union power minister Suresh Prabhu in a meeting between them on June 1 in Delhi to pursue the sale of power to deficit states as part of efforts to help DPC. Government sources had said sale of power to other states had emerged as the only option for Centre to help the troubled project as purchase of power by central utilities was not possible. The success of central initiative would also hinge on the stance taken by Maharashtra government and MSEB on the issue, the sources had added. (PTI)
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THE ECONOMIC TIMES, Tuesday, June 05, 2001 
Centre's Dabhol package to include sops to help cut tariff, Soma Banerjee 
 
THE Centre's new pack for the Enron power project is expected to include fiscal sops and financial concessions so as to reduce the tariff. On its part the state electricity board will have to commit itself to a time bound reform programme. The new package which is being worked out by the power ministry in consultation with the finance ministry is expected to take about two to three months time sources said. According to power minister Suresh Prabhu, he has been in discussion with Prime Minister Atal Bihari Vajpayee on the developments and their consequences. "PM too is with us on the view taken till now. We all are committed to seeing that the project works and we will play our role as a facilitator whenever it is required." The Centre's recent move to direct CEA to work out a contingency plan for the sale of power from Dabhol to other consumers has come as a big comfort to the lenders. "Lenders who are the majority stake holders with a debt equity ratio of 70:30 are the worst hit in such a scenario. They would want the project saved and are not really interested in termination and arbitration proceedings. The Centre's move has helped them gain confidence that a solution will be found." Among the the financial breaks that are being considered are a cut in the bank interest rates. This would be the second cut in bank rate .DPC too would be required to lower its internal rate of return to reduce the tariffs sufficiently. 

The other thing which the Centre is trying to see is to work on a reduced customs duty on LNG. With the budget already doing away with the 16 per cent CVD on LNG, the fuel which would have otherwise have been costlier will now be relatively cheaper. The third fiscal break involves the state government. The negotiating committee is trying to explore the possibilities of cutting down the incidence of sales tax. Power Grid Corporation of India has already begun the exercise of working on the transmission links and according to sources, the export of power can start in the near future provided the states are willing to work out their financial mechanisms. Justifying the move against buying out the plant by NTPC, the power minister said: "If NTPC were to defend every plant that is in trouble it would mean the end of reforms in the states. Moreover you would soon turn NTPC into a sick company." 
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THE ECONOMIC TIMES, Tuesday, June 05, 2001 
India to respect global contracts: Prabhu 
 
INDIA is in favour of ensuring international contracts are respected, Union power minister Suresh Prabhu said as investors' fears grow over a squabble between US energy giant Enron and the Maharashtra State Electricity Board. The row was sparked late last year when MSEB defaulted on payments of $48 million to Dabhol Power Company, 65 per cent owned by Houston-based Enron. Prabhu said it was obvious investors saw some question-marks over Enron's $2.9-billion power plant, which is India's largest private foreign investment. Enron is building the plant, but the dispute with the MSEB, has threatened to derail the 2,184-mw power project. "We have to address those concerns adequately because the Government of India is always in favour of making sure that international contracts are respected in the process of assuring all the foreign investors that there is no need for concern," Prabhu said. 

Signs emerged last week that investors were souring on India. 

Global rating agency Fitch last Thursday revised India's sovereign rating outlook to negative from stable, citing concerns over fiscal policy, privatisation and deterioration in the country's foreign investment climate. Competing agency Moody's said on Friday it saw slippage in the Indian government's reform effort, but declined to say whether a ratings change could be expected, while Standard & Poor's said it was worried about the size of the budget deficit. Asked if he felt the Enron row had deterred investors, Prabhu said: "This is one single issue. We must deal with it in the manner in which it is possible in a given situation." "There is a negotiation going on. The central government has a representative on the negotiating committee and I am sure that the only way in which commercial disputes can be settled is through negotiations." Prabhu was referring to a panel set up last month by the Maharashtra government to renegotiate the tariffs charged by the 2,184-mw Dabhol power project. 

