Events
in 1995
69.
On or about August 1995, The project was appraised and/or audited by the
Office of the Accountant General ,
GOM, where it has been severely criticised on the following, among others,
grounds.
·
“...For
the total absence of almost any fixed costs..”;
·
For
the “...absence of any mention of the costs of the project”
·
“...MSEB
is not in any position to know at what cost it would have to buy power from DPC..”.
·
“...MSEB
has least control on the payment to be made on account of the cost of purchase
of electricity;
·
“.....MSEB
incurs the cost of the transmission lines as well incurs all the associated
transmission losses....”
·
“....The
exemption granted to DPC ,from payment of Sales Tax and Duties on sale of bulk
electricity results in a perpetual revenue loss to the State”
·
·
and “In the absence of any specific mention of the estimated cost of the
project and keeping every aspect of the cost flexible and variable, the unit cost of power remains to be uncertain due to various variable
elements of cost.”
(All emphasis supplied)
The Accountant General’s office has called for
compliance with the Audit note.
This Audit note has not been complied with.
70.
On 3rd May 1995, a Cabinet sub-committee (known as Munde committee)
constituted by the GOM, to review Enron’s project. The terms of reference are
set out below.
·
“On
the question of competitive bids”;
·
“On
whether there was any secret or off the record negotiations”;
·
“On
whether the capital cost of the project is reasonable”;
·
“On
whether undue favours and concessions have been given for the Project: demur”.
·
“Whether
the rates for power from Dabhol plant is reasonable”
71.
In August 1995, the official Cabinet sub-committee reports.
The deliberations included public hearings, including one to the DPC, complete
access to all files available with the Maharashtra government. After two months
of examination, detailed deliberations, etc. the committee found that
·
“The
previous Government has committed a grave impropriety by resorting
to private negotiations on a one to one basis with Enron and under circumstances
which made the Enron/MSEB arrangement on Dabhol to lack transparency.....There
are no compelling reasons not to involve a second contender for Dabhol.
, the Sub-Committee
strongly disapproves of this one to one negotiations with Enron and is clearly
of the view that it violates standard and well-tested norms of propriety for
public organisations.”
·
“Considering
the records available with the State Government and the MSEB, we are led to the
irresistible conclusion that they are not the only guide to what actually
happened. It is reasonably clear that
several unseen factors and forces seem to have worked to get Enron what it
wanted”.
·
“On
the basis of the material accessed by the Sub-Committee, it concludes that the capital
cost of DPC project was inflated”
·
“Several
unusual features of the negotiations and final agreement have been pointed out
by the Sub-Committee in the report which makes it clear
that whatever Enron wanted was granted without demur.”
·
“The
Sub-Committee is of the view that because of the denomination of tariff for power in US Dollars and
other reasons the consumer will have to pay a much higher price for power than
is justified. This is clearly not reasonable.”
·
“The
Sub-Committee is of the view that the real environmental issue is whether such a
huge power project should be located in such an unpolluted part of Maharashtra
and whether there is any other part of the State where it could have been
located...”
·
“The
Sub-Committee is of the view that such high cost power as Enron envisages will
in the immediate future and in the long run adversely affect Maharashtra and the
rapid industrialisation of the State and its competitiveness”.
·
“Conclusion:
The
Sub-Committee, having examined the issues and having listed the deficiencies as
above, is unanimously of the view that the arrangement in force is not tenable
because of the infirmities pointed out above in the terms and conditions of the
It, therefore, recommends that Phase-II
of the Project should be canceled and Phase-I should be repudiated”
72.
On 3rd August 1995, the Chief Minister of Maharashtra announced on the
Floor of the House that the “GOM has decided...” “to scrap phase 1 and
cancel phase 2 of the project”
Some
of his observations, based on which he announced the scrapping of
·
The
financial arrangement has been completed for Phase - I .
Work of Phase - I has been started and as per contract, the said work is
scheduled to be completed by 1.12.1997.
