Events in 1994
48.
On 19th January 1994, the Tariff notification was amended. The definition
of generation and deemed generation were altered to include backing down ordered
by the MSEB .
49.
On 5th February 1994: Chairman, MSEB
wrote to the Special Secretary (Power) Government of India stating that
“
“Sub: Reservation of ‘tariff issues’ in the light of GOI notification dt. 30/3/1992 in respect of Dabhol Power Project.
The Dabhol project tariff is a negotiated tariff and not based on two
part tariff indicated in the guidelines.
In the absence of the required notification,
there is doubt whether we would be able to avail
the benefits of the negotiated terms of the P.P.A. It may also lead to legal
tangles which could cause delays in meeting the milestones of the project. I
would be grateful if you could look into the matter and resolve these issues”
50.
On 10th February 1994, a Guarantee was signed by the Government of
Maharashtra to irrevocably and unconditionally guarantee to pay to DPC any and
every sum of money which MSEB is liable to pay to DPC under the PPA. Further
it also agreed to indemnify DPC against any loss by the Company “by
reason of the invalidity, illegality or unenforceablity of the Guarantee of its
provisions or the PPA”. The State of Maharashtra has waived its Sovereign Immunity as
well right of immunity on all its present and future assets. The guarantee
is governed by English Law.
The relevant clauses of
the said Guarantee are as follows:
“Guarantee of MSEB
Payment Obligations: The Guarantor hereby irrevocably and unconditionally
Guarantees to the Company (as a
secondary obligor) to pay to the Company, within 7 calendar days
following submission by the company of a demand in accordance with Clause
1 (B), any and every sum of money which MSEB is liable to pay to the Company
under or pursuant to the PPA and shall fail to pay in accordance with the terms
of the PPA.
Indemnity: The Guarantor
undertakes, as primary obligor, to indemnify and keep indemnified the company
against any loss sustained or incurred by the Company by reason of the invalidity illegality or unenforceablity of any of this
Guarantee or the provisions of this Guarantee or the PPA and the amount of such
loss shall be the amount which, but for such invalidity, illegality or
unenforceability, the company would otherwise have been entitled to recover
hereunder or thereunder”.
Governing Law : The rights and obligations of the parties under or
pursuant to this Guarantee shall be governed by and construed
according to English Law”.
Sovereign Immunity: The Guarantor unconditionally and irrevocably:
agrees that the execution, delivery and performance by it of this Guarantee
constitute private and commercial act rather than public or governmental acts;
agrees that, should any proceedings be brought
against it or its assets in any jurisdiction in relation to this Guarantee or
any transaction contemplated by
this Guarantee, no immunity from such
proceedings shall, to the extent that it would otherwise be entitled to do so
under the laws of India, be claimed by or on behalf of itself or with respect to
assets....waives any right of immunity which it or any of its assets now has or
may acquire in the future in any jurisdiction..”
(All emphasis supplied)
51.
On 15 February 1994, GOM wrote to GOI that:
“The main issue, of course, is that the tariff proposal in the Dabhol
Project deviate from the GOI's tariff notification. It is now necessary for the
CEA to issue a suitable amendment under Section 43-A of the Electricity Supply
Act. MSEB apprehends that unless such an
amendment is issued, the PPA itself may run into legal difficulty”
52.
On 19th April 1994, the Department of Economic Affairs, Ministry of
finance, wrote to Ministry of Power about their concerns about the proposed
counter guarantee. In particular, inter alia, their concern was directed at the
absolute magnitude of the proposed liability that the GOI would be liable.
This could amount to a potential total exposure of Rs. 2 lakh crores.
Further, that the risk of these guarantees being invoked was not too farfetched.
“..The
total exposure on the Government of India counter guarantees may be around $ 2.5
billion (annually), for the 7 fast track projects;
around Rs. 10,000 crores......” ”...risk
of the counter guarantees being invoked was not unreal given that SEBs had been
defaulting in payments...”
At this stage, it is now recorded that, inter alia, the “ Ministry of Finance was not concerned whether the cost of power was acceptable”.
All parties, especially
the Ministry of Power and the CEA proceeded on the basis of the Finance
Secretary’s statement that the cost of Power was reasonable.
The note also goes on to
say that the questions like the backing down of much cheaper power stations,
whether the foreign exchange risk is acceptable, etc. ought to be checked by the
Ministry of Power.
53.
On 12th May, 1994, in a “Secret”
note prepared for the Cabinet of India, seen
and approved by the Minister for Power,
“Thereafter
DPC obtained various clearances,
including clearance by Central Electricity Authority (CEA) and entered into
a Power purchase agreement with the MSEB”
i.e. even the Cabinet of
India was led to believe that the CEA’s sanction was already granted.
54.