The MSEB, which agreed in 1995 to buy the plant's entire output, says the power is too costly and has defaulted on $48 million in power payments. Dabhol issued a notice last month to cancel its power purchase deal, a move many investors fear could be the first step towards getting out of the project entirely. "The phase in which we are right now ... is the phase in which some independent power producers have already contracted certain obligations which we will definitely like to uphold, which should be honoured," Prabhu added. "Because in India contracts are very important. Sanctity of contracts should be kept." (Reuters)
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THE TIMES OF INDIA, Tuesday, June 05, 2001 
Prabhu says power reforms enter new phase 

India's reforms of its sputtering power sector have entered a new phase, with plans afoot to free up private supply, overhaul debt-ridden state utilities and recraft tariffs, Power Minister Suresh Prabhu told Reuters. With investors' fears fanned by a squabble between U.S. energy giant Enron Corp and a local utility, Prabhu said in an interview late on Sunday that India is standing behind international contracts. "Sanctity of contracts has to be kept," Prabhu said. 
The row began late last year when the utility in Maharashtra defaulted on payments of $48 million to Dabhol Power Company, 65 percent owned by Enron. The 2,184 MW power project is India's largest foreign investment, at $2.9 billion. Prabhu has vowed to take Indian reforms in a new direction. "Absolutely," he said in reply to a question whether India's reforms have entered a different phase. The Power Ministry will now also focus on power distribution, he added, besides its early preoccupation with generation needs. "In India unfortunately for the last 10 years...reforms policy was skewed in favour of generation," he said. "We never really realised that distribution is the more important part of the process." Prabhu added, "We have now decided we will make enough structural changes in distribution so that at the end of distribution enough investment is made." 
A chartered accountant, Prabhu hails from the verdant regions of India's western coastal strand, and chaired a co-operative bank that was one of the country's largest, in terms of deposits, before his foray into politics. An errant lock of hair straying across his forehead, Prabhu eschews the Indian politician's traditional uniform of starched white handspun cotton for the shirtsleeves and trousers preferred by the professionals who have entered government, and whom local media call "technocrats". Prabhu said India has decided to allow private producers to sell power direct to consumers, lifting curbs that have hobbled the country's decade-old reform effort. 
He said the question of power affordability had spurred him to ask India's states to permit third-party sales of power, which analysts have called a stumbling-block for foreign investment. "They cannot force a generator to sell power only to the SEBs, and that's a major change we are trying to make," Prabhu said, referring to the states. SEBs or state electricity boards are owned by the state governments, and supply power to most of India. India estimates that 100,000 MW of fresh capacity will have to be installed over the next 12 years to meet its power needs. Most of the $200 billion in funds that will be required will have to come from foreign private investment. But India's spotty reform record over the last decade has made investors wary. Bureaucratic procedures, legal delays and political wrangling have held up reform moves. 
Last week global rating agency Fitch revised India's sovereign rating outlook to negative from stable, citing fiscal concerns, the slow pace of privatisation and deterioration in the country's foreign investment climate. Competing agency Moody's sees signs of slippage in the reforms, and Standard & Poor's has expressed worries over India's budget deficit. Prabhu said he wants to overhaul state power utilities by introducing standard accounting policies, cutting transmission and distribution losses to 15 percent, and tackling crushing debt, thus helping to lure foreign investment into the sector. The poor financial health of the utilities, expected to run up combined losses of about $6 billion in the 2001/02 fiscal year, has proved a hurdle in efforts to draw private investment. 
Prabhu said an expert panel examining ways to restructure SEB finances -- looking at technical, commercial and tariff issues -- is expected to report within a few weeks. "For the first time we will be preparing commercial data which is internationally accepted. We will be preparing technical data which is internationally appreciable. And thirdly, we'll be creating an information base which will be created by experts and then made available to the states," he said. The utilities' transmission and distribution losses run to up to 25 percent of the electricity they generate, compared to a figure of about eight percent internationally, he said. 
Prabhu wants to trim this to about 15 percent within two or three years. "In the case of India, I am willing to accept a figure of 14 percent to 15 percent, because to bring it below that will be technically feasible but Other steps to tone up power generation include attempts to link the eastern region with the rest of India, efforts to boost plant load factors through modernisation of equipment, and to persuade people to use energy more efficiently. Prabhu said he is building political will to support these moves through a programme to tell consumers why they can no longer get power cheap, or even free, as many did in the past. (Reuters) 
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THE ECONOMIC TIMES, Tuesday, June 05, 2001 
Scrap the PPA with Dabhol?, Dr R K Pachauri 

