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Dabhol project: Politics of power

S. Padmanabhan

IT ALWAYS looked as if the Maharashtra Government had a definite plan while renegotiating with Dabhol Power Company (read Enron). The plan perhaps was to get some cosmetic changes in tariff and give DPC large benefits such as sales tax exemption for naphtha; reduction in interest rates of loans; and third party sales in the hope of getting the Centre to make NTPC and a few other Central utilities buy the costly power.

This would look as if the contract has been renegotiated to ease the burden on Maharashtra when in fact the burden would have been distributed among several States and the Centre. The ultimate beneficiary would be Enron which would continue to keep a contract executed so blatantly against public interest. The real objective of the Maharashtra Government and perhaps the Centre is to give the controversy a decent burial.

The party was spoilt by a statement by the Nationalist Congress Party President, Mr Sharad Pawar, criticising the re-negotiating Committee Chairman, Mr Madhav Godbole. The latter resigned, but was convinced to retract it. But it cannot be forgotten that it was Mr Pawar as Chief Minister of Maharashtra, who had bypassed a lot of objections to give the project to Enron.

Now it has become convenient for the Maharashtra Government to say that the State is suffering because of the decisions of the BJP-Shiv Sena Government. While the role of the BJP-Shiv Sena Government in reopening and permitting Phase II and integration of the LNG terminal, by which means Enron can recover the capital costs many times over, is utterly deplorable, it can not be lost sight of that it was Mr Pawar's government that brought in Enron.

As Mr Praful Patel rightly said in STAR News' Newshour, the project had the blessings also of the then Prime Minister, Mr P. V. Narasimha Rao, and his Finance Minister, Dr Manmohan Singh. All of them, pushing for reforms, wanted a project in double-quick time and they ignored the several layers of approval process.

The real story is described in a civil suit filed in 1995 by the then BJP-Shiv Sena Government in the Bombay High Court. It is another matter that this civil suit was mysteriously withdrawn after the Enron head, Ms Rebecca Mark, met the powers that be in Maharashtra, including the Shiv Sena chief.

The suit -- drafted by such eminent lawyers as, Prashant Bhushan, Nitin Pradhan, C. J. Sawant, the then Advocate General, and F. S. Nariman -- tells the interesting story of how the Pawar government went out of its way to favour Enron by giving approvals even after the elections were announced and conducted in the State -- a gross violation of the election code. To this day, neither the Congress nor the BJP-Shiv Sena nor the NCP governments has had the courage to speak the truth -- perhaps because all of them were beneficiaries. Here are a few passages from the suit to judge the actions of the Pawar government:

A After the calling of elections for the Maharashtra State Assembly, after expiry of its full term, the following documents came to be executed namely (i) Amendment to PPA dated 2/2/1995, (ii) Consent Agreement dated 23/24.2.1995, and (iii) Fuel Management Agreement dated 25.2.1995. As mentioned above, all the aforesaid documents were in aid of and supportive of the PPA dated 8.12.1993 (later amended as mentioned above).

Elections were called for by a press note dated 8.12.94 and a notification date 10.1.95 and were held from 9-12 February, 1995, but announcement of results was deferred in order to complete election process in other States which were to take place. It was this deferment of results which was taken advantage of and the letters/agreements were executed and/or exchanged during this period.

* By reason of Clause 2 of PPA, the status of the PPA was that of an agreement not enforceable by law until all conditions precedents had been fully satisfied and/or bona fide waived as provided in the PPA itself. However, by a letter dated 25.2.1995 these conditions precedents were waived. The so-called waiver was not bona fide but was deceptive and fraudulent.