The Dabhol project came under pointed scrutiny in the 26th Report of the
Standing Committee on Energy. In written submissions the CEA stated that “In
November 1993, CEA accorded clearance to the Dabhol power project subject to
fulfillment of certain conditions.” It further recorded
“The tariff was finalised in December 1994.”
The Dabhol Power Company lied when it informed the subcommittee that
“ during the initial phase of the negotiations
with MSEB the Dabhol Power Company neither
insisted nor expected any guarantee on payment obligations, except, maybe,
from Government of Maharashtra.
However following the announcement of the policy of counterguaranteeing on
payment of obligations SEBs announced by the Government of India, the company
took advantage of it.
The Committee expressed grave reservations about the Dabhol
project in its Recommendations and Conclusions particularly in
·
respect of its excessive cost(6) ;
·
guarantee of offtake implying backing down of existing
power generation making them inefficient and financially non-viable ( 7) ;
·
unjustified counterguarantee (8) ;
·
lack of transparency caused by confidentiality clause (11)
;
·
and absence of a fuel policy (13).
55. On
24th June 1994, the CEA now (in WP 2456 of 1996) claims to have met to approve
the project in direct contradiction, inter alia, to its decision taken in the
12th November meeting, in absence of any more information or any further
consideration of the project after November 1993.
56. On
24 June 1994, a State Support Agreement signed between GOM and DPC. This
agreement too is governed by English law. The state, inter alia, has waived both
sovereign immunity as well as immunity on all its assets !! Some relevant
clauses include
“GOVERNING LAW
The rights and obligations of the parties under or
pursuant to this Agreement shall be governed
by and construed according to English Law.
SOVEREIGN IMMUNITY
GOM unconditionally and irrevocably:
agrees that the execution, delivery and performance
by it of this Agreement and those agreements and other documents comprising the
Security Package (as defined in the Power Purchase Agreement) to which it is a
party constitute private and commercial acts rather than public or governmental
acts;
agrees that, should
any proceedings be brought against it or its assets in any jurisdiction in
relation to this Agreement or any transaction contemplated by this Agreement, no
immunity from such proceedings shall be claimed by or on behalf of itself or
with respect to its assets; Waives any right of immunity which it or any of its
assets now has or may acquire in the future in any jurisdiction, ...”
57. On
13/7/1994 WP 1702 0f 1994, Ramdas Nayak and another versus the Union of India
and others was filed. The CEA was not a
party in the case, nor was the concurrence/ clearance an issue. The
challenges in the case were the following:
·
That there should be no implementation of core sector
projects without transparency and fairness;
·
On the lack of tenders;
·
That the guarantees violate Arts. 292 and 293 of the
Constitution of India;
·
The World Bank objections
·
That the project be reviewed by experts and finally that
·
That a certiorari be issued against MOU and PPA
58. On
14th July 1994, the purported clearance of CEA to Enron was issued. The document
states: “.
“ Since the conditions to be fulfilled by M/s. DPC stand
complied with, the Dabhol CCGT project is hereby accorded clearance by the
Central Electricity Authority”
The
document does not mention any approved project costs, nor any approved financial
package. It is evident that the letter is ministerial. It does not refer to any
meeting or any further consideration of the project after November 1993.
All
parties involved, including the GOI, GOM, DPC and the Ministry of Power had
claimed that the letter of 26/1/93 was the clearance. After filing of the writ
petition under appeal, the parties have changed their stand on this issue,
contending that this letter dated 14/7/94 is the clearance.
59. On
19.8.94, the Hon’ble High Court at Bombay, gave its decision in the above
mentioned case of Ramdas Shrinivas Nayak v. Union of India. Extracts from the
Judgment are set out below.
“..The
duty of the court in case of judicial review is to confine itself to the
question of legality, rationality and propriety of decision-making process.”
“It is not for the Courts to determine whether a
particular policy or a particular decision taken in the fulfillment of that
policy is fair. It is concerned with the
manner which those decisions have been taken”
“It is not for the Court to determine whether a
particular policy or a particular decision taken in the fulfillment of that
policy is fair. The Courts should not enter into the merits of Government
actions, more so, in economic matters unless the same is unreasonable and is not
in public interest.”
The
Court’s observations included “Nothing
was done secretly. There was total transparency at every stage of the
negotiations. and further that
“We may also make
it clear that the petitioners have not alleged any malafides against the
respondents. There is nothing to show that
anybody was being favoured for any specified reason.
The grievance of the petitioners is on the sole ground
of the failure to follow the usual procedure of inviting tenders, which
as stated by us earlier, is not an invariable rule. In our opinion, in the
present case it may not be an appropriate mode. Negotiations was the only appropriate mode which has been done in a
most reasonable manner. The decision has been arrived at after long
deliberations and discussions and after consideration of all relevant factors.
We do not find it necessary to find any reason to interfere with the same in
exercise of our extraordinary powers of judicial review under Article 226 of the
constitution of India.