IT is unfortunate that the Dabhol project is in such a terrible mess. This is clearly the result of serious lapses and mistakes on the part of all the stakeholders. But I would not agree with those who are clamouring for the termination of the PPA by the Maharashtra government. It could very well happen that we are left with no choice in the end but to cancel the contract, but this if at all should be a legal decision and not a business decision. The fact of the matter is that we have a large facility established on Indian soil, which we must find ways to use for the benefit of the country. 

I have not seen the plant at all, but from all accounts that I have heard even from those who regard the whole project as a big mistake, this is a very well engineered plant. To harp on the termination of the contract would be like cutting your nose to spite your face. At no time must the action of the MSEB, the Maharashtra government or the government of India be-or even appear to be- arbitrary or spiteful. 

The Dabhol officials have signaled their willingness to renegotiate the contract, and we must therefore go through the process with an open mind but with our position clearly specified, namely that of getting a fair deal for the consumer of Dabhol power. I believe the contract can be renegotiated and a reasonable tariff hammered out between the parties to the contract, and I also believe that the re-negotiations should be conducted directly between the parties themselves, unencumbered by any group or committee that may have analysed the project. The road map for renegotiating the deal has been provided by the Committee set up to review the project in the report it has submitted to the Maharashtra government. The rest is a matter of give and take based on how much each stakeholder is willing to concede. 

The various measures outlined in the report clearly indicate the impact that these would have on the tariff. If all these are followed and the sales to other customers facilitated such that the plant runs at full capacity, the tariff would come down substantially. Maharashtra cannot at this stage absorb the power produced from the two phases of the project, and therefore other parts of the country would need to be supplied the bulk of the output from this plant. The central and the state governments must facilitate this as part of renegotiated deal, which of course would involve a major shift in the position of the promoters of the project in several ways detailed in the report. 

For all practical purposes, sales of power by IPPs are unrestricted, and can involve more than one state. In the case of Dabhol, however, it was believed at the stage of project design that all the power would be absorbed by one state. There are today the so called mega power projects where power from a particular project will be sold to more than one state. But I believe there is a case for greater flexibility in the policy in this regard and getting the Power Trading Corporation divested of its monopoly power as the only trader for interstate supplies of power from IPPs. 

One important feature of the Dabhol project is the large LNG facility and related infrastructure that has been established. The answer to the question whether this should be treated as part of the power project depends on the fact whether these facilities are fully dedicated to the production of power or have a large surplus capacity. In the case of Dabhol the latter happens to be the case. Hence it makes both business sense and sound legal logic to separate the two. 

There is no reason why the entire LNG infrastructure, which has capacity far beyond the needs of the power project, should not be separated as a distinctly different profit centre. This would bring down the cost of power generated significantly, and make the whole deal neat and transparent. This would be in the nation's and the consumer's interest. 

(The writer is director-general, TERI) - 
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THE ECONOMIC TIMES, Tuesday, June 05, 2001 
Bring this sorry saga to end, Abhay Mehta 

MUCH ado about nothing - that's what I think of the Dabhol controversy. I am frankly perplexed at the hype and the ado being made on the Dabhol issue. If after eight years, basic issues have not come through even trivially, then this country is doomed anyway. To reiterate the fundamental issues are: 

a) What is signed is a contract simpliciter between two parties: A contracting party (Enron) has agreed to sell another (MSEB) a commodity (electricity) for a price (US$ 0.0872 a unit) in a fixed quantity (1728 crore units) for a period of time (20 years) ie. MSEB is liable for $1.4 billion plus (Rs 6,500 crore plus) a year, year on year for the next twenty years. These payments are indexed to just about all possible economic indices. The rise in payments in rupee terms is minimally 12 per cent a year. 

b) It is not, repeat not, a foreign investment: one would have hoped that by now, if this nation has even a vestige of economic sense, the basic calculation of the net foreign investment would be public. 