·
The
team reached on 15.6.1992, visited the sites and signed the MOU on 20.6.92.
The speed with which this process was completed
one can say that “Enron came, they saw and they conquered”.
About this fast process of signing of MOU, World Bank and Central
Electricity. Authority had
expressed their view as “one sided” process vide the letters dated 8th July
1992 and 26th July 1992. All
these important activities were completed within 30 days. The horoscope of the
project was fixed on that day itself and this sowed the seeds of future
problems. The roots of the “special”
aspects for favourable consideration of the Enron agreement is in this horoscope
only.
·
The
previous government by one to one discussion with Enron had done an uneconomic
financial deal which the state cannot afford.
In case of such big projects, it is a general practice to give the opportunity
to tender. No satisfactory explanation
was brought before me why this opportunity was not given to any other
foreign investor. Actually this idea has not stuck to anybody. Enron
has hypnotised in such a way that the state government has not seen shortcomings
of this agreement. If three -four investors were asked to give their
proposals for the project, there would have been competition amongst them and
thus it would been in the interest of the State and the agreement had not become
exparte
·
After
scrutinising the all documents available with the state Govt. and MSEB, it was
observed by me that it is not visible to
conclude on the basis of these documents what totally took place. Continuously, all were deprived of information regarding the
terms and conditions of this agreement under the pretext of commercial
agreement secretly. I am aware, Court have
given verdict that no unfair practice had taken place by not inviting
competitive tenders and by keeping the dealings confidential. It has also said that the practice of not inviting
competitive tenders is not illegal. But
it is fair and necessary to invite competitive adding for the transparency of
the deal where the public money is involved.
After realising the error, even Central Govt. has now changed its
policy and made it compulsory for all to invite competitive tender.
·
After
we came to power,
we have made the Power Purchase Agreement and fuel management agreement open
for all, proving how wrong it was for keeping all these agreements confidential
as commercial agreement secrecy.
·
As
the final tariff depends upon the capital cost, it was necessary to closely
scrutinise the capital cost. itself but it does not seem to have happened in
this case..
As Govt. did not carry out serious
negotiations with Enron, only “loss” has come to us, not
knowing where “share” has gone.
As per information, this is the costliest project amongst the similar
projects undertaken by Enron in other countries.
·
While
brooding over a thought whether the purchase price of power is reasonable or
not, it is observed that wrong impression is spread amongst the public that the
power purchase rate for this project will be Rs. 2.40 per unit only.
It involves two important factors. First,
even though the MSEB buy the power at Rs.
2.40 per unit, which is 54% of the ultimate cost to consumer, as per my estimate
it will not be possible, for the consumer to get this power not less than
at the rate of Rs. 5 per unit. Second
important point is that it is not sure that MSEB will get this power at the rate
of Rs. 2.40 per unit because this rate involves two important uncertain factors.
One is the exchange rate of Rupee and dollar and other is the price paid
for fuel purchase. I feel that while negotiating the agreement no thought was
given to protect interest of the state and consumers.
·
The
project has been approved by the various departments of the State Government,
then State cabinet ministry of power & finance, central Govt. and the
Foreign Investment Promotion Board which consists of a high level committee of
secretaries of Central Govt. Actually all
these concerned should have taken more seriously the cognizance of letters of
April and July 93 from World Bank who is having study in this field for many
years.
·
This
contract is anti-Maharashtra. It smacks of lack of self respect and is irrational.
Accepting it in its present form is like betraying the people of
Maharashtra. This agreement is no
agreement at all. Therefore,
refusing the agreement even with economic burden is acceptable as it is
important to maintain self-respect and interest of Maharashtra.
Also, it is important to expose the people who have entered into such
agreement. Therefore, the State Govt. has been a decision and asked the
Maharashtra State Electricity Board to initiate necessary legal steps.