The
Hon’ble high Court held that, after “Applying above principles to the facts
of the case, “We do not find any
impropriety in the Power Purchase Agreement entered into between the MSEB and
Respondent No. 8, the Dabhol Power Company. Finalisation of a deal by
negotiations, as has happened in the present case cannot, per se, be termed as
illegal.”
(All emphasis supplied)
60. On
22nd of August 1994, the GOI amends tariff notification, inter alia arrogating
to itself the right to approve deviating tariffs.
61. On
24th of August 1994, the Finance Secretary, GOI, in a letter to Power Secretary,
GOI, in the 3 context of counter guaranteeing GOM’s obligations to DPC, stated
that
“Average cost of generation: Rs. 1.24......Transmission
and distribution (T+D) losses: 21.2%
against international norm of 6 to 7%......Size
of potential liability: for 1000 MW plant, around
Rs. 3000 crores per year (around $ 900 Million per year for 1000 MW);
around Rs. 12,000 crores per year for the 7 `fast track projects’ for over
ten years....”
62. On
or about August, 1994, the Dept. of Finance, of the GOM had made the following
comment, which too, was not incorporated, in a note being prepared for the
cabinet about the Tripartite Agreement,
“It is true that, as stated in section 2 sub-section 8 of
the agreement, as per the guarantee of the Central Government, whatever amount
will be given by the Central Government to the company (DPC) will be directly
deducted from the Reserve Bank account of the State Government. As
regards this it can be only said that we will have to give up the rights
conferred on us by the Indian Constitution”.
63. On
16th of September 1994 a Tripartite agreement signed between GOI, GOM, and the
Reserve Bank of India. This agreement guaranteed payments to DPC to the tune of
Rs. 1500 crores a year by the GOI, in the event that GOM defaulted in its
obligations. The RBI is to deduct any such amounts from the state’s share of
central revenues. The limit was to be indexed to the rate of inflation, but
rising a minimum of 7% a year. The total minimum exposure of the GOI is to the
tune of at least Rs. 35, 000 crores plus U$ 300 million.
The GOI “waives
any right of immunity which it or any of its assets now has or may acquire in
the future in any jurisdiction.
and “consents
generally in respect of the enforcement of any judgment or award against it in
any such proceedings to the giving of any relief or the issue of any process in
any jurisdiction in connection with such proceedings (including, without limitation, the making, enforcement or execution
against or in respect of any assets whatsoever irrespective of their use or
intended use of any order or judgment that may be made or given in connection
therewith);.... “assets” shall be taken as excluding present or future
“premises of the mission .....and ...military property or military
assets...”
64. On
22nd September, 1994 the CEA wrote to the Ministry of Power that
“..that the CEA
before granting techno economic clearance has to determine whether the total
project cost as well as the tariff proposed by the private sector developer are
reasonable.”
65. On
23rd September, 1994, Dr. Kirit Parikh (Member, renegotiating team of GOM in
Nov. 1995) wrote to PM, GOI warning
of a
“... serious
financial crisis...
if “all seven fast track projects are given 90 per cent load factor (LF)
guarantee and a price of 7 US cents per unit”
He goes on further to say that this would
“....
disrupt our growth process for years to come.....”
He also wrote that “
“The 90 per cent load factor guarantees offered to foreign plants
such as Enron’s Dabhol Plant, would involve hundreds of crores of hidden
burden per year”
(Emphasis supplied)
After renegotiating the deal , the team of the GOM, Dr. Parikh being a
member, awarded a 90% load factor
guarantee for a substantially larger project i.e. a guarantee for over 3 times
the project that the concern was raised for..
66. On
7th of December 1994, the MSEB wrote to the Ministry of Power that
“as indicated by them (DPC)...... If naphtha is available
and can be obtained at lesser price than distillate, DPC
will use Naphtha as the situation exists.
They (DPC) have designed the plant and plant equipment to accommodate either
fuel”
The conversion of the plant to one capable of using naphtha
has been touted as one of the major advantages of Renegotiations. (Nov. 1995).
Further MSEB has now also to pay DPC about Rs. 40 crores for the conversion of
the plant to one capable of running on Naphtha !!!!
67. The
non consideration of the crucial question of costs was underscored by the
repeated attempts to evade responsibility on the question by various concerned authorities. On or about 22 December,
the ministry of Power requested CEA to confirm reasonableness of capital costs
68. On
23rd December 1994, the CEA in response states that
“since
the cost of power has been found reasonable by the Ministry of Finance and since
cost of power is derived from capital cost, capital cost ought to be considered
reasonable.” (Emphasis
supplied) .
Obviously the CEA has not approved any capital costs, nor
seen figures on which it could express its opinion. It is also implicit that the
CEA did not find the cost of power reasonable.
Further,
the MOF had itself recorded on 19/4/94, that “Ministry of Finance was not
concerned whether the cost of power was acceptable”