The substantial over capitalisation (over 60-70 per cent), the direct lending by Indian FI's (about 55 per cent of the over-capitalised capital costs), the indirect lending (guarantees to by Indian FI's to foreign FI's- about 18 per cent of project costs) and MSEB's own equity investments implies that all the money is Indian. The net effective investment on Enron's part is close to zero or even negative. 

c) There is no set of economic circumstances (growth rates, industry off-take) or even political (MSEB "reforms") that will allow the purchase of this power. The basic premise that there are buyers for outrageously expensive base-load power is itself fundamentally flawed. 

Even in the most power deficient state, there is no shortage of power in the night. However the Enron meter keeps on ticking: in fact at the rate of US $ 0.184 million an hour, hour upon hour for 21.6 hours a day. There is no scope for payments of this magnitude even in ideal circumstances. 

d) There is little scope for 're-negotiations' in an economically acceptable manner. All the current talk (reduction of FI's interest rates, 'sharing of burden' etc.) is largely of no consequence. 

The fundamental issue remains the same - over-capitalisation, forex linkages (on the fuel LNG, etc.) and the profit margins (well in excess of those allowed by law - of the order of 60 per cent even on notional equity). Enron has stated in unequivocal terms that these are issues that are not open to negotiations of any kind. 

e) It does not matter if Enron leaves. Given, the above, big deal. That this country is unable to do what Croatia, Pakistan and Indonesia have done, reflects on India not on Enron. 

f) The only signal that would go out would be positive one - to quote the quintessential epitome of right wing, free market thought - The Economist, which wrote, at the time of the first cancellation, about "the India that can say no". 

g) It is more than possible to terminate the contract without any liabilities in either political ('sanctity of contract') or economic ('termination liabilities'). 

Even currently, Enron is in severe breach of its contractual obligations. In any case, the condition precedent to the sanctity of the contract - the necessary clearances (the CEA's techno-economic clearance) are not in place and even an admittedly illegal "technical" clearance addressed to Enron states that construction on phase 2 shall not begin until GOM/MSEB ensure complete absorption of power. This condition has not even been met for phase 1, never mind going ahead with phase 2. Enron went ahead on it's own risk despite being aware of the lacunae. 

Other more substantive issues (a fraudulent tariff clearance) as well action under the Prevention of Corruption Act (Section 13 (i) d) against public servants unknown wherein the act of actually giving or taking money is not to be proved - simply that a private party benefited at the expense of the public exchequer (gratuitous largesse to private parties). Jayalalitha (in the Tansi case) as well as the recent cases in the Doordarshan case come under this section. 

These are avenues that ought to be pursed to bring this sorry saga to the end it deserves. 

(The writer is author of Power Play - a book on the Enron saga) - 
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THE ECONOMIC TIMES, Tuesday, June 05, 2001 
MSEB is willing to wheel DPC power, Vinay Bansal 

UNDER the power purchase agreement, the DPC undertook to construct and operate a baseload power station at Dabhol. At all material times, it was represented to the Board that DPC would build, maintain and operate a state-of-the-art power station for Phase-I with a nominal baseload capacity of 670 mw. It was represented that the power plant will have certain dynamic parameters. One of the key parameters was the plant capacity to ramp up upto 100 per cent load within three hours. 

Relying upon these representations the MSEB consented to the PPA. Since the commissioning of the Phase I plant in May '99, the DPC has been billing MSEB for capacity payments based on the rated base-load capacity for each availability period. Until January 2001, the ramp up capacity had not come into question, nor was MSEB told that it was materially different from that stated in the contract. On January 28, '01 however, MSEB asked for 657 mw in three hours to meet an urgent requirement. The DPC, however, could deliver only 156 mw. There were similar defaults in February and March '01 which entitled MSEB to rebate as per the PPA. The DPC, however, refused to pay the rebate. Instead, in its letters, while admitting that the actual performance does not conform to the contract, it has disputed MSEB's rebate claim. 