* 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 $20 million admittedly already spent by the principal shareholder of the First Defendant (Enron) described by them euphemistically as `educational expenses'; (the testimony of Ms Linda Powers specifically states that:

``Moreover, our company spent an enormous amount of its own money approximately $20 million on this education and project development process alone not including any project costs... Why do we, and other developers include such things in our project? To win local support and support of the authorities, and contribute to the general improvement of conditions, and contribute to the general improvement of conditions in the area''. In the purported refutation also enclosed in the letter dated 18.8.1995 of the First Defendant, it is stated that $20 million included ``engineering, financing, legal, travel and administrative costs actually totalling a sum in excess of $20 million as of 29.3.1995.'')

* 20.6.1992 -- (within five days of arrival in India and within three days of arrival in Bombay) The Enron team arrived in India on June 15 and spent two days visiting various sites in addition to meeting people in Delhi and Bombay. A memorandum of understanding was signed between the Second Defendant (represented by Mr Ajit M. Nimbalkar), then Chairman of the Second Defendant, Ms Rebecca Mark of Enron, and Mr Douglas Mcfadden of General Electric Corporation.

The term sheet annexed to the MoU opens with the following:

``Electrical Power Purchase Contract'' -- Contract for 20 years term between Power Venture and MSEB to be structured to achieve an all in price of US$ 0.073/kWh, comprised a fixed monthly capacity payment calculating at the Indian rate of inflation each year and a per-kWh energy payment equal to the per-kWh operating cost (as defined below).

(ii) Thus, the purported decision to set up a huge power generation project in the private sector with a foreclosed obligation on a statutory corporation to buy power from the private sector at a predetermined unprecedentedly high rate was taken in a great hurry without there being any public debate on the said issue apart from there being any detailed consideration of the matter.

* Before the PPA was executed in December 1993, the following events occurred:

(a) The World Bank expressed its opposition to the project and advised that it was not viable, not in the interest of Maharashtra in particular and the country, the public and the consumers, in general. This objection was brushed aside by Enron which said, in a letter, that ``the World Bank opinion can be changed'', that ``we (Enron) will engage a PR firm and hopefully manage the media from here on'' (June 1993).

* The Central Electricity Authority had drawn attention to several aspects of the MoU including:

(i) The all-in price is a departure from the existing norms and parameters notified by the Government under Section 43 A(2) of the Electricity (Supply) Act, 1948.

(ii) Denominating the price in US dollars is also a departure from the existing norms.

(iii) We take it that the price of 0.073 kWh will be applicable from 1996 when power would be available.

* The PPA violates the tariff guidelines in force issued on December 8, 1993. The tariff guidelines permitted only a return of 16 per cent on equity but the PPA allows a return much in excess of 25 per cent. Second, the tariff notification puts a cap on Operation and Maintenance (O&M) charges at 2.5 per cent of the capital cost. In the case of the PPA the O&M changes were over Rs 90 crore annually which is over three per cent of the capital cost. The PPA was not even structured in accordance with the said notification.

The tariff notification allows payments only for the actual fuel consumed and not for deemed consumption. In the present case the heat rate guaranteed by the Dabhol Power Company to the MSEB is 7605 BTU per unit while the heat rate guaranteed by GEC to DPC is considerably lower. Under the PPA about 25 per cent of this difference and deemed consumption and actual consumption is allowed to be retained by DPC, contrary to the tariff notification.

All these are but a few paragraphs of the 600-page civil suit. Perhaps had the then Maharashtra Government persisted with the arbitration the compensation would have been far less than what could be anticipated now. However, for reasons best known to the BJP-Shiv Sena combine, the suit was withdrawn and its government appointed a review committee which integrated the LNG plant with the power plant and gave the green signal for the second phase. The net result was a higher tariff than what was negotiated by the Pawar Government.

The project has come a full circle now. Now the effort is on to distribute the burden across the country. This is evident by the Maharashtra Government turning to the Centre and its representative A. V. Gokak, and stating that the Centre is evaluating various options including of the Power Trading Corporation to buy the power from DPC and distribute it to all the States. But at what price? Not lower than negotiated under the PPA of course with cosmetic concessions by Enron and a lot of sacrifices by the State and the Centre. But is this what we want?