·
The
Govt. decision is :
·
(1)
As we are empowered to cancel the second phase of Project the Cabinet has
decided to cancel the same. The
decision will be communicated to Energy Department and MSEB.
·
(2)
The cabinet has taken a decision that the Agreement of the first phase is
to be scrapped and the work of Enron project is to be stopped and work stop
directives will be issued..
73.
On 6th of September 1995, the GOM instituted Suit no 3392 of 1995 on the
Original Side of the Hon’ble Bombay High Court against DPC. and the MSEB.
Relevant extracts from the suit are quoted below.
“that
the action on the part of the 1st Defendant in unilaterally waiving compliance
with various Conditions Precedent (by letter dated 25.2.1995) were effectuated
and conceived in fraud and were not bonafide and this act alone (altogether
apart from the principal and other agreements being void for violation of laws
and public policy on the grounds stated hereinbelow) renders the agreement as
void. The unholy haste with which the purported Financial Closure was sought to
be achieved was clearly in order to reap the benefit of the huge sum of US$ 20
Million admittedly already spent by the principal shareholder of the 1st
Defendant (ENRON) described by them euphemistically as “educational
expenses” were brought to the attention of the Plaintiffs by the 1st Defendant
by their letter dated 18.8.1995 addressed to the Secretary (Energy) of the
Plaintiffs”
“....Apart
from the aforesaid important Constitutional issues on which ground along the
agreement is void and/or inoperative in law and/or incapable of being performed,
it is submitted that the said Agreement is null and void ab-initio, inter-alia,
on account of its being violative of several statutory provisions, public
policy, consumer interest, public interest and interest of the state, suffers
from the vice of misrepresentation
by the 1st Defendant and/or its principal shareholder ENRON and is conceived in
fraud.”
“The
various acts and conduct which are deceptive and fraudulent and the grounds on
which the contract is unlawful and void are also set out herein below”.
“The
PPA has been executed in complete contravention of the requirements of Section
29 of the ESA”.
“The
PPA violates Section 43A of the ESA read
with the statutory notification dated 30.3.1992...”
“The
Scheme has therefore been executed in violation of the letter and spirit of the
Electricity Supply Act, 1948”.
“The
PPA violates the legislative policy of the ESA as
laid down by Section 18 of the ESA,...”
“The
PPA also violates Section 30 of the ESA”
“The
PPA has been procured by fraud and misrepresentation on the part of the 1st
Defendant. The 1st Defendant has made the following
misrepresentation
or concealed the following relevant information from the 2nd Defendant which
ought to have been disclosed”.
“The
1st Defendant misrepresented about the cost of their other power stations”
The
1st Defendant misrepresented to 2nd Defendant about the rate of interest”
“The
1st Defendant concealed from the 2nd Defendant the vital information that its
arrangement/contract with Bechtel, its turn-key contractor, provide for huge
penalties for delay in construction of the plant as well as for shortfall in
plant capacity”
“The
1st Defendant misrepresented to 2nd Defendant about the preclosing clearances
that had been complied with by the 1st Defendant by 25th February 1995 and
further fraudulently induced the 2nd Defendant to agree to waiver of all these
conditions by stating in the letter of 25th February 1995”
“The
PPA is contrary to the public policy of this country in
as much as it will cause a huge loss to the public exchequer on the purchase and
sale of power of place an unconscionable burden on the electricity consumers of
the State”
“It
is submitted that the provision under the State Support Agreement to be governed
by English Law is not based on any valid or bonafide ground.
In fact, opting for the
application of English Law by Indian parties in respect of an Indian cause of
action is clearly illegal and unconstitutional.”
“It
has now come out that the whole object of the 1st Defendant was to gain maximum
advantage to itself by the said Project at the cost of the Indian public.”