The Board gave sufficient opportunities to resolve the issue but DPC started pressurising the Board for making payments for December 2000 and January 2001which had been adjusted against rebate that it had failed to pay. Then it invoked guarantees of the state and central governments. Notices of arbitration were served. Another notice declaring Political Force Majeure was followed by instructions to our banks to activate escrow accounts. Finally, the DPC issued two Preliminary Termination Notices on May 19, 01. 

In the opinion of MSEB, its rebate claims are valid and its consent to the PPA was caused by material misrepresentation. We were advised by our lawyers that the agreement is void and/or voidable at our option. Accordingly, the Board issued a notice to DPC on May 23 rescinding the contract. To avoid inconvenience to all concerned, the Board made a very reasonable offer to the DPC, which was without prejudice, to continue purchase of power at old terms till the disputes are resolved, provided such payments were later adjusted on the basis of determination by a competent forum. 

But the DPC responded that the Board could not have its cake and eat too; having rescinded the contract, if it continued to buy power, it would be taken as affirmation to hold the contract valid. Therefore, we stopped drawing power from the noon of May 29. MSEB has been up-to-date in payments of its monthly dues including the two bills adjusted against the rebate. For their latest bill also, the Board sent the cheque 'under protest' on the due date, the May 25, but the DPC refused to take delivery. 

Notwithstanding these differences, without prejudice to our respective stands, both DPC and MSEB are seeking an amicable solution to the issue in the forum provided by the Godbole committee. The average price of supply of DPC power to MSEB in the last two years has been about Rs 5.60 per unit. We drew less last year because of MERC restrictions on drawal of this expensive power and the rate for the last twelve months has climbed up to Rs 8.08 per unit. Since the prevailing consumer tariffs are much lower, without prejudice to our notice rescinding the contract, negotiations are continuing in the Godbole committee to reduce the DPC tariff to acceptable levels. Even today, the DPC is free to sell power to anyone outside the state but it is unwilling to become a merchant generator. 

MSEB is willing to wheel DPC power. If, however, IPPs are allowed to sell power within the Board's area, they will naturally choose the most profitable customers, namely the HT industrial consumers. Figures show that our tariff structure is so distorted that the Board subsidises 9 out of 10 consumers. (1.18 crore customers are subsidised out of 1.30 crore). If the 10th consumer is taken away from the Board, its losses will mount further. 

(The writer is chairman, Maharashtra SEB. As told to Girish Kuber.) - 
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THE FINANCIAL EXPRESS, Tuesday, June 05, 2001 
Dabhol Block B not yet commissioned , Sanjay Jog
UNCERTAINTY looms large over the commissioning of Block B (722 mw) of Dabhol phase-II by the Dabhol Power Company (DPC) in view of Maharashtra State Electricity Board's (MSEB) decision to rescind power purchase agreement (PPA) and suspend power purchase since May 29 noon.The DPC, which had planned to commission the block b on June 7, was tight lipped and declined to comment at this point of time. "We have nothing to offer," replied DPC spokesman on Monday, on the eve of Dabhol lenders meeting in Singapore.
Further, the fate of performance test to be carried out by DPC in the presence of MSEB officials also hangs in the balance as the company has already suspended the test runs.According to section 5.1 of power purchase agreement, "DPC shall, at least seven days before hand, give MSEB notice of and shall invite MSEB's representatives to attend any performance tests, but the failure of such representatives to amend will not result in the postponement or failure of any such tests and any tests conducted in relation to the entry into commercial services of the liquified natural gas facility. MSEB shall pay DPC the commissioning charges specified in schedule 10, part VIII in respect of such active energy."
However, MSEB soures told The Financial Express that it has not received any notice from DPC on carrying out performance test. These sources said that even if DPC conducts performance test, MSEB would not join it on the grounds that it has not only rescinded the PPA but also taken up the matter with the Maharashtra Electricity Regulatory Commission (Merc). "The matter is subjudice and thus we will not like to be present during performance test. The possibility of DPC going in for an expert test cannot be ruled out," sources added.
The performance test is unavoidable to avoid misdeclaration and deliver power within 180 minutes from a cold start.MSEB recalled that DPC had conducted performance tests in May 1999 prior to "entry into commercial service" of Dabhol phase-I since May 13. The company had tested the nominal baseload capacity of the phase-I plant and found that it was 658.56 instead of 670 mw, a position later accepted by DPC and MSEB.
Thereafter, the rated baseload capacity was fixed at 658.56 mw for each hour called an "availability period." 
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THE TIMES OF INDIA, Tuesday, June 05, 2001 
Ask DPC to pack off, demands Patkar 
The leader of Narmada Bachao Andolan Medha Patkar on Monday demanded that Enron's Dabhol Power Company be asked to pack off from India without any compensation and a judicial inquiry be instituted on all aspects of the agreement with DPC. Addressing a press conference here, she alleged that there was large-scale violation of the rules by the company, adding "it will be in the interest of Maharashtra if the company is asked to leave India." 
Patkar said that some politicians with vested interests were trying to scuttle any attempt to institute a judicial enquiry fearing their own exposure in the deal. Instead of having a project like DPC it would be much better if the Maharashtra State Electricity Board (MSEB) takes steps to increase its power generation capacity and contain transmission losses due to theft, the NBA leader said. Patkar also demanded that the central water policy be drafted as per the recommendations of the report of the world commission of dams. "Big dams do not not yield any projected results whether it is to solve the drinking water problem or help in increasing the foodgrain production, but only create rehabilitation problems," she added. Patkar also criticised the Maharashtra government for "diverting large amount of water to sugarcane crops at the cost of other crops." (PTI) 
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FINANCIAL TIMES, Tuesday, 5 June 2001
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3WV7KGKNC&live=true&tagid=YYY9BSINKTM&useoverridetemplate=IXLZHNNP94C
Enron 'frustrated' by India talks
By Julie Earle in New York and Khozem Merchant in Bombay

Enron, the US energy group, says it is becoming "increasingly frustrated" with its negotiations with the Maharashtra state government agencies in India. The group denied reports that it was renegotiating the contract and the tariff between its Indian arm, the Dabhol Power Company, and its sole customer, Maharashtra State Electricity Board (MSEB). "That is not true," said an Enron spokesman at the weekend. "Why would we renegotiate with counter parties? They are trying to imply a contract that was in place for eight years and operating for two years does not exist." The denial came as Indian and foreign banks prepared to try to bridge their differences over sustaining support for Dabhol's $2.9bn power project near Bombay, which has been supplying the Maharashtra utility. 
A two-day meeting in Singapore starting on Tuesday will aim to stake out common ground, which lenders hope will remove the uncertainty dogging the controversial 2,184MW power project. The Indian utility owes Dabhol $45m but is demanding in turn a greater sum in rebates for what it describes as the US company's failure to meet technical thresholds. Foreign lenders have stopped disbursing loans to the 1,444MW second phase of the project, which is due for completio n soon. The 740MW first phase was commissioned in May 1999. ABN Amro and Bank of America are some of the foreign banks that will thrash out the issues with State Bank of India, Industrial Development Bank of India and ICICI. 
People close to the talks say the situation has "worsened" since the last lenders' meeting in April, when Dabhol received authorisation to quit the project. Dabhol has since issued a pre-termination notice, signalling its intent to withdraw in six months if a solution is not found. MSEB has responded to the threat by abandoning its power purchase contract with the company and has refused to draw any more power. Dabhol has not generated any power in the last six days. MSEB's decision to stop lifting power alarmed Indian banks, whose exposure of funded loans and guarantees to the project totals about $66bn, about 70 per cent of the total debt raised to finance the project. Foreign banks raised the balance of about $600m. "There are differences [between the banks], even among the foreign ones. Each has a different appetite for risk. But I would not characterise it as a rift," said one participant in Tuesday's meeting. 
Despite the tense atmosphere, power industry executives say there is an increasing realisation that the banks and Dabhol must resolve their difficulties "because this project is too big to fail". Suresh Prabhu, India's power minister, intervened last week, calling on the country's top power authority to look at how Dabhol's 2184MW of power might be exported to power-deficient states elsewhere in India. The dispute has alarmed foreign investors and rating agencies. Last week, Fitch, the international rating agency, adjusted the outlook on India's sovereign rating of BB+ from stable to negative. It says central and state government guarantees - issued to support infrastructure projects such as Enron's - amount to 9 per cent of GDP and "are contingent liabilities of the government". Enron said at the weekend that it was still operating and open to discussions but there needed to be some sign from state agencies that they were beginning "to reverse practices of denying obligations under contracts".
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THE ECONOMIC TIMES, Tuesday, June 05, 2001 
Power experts get it wrong, Sanjeev S Ahluwalia 