Thus
the manner in which the transaction was entered into, the contents of the said
transactions the manner in which it was closed and the manner in which now the
said ENRON and the 1st Defendant are acting to see that some how it is executed
clearly show that the transaction is void, illegal, inoperative, incapable of
performance, unlawful, contrary to law, public policy and public interest”
“The
Plaintiffs submit that the Plaintiffs have filed the present suit in respect of
only some of the reliefs out of several reliefs to which the Petitioners are
entitled to arising out of the documents set out in the Plaint. Further, the Petitioners intend to file the present suit for
some reliefs in respect of only certain documents forming a part of the said
transaction of Power Project as compendiously evidenced by several
documents”.
“The
Plaintiffs will rely upon documents a list whereof is hereto annexed”
74.
On 9th November 1995, the Government of Maharashtra announced “Renegotiations” after Ms Rebecca Mark meets
Shri Bal Thackeray and, thereafter Shri Manohar Joshi, the Chief Minister of
Maharashtra.
75.
On 8th of November 1995, a Renegotiation Committee was constituted
by the GOM with a mandate of reviving
both phases of the project. It
is critical to appreciate that the “scrapped” agreement was for only the
first phase and phase II was completely non binding and optional for MSEB.
76.
On 19th of November 1995,
the Renegotiation Committee concludes Renegotiation and submits its report. To
quote the observations of the Hon’ble Court from the impugned judgment in this
aspect
“But
once it (GOM) decided to revive the project, it acted in the same very manner in
which its predecessors in office had done. It forgot all about competitive
bidding and transparency. The only transparency it claims is the constitution of
the negotiating group. The speed with which the negotiating group studied the
project, made a proposal for renegotiation which was accepted by Dabhol, and
submitted its report is unprecedented.
The negotiating group was constituted by the Government of Maharashtra on 8th
November, 1995. It was asked to submit its report to the State Government by 7th
December 1995. The Committee, we are told, examined the project, collected data
on various similar other projects as well as internal bids including data on a
similar project executed by Enron in the U.K., held considerable negotiations,
settled the terms of revival of the project, got the consent of Enron and Dabhol
to the same on 15th November, 1995, just within a week of its constitution, and
submitted its exhaustive report along with data and details to the Government of
Maharashtra on 19th November, 1995, just 11 days after its formation, much
before the 7th December, 1995 by which date it was required to submit the same.
The speed at which the whole thing was done by the negotiating group is
unprecedented. What would stop some one
to say, as was said by the Chief Minister in the context of the original PPA,
“Enron revisited, Enron saw and Enron conquered - much more than what it did
earlier”
77.
To reiterate, it is absolutely critical to
appreciate that the “scrapped” agreement, that was so opprobrious;
“against the interest of the state”, “contrary to the public policy”
etc. etc. was for only the First phase of 695 MW and involving annual payments
of U$ 430 million ( Rs. 1380 crores then) a year. MSEB always had the freedom,
of not taking up the entire project of 2015 MW and now increased by
“Renegotiations”: to a binding 2184 MW. The GOM’s mandate was to “revive
both phases”. After “Renegotiations” there is absolutely no decrease in
tariff. The committee and the GOM simply lied in claiming a lowered Phase 1
tariff, when in fact there was none,
but in fact, MSEB annual payments would rise by approximately U$ 27 million (Rs
100 crores) annually for Phase1 alone. The entire project of 2184 MW, involves
payments of at least U$ 1500 million (Rs 5400 crores currently) a year for 20
years
78.
Some of the highlights from the report of the committee appointed by the
GOM and the recommendations accepted by the GOM. As events and correspondence
were to show, every one of the claims were simply lies, or deliberate
misrepresentations and simply fraudulent with a intention to deceive. Consider
the some of the contentions
(Purportedly)
“Total project tariff (2450 MW) levellized (sic) tariff to Rs 1.89/Kwh (1995)
with no capital recovery escalation”
Rs.
1.89 looks substantially lower than (presumably) Rs. 2.40. It however to be
noted that
·
The
tariff for Phase 2 has not even been negotiated, therefore there is no question
of comparison in the first place
·
DPC
had written to the CEA on 10/11/93 that “the concept of a levelised rate is
not valid in the tariff structure negotiated between DPC and MSEB.