STATE utilities owe Rs 40,640 crore to central power generators alone. This is one half of their annual revenues. Overdue payments equal to eight months of revenue are sure signs of insolvency and financial unsustainability, especially when the interest rate for incremental debt of 24 per cent is three to four times the growth rate of revenue. The government of India set up a group of experts, chaired by Dr Montek Singh Ahluwalia, to recommend a solution. Part one of the report was submitted in April 2001. Here is why the experts have gone wrong. The bulk of the overdue payments to central power suppliers are the consequence of an arbitrary and ill-advised tariff increase, in 1992 and again in 1998, of these central generators. 

The allowed rate for depreciation was raised from 3.4 per cent to 7.4 per cent. In 1998 the allowed rate of return was increased from 12 per cent to 16 per cent, even for existing plants. These measures add around Rs 2300 crore to the annual revenues of NTPC alone. State utilities are, however, constrained from passing through such increases by public pressure to keep retail prices low. The result has been cascading volumes of overdue payments for power purchase. The Enron story and the more recent unilateral shut down of the generation facility run by AES in Orissa, are sequels of the same malady. 

Enron is being renegotiated presumably because the costs were arbitrary. The experts, however, failed to recognise a similar arbitrariness in the tariff increase, effected by GoI, prior to the formation of the central power regulator. 

The fact is the bulk of these over-dues should be waived, as they should never have been levied in the first place. 

State utilities face two kinds of financial challenges, which impact state government finances. The first is tackling the overdue payments or borrowings contracted to meet these liabilities. The experts have recommended that state governments take responsibility for these overdues, by issuing bonds in favour of the creditors. This is a welcome step towards fiscal responsibility, since these overdues are the contingent liability of state governments. 

Failure to service the bonds, or failure to pay future power dues invites heavy censure including suspension of central transfers. These are efficient penalties in themselves. Where the experts have gone wrong is in ignoring the imbalance in revenue flows while restructuring the stock of overdues. Reforms were supposed to bridge the revenue imbalances. Firstly, Regulatory Commissions were to raise tariffs to meet costs. Commissions, which work in a quasi-judicial manner and must needs safeguard the interest of the consumer, have justifiably baulked at passing through ``inefficient costs''. 

The Andhra Pradesh Commission has not raised tariffs at all in 2001-2002. Secondly, privatisation was supposed to cut costs and improve revenues. This has not happened. Even where the private sector has taken over distribution, as in Orissa, its capacity for efficiency improvements is now seen to be overrated. Nor is the private sector willing to finance the transition to financial stabilisation. It is, therefore, the existing state utilities, which are now expected to provide efficiency improvements in operations. This a tall order. 

In fact, the very process of `reform' provides perverse incentives to let efficiencies fall and the system to decay pending eventual privatisation. This was the Orissa story from 1995 to 1999. The result is that most reforming state utilities need a bridge facility to balance the revenue budget. The experts have ignored this fact. By converting the overdues into equity, held by central generators and Indian financial institutions and thereby facilitating their participation in Board level management, the state utilities could be assured the commercial autonomy which is key to improving their performance. 

However, true `risk sharing' of this nature, which is a prospective concept, has been ignored by the experts in favour of `loss sharing', which is a backward looking concept and hence self limiting. By tackling only the stock and ignoring the flow of future overdues, the experts have devised a solution, which is bound to fail. Let's take the case of Uttar Pradesh. This reforming state government has already waived Rs 20,000 crore owed by the state utility to it and assumed Rs 10,000 crore of the utilities liabilities, including unfunded pension liabilities. In addition, it provides Rs 1000 crore every year as subsidy and an equal amount as capital infusion. The revenue gap is still around Rs 1000 crore per year. Future efficiency improvements will only dilute the incremental revenue mismatch from a 7 per cent annual increase in supply. 

Hence, in five years, the cumulative revenue gap, after subsidy, will be Rs 5000 crore or double the existing level of payments overdue to central generators. Against this requirement, the formula allows UP to float additional bonds for only Rs 600 crore leaving an unfinanced gap of Rs 4400 crore plus interest on this amount. Even if UP could borrow this amount, it would inflate its fiscal deficit by 44 per cent. The resultant interest payments would inflate its revenue deficit by 15 per cent or UP will need to cut back other revenue expenditure by around Rs 350 crore or 1 per cent of total revenue expenditure. 

UP is not the exception to this fact. States may still opt for the formula, despite its limitations. However, this is not an endorsement of the robustness of the formula but rather the helplessness of insolvent states. It is no one's case that fiscal imbalance should become an excuse for easy money but a package for fiscal stabilisation cannot ignore the differing base levels of such imbalances, both stock and flow, within the states. Incentives and penalties are efficient only when they can induce the required fiscal response. By adopting a ``cookie cutter'' uniform approach to financial restructuring, the experts have ensured that only states at the margin, or those least requiring immediate assistance, will corner the lion's share of the assistance. 
(The author is secretary, finance, government of UP. These are his personal views) -
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THE TELEGRAPH
Singh Protest Puts Sonia In Bind On Enron , RASHEED KIDWAI, Sunday, June 3, 2001

Sonia Gandhi is in a bind over the demand for a judicial probe into the Enron deal due to opposition from Manmohan Singh and N.K.P. Salve. Maharashtra chief minister Vilasrao Deshmukh is waiting for Sonia's signal to implement the Madhav Godbole committee report that has recommended a judicial inquiry into the Power Purchase Agreement (PPA).If Sonia vetoes Manmohan and Salve, there will be a question mark over the continuation of the Democratic Front government in Maharashtra. Sharad Pawar's Nationalist Congress Party has made it clear that it will part ways in case its alliance partner, the Congress, favours a probe. There is a sharp division in the Congress over the Enron deal. Madhavrao Scindia, Pranab Mukherjee, Motilal Vora, Murli Deora and Arjun Singh are in favour of the probe but Manmohan is reluctant as the deal was struck during his tenure as the Union finance minister. Salve, then, held the power portfolio. 
Party leaders said the "image-conscious" Manmohan would take offence though there is nothing that could go against him in the probe. He had reportedly not even attended the Cabinet meetings in which Dabhol power project was discussed. Sonia, who chaired the meeting on Enron, has decided to ascertain the views of the Maharashtra Congress unit. "She will go by its opinion," a source close to Sonia said. A section of the Maharastra party unit wants Sonia to take an aggressive stance and queer the pitch for Pawar, who was instrumental in getting the deal through. "In case of a judicial probe, three leaders, Pawar, Bal Thackeray and Atal Bihari Vajpayee are going to be the worst affected. Since the trio is a known enemy of the Congress, why should we shield them?" a senior leader from the state, who called on Sonia to press for the probe, asked.
But another section of the party is opposed to it on the ground that the Congress-NCP alliance would fall through. "The Deshmukh government is doing a fine job. Why should we rock the boat? Secondly, what kind of signal would we be sending to the MNCs and investors?" a party MP asked.But Pawar's detractors in the state Congress are getting restless. According to them, the leadership should either work for a merger with the breakaway group or take on Pawar to end the confusion over "two Congresses". Going by the present mood, the merger is unlikely as Pawar, P.A. Sangma and Tariq Anwar continue to make Sonia's foreign origin an issue.