· The assumptions made by Govt./RC are deliberately depressed and ignores reality leading to a misleading and extremely low tariff. In fact, both the tariff, and the assumptions used to arrive at the tariff, appear designed to mislead. The govt., in claiming that starting tariff was Rs. 2.22 assumed the following
that
i.
there
would be absolutely no change in the value of the rupee against the
dollar ($1=32) for the next
20 years ;
ii.
there
would be absolutely no change the price of Oil, LNG and Naphtha prices in Rupee
terms for the next 20 years ;
iii.
no inflation in the US while providing for tariff to increase through US
inflation in the PPA for the next
20 years ;
iv.
Assumed the price of LNG to be a constant $ 3.46/MMBTU (all inclusive), i.e.
substantially lower than that indicated earlier both to the CEA as well
as the GOM
v.
Regassification
price to be Rs 0.17 /Kwh.
vi.
Lastly it took all the above prices in 1995 prices and in $ terms (against 1997
prices and in $ prices in the original PPA). This alone makes the prices lower
by 7%.!!
·
(Purportedly)
“Phase 1 tariff at Rs. 1.90 “ reduced from Rs 2.40
This
figure too, is deliberately is simply dishonest and a lie.
1
The earlier tariff of Rs 2.40 (which, too was false) was based on 1997
prices, whilst the present tariff figure given out is based on 1995 prices, and
that to in $ terms.
2
Further the price of Naphtha assumed was an arbitrarily low assumed
price, having no connection to reality . International
as well as Indian prices were 30 to 50 % higher, than the committee’s
assumptions at the time the committee submitted its report.
3
. On 7th of March, 1996, the DPC
wrote to the CEA detailing “Minor” changes in the project. In particular:
“..there
is no change in the capacity charges for Phase 1”
Thereby
reveling that the GOM is guilty of gross fraud and deliberate misrepresentation
when it had claimed reductions in capacity charges as a result of reductions in
capital costs.
·
(Purportedly)
“Per MW cost reduced to Rs. 2.63 crores from 4.06 crores” achieved by, inter
alia,
·
The
(Purported) ”Reduction of 1580 crores by delinking regassification plant from
power plant” (presumably reflecting in an substantially reduced tariff. On or
around June’ 96, DPC states that it will include regassification in the main
plant. There is no change in tariff after adding Rs. 1580 crores to the project
costs by way of the regassification plant.
·
The
deliberate misrepresentation if capacity as 2450
MW (ISO) instead of 2184 MW (Net Exportable) , as was the case
for the older project or for that matter all other projects.
·
That
the Plant will be “converted into
multifuel facility” to be
able to “run on naphtha” at cost of USD 35 million
The Plant has always been designed as multifuel plant and intended to use naphtha
or distillate whichever was cheaper. See letter of 7th December 1994.
Consequently, there will be no so called `additional cost’.
The only thing that will happen is the MSEB as a 30% shareholder will pay
30% of the cost i.e. pay US$ 10.5 million (Rs.
40 Crores) for no additional cost, in fact !
·
(Purportedly)
Increased Output
The
contention of increased output is dishonestly done by attributing it to a change
in turbines. This vitiates even the so called “technical clearance” given by
the CEA as the CEA states that increase in the nominal capacity was due to “use of 9FA frames against 9F approved”. Actually 9FA was always
approved. The PPA dated 8.12.93 has an entire section devoted to the 9FA
turbines.
·
·
(Purportedly) “substantial environmental safeguards agreed to including local
community aspects
Most of these conditions, the
committee claimed to have imposed, had already been imposed. For example,
the claim ’to have imposed a term that DPC would plant 150 hectares whilst the
Ministry of Environment & Forests imposed a condition, on 5th August 1993
that a 100,000 trees would be planted in a green belt.
Some
` local community issues’ the
committee claims to have addressed such as construction of
hospital, schools etc. These were already existing conditions which were
imposed by the Bombay High Court, in August of 1994 !!
79.
On or Around Dec. 1995, the GOM as
a respondent made the a submission to the arbitration tribunal. It
contended that the PPA was never binding and thus its ancillary agreements viz.
the State Support agreement and the Guarantee of the GOM were invalid and that
the arbitration agreements were invalid.
Attention is drawn particularly drawn to the allegation that officers and
agents of the MSEB were bribed to secure the contracts. It is of interest to
note that the Chairman of MSEB was transferred soon after the present govt. took
office. Absolutely no criminal investigation or for that matter investigation of
any kind, was initiated by the GOM despite the very serious allegations.
After “Renegotiations”, the GOM has also not bothered to rectify the
very serious infirmities nor addressed the substantial questions of law and
constitutional validity that itself had raised a few months earlier, in the SSA
and GOM Guarantee either.
Extracts are quoted below.
“The
arbitration contained in the SSA and the GOM Guarantee are governed by Indian
law (despite the express choice of English law as the proper law of the SSA and
GOM Guarantee) and, by Indian law, those arbitration agreements are
invalid....”
“The
circumstances of the present case involve three contracts (of which two are the
subject of notice of arbitration) to which an Indian state government are a
party and to which the other parties are Indian corporations, statutory and
non-statutory;
these
contracts were made in India;
the
obligations provided for these contracts are also to be performed in India;
there
is an allegation of breach of Indian constitutional electoral law and its
consequences;
there
is an allegation of breach of the public law duties (under
Indian law) of an Indian statutory corporation;
there
is an allegation of fraudulent inducement of the principal contract and of fraud
in connection with its performance, allegations
which also impact upon the two ancillary contracts.”
.......Not
only is the making of a bribe a criminal offence. it also means that the
officers and agents of the Maharashtra State Electricity Board (“MSEB”) who
purported to contract on behalf of the board were exceeding their authority. An
employee or agent has no authority to bind his principal to a fraudulent
transaction. The consequence of this is that the MSEB were not contractually
bound by the actions of their employees or agents purportedly on their behalf.
This means that the MSEB never entered into the PPA. It was an agreement made by
officers without authority to act. It therefore, does not bind the MSEB”.
“A
contract procured by a bribe is illegal and void both under English and under
Indian law. The effect of that is to render the PPA illegal and void. Since the
SSA and GOM Guarantee are ancillary to and supportive of the PPA, they are also
tainted by the same illegality....”
“...the
capacity of the officers and agents of the MSEB and their authority to bind the
Board in circumstances of bribery and the effect upon the agreements of criminal
conduct in connection with the transactions”.
80.
In Dec. 1995, in the report of the Parliamentary standing Committee on
Energy, the following testimonies of were recorded
The
Ministry of Power testified before the committee that
“Taking
into account the technical features of the project and the scope involved for
the specific project in view and
based on the above cost data, the reasonableness of the works cost is assessed
(by the CEA).
“The
cost of overheads furnished by the companies supported by break-down of various
components are examined (by the CEA) and ensured that it is within the value for
public sector projects.”
“As
regards IDC and financing charges, these are checked with respect to the phasing
of expenditure during construction and the terms of payment as per the financial
package submitted by the company”.
“
in looking the projects for techno
economic clearance efforts are made by CEA to bring down cost of the project to
a reasonable level.
The
Finance secretary testified that
“...
the policy as currently approved by the Cabinet... required us to ensure
that the Ministry of Power and the CEA certify the reasonableness of price”.
Ms
Rebecca Mark
of the Dhabol Power Corporation in response to the committee’s inquiry about
who was going to counter-check whom to keep the project cost minimum
replied
that
“ The interest of the consumer is protected by the SEB, The government of Maharashtra, the Ministry of Power , Ministry of Finance, the Government of India and the CEA”