----- Forwarded by Rob Walls/NA/Enron on 12/07/2000 04:59 PM -----

	John Ambler@ENRON_DEVELOPMENT
	12/07/2000 08:57 AM
		 
		 To: Rebecca McDonald/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, James A 
Hughes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Rob Walls/NA/Enron@Enron, Bruce 
Lundstrom/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Wade 
Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, mark.palmer@enron.com
		 cc: jimmy.mogal@enron.com, cindy.derecsky@enron.com
		 Subject: Enron project: Maharashtra State Electricity Board paying Rs. 95 
cr. for unbought power
Mahesh Vijapurkar

FYI.  Although clearly slanted, the following is rather astute local coverage 
of the issue.
John



12/06/2000
The Hindu
Copyright (C) 2000 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) - 
Asia Intelligence Wire


MUMBAI, DEC. 5. Strange as it may sound, the Maharashtra State Electricity 
Board (MSEB) would be paying less for the energy it buys from the 
Enron-sponsored Dabhol Power Company if it buys more. If it buys only half of 
the present capacity, the state- owned power utility would pay, as it 
does now, around Rs. 95 crores per month towards unbought power. That is its 
entrapment signed and sealed with Enron. 

Under the contract between the MSEB and the Dabhol- based independent power 
producer, the pricing of its output has two components: capacity 
charges and the variable or fuel charge. If it buys power, it pays a 
combination of the two and if it does not, MSEB has to fork out the capacity 
charges 
which is almost a penalty for not picking up the energy.


At present, MSEB is allowed to buy only 3,044 million units which is about 
half the Dabhol plant's capacity during its currently operating Phase I 
because 
the Electricity Regulatory Commission has stipulated that only cheaply 
sourced power should be on its shopping list and if it has to draw from 
Dabhol, then 
the ceiling is 3,044 million units. 

That means, when the MSEB pays for half the power that would be available, it 
is also paying some Rs. 95 crores towards the capacity charges and which is 
loaded on what has been bought. This arithmetic has pushed the price, in 
addition to the weakened rupee against the US dollar plus the $30 per barrel 
of oil in 
the international market, to hover at close to Rs. 7 per unit. 

Arguably, it would have been cheaper to buy the entire output from the 
present Phase I capacity of 740 mw but the problem is that MSEB does not have 
money 
to pay for that. Therefore it would like to evaluate its options, as advised 
by the Maharashtra Government, so that the right ways and means could be 
found to 
handle this issue. 

One is to appeal to the MERC to allow all the power to be bought as it is 
produced, since the IPP is all set to activate a part of its Phase II 
capacity which is pegged 
at 1,444 MW and then get energy at a lower average price. That means it can 
avoid paying the capacity charges it can ill-afford. Says an official : "it 
is throwing 
good money behind the bad." 

Let us look at the prices paid hitherto, when the US currency had a different 
parity with the rupee. When it was Rs. 43.02 to a dollar, the MSEB was billed 
at Rs. 3.37 
per unit in May 1999. Then it was tossed upwards, to reach Rs. 6.81 now and 
next month, move to about Rs. 6.90 per unit. "If the rupee slides further, we 
pay more," 
an official explained. 

There is a nice little twist to the Enron story. If the Power Purchase 
Agreement, as re-negotiated by the Shiv Sena - BJP Government had not made 
the 1,444 mw 
Phase II mandatory as against only an option to either pick up or reject in 
the earlier PPA, this need a re-look at the Phase II or the entire project 
may not have arisen. 

Those in the know of the economics of the situation explain :"If it was an 
option, we could have taken a hard look at the experience with the Phase I 
and decided on 
our steps. But the millstone was tied around the MSEB neck in 1996 itself by 
the previous Government. There seems to be no escape route except to ask the 
IPP to 
lower its prices by managing its cost of funds." That is now being done. Some 
FIs like IDBI have offered to lower its interest rate provided the lowered 
burden is
 transferred to the MSEB in the tariff. This is yet to become a widespread 
offer from FIs but the MSEB may, with the Maharashtra Government's help, 
quietly lobby 
towards that objective. That would not mean a lot but in the payouts, a few 
paise per unit less. 

When the first block of Phase II is activated by June 2001, at present 
dollar-rupee parity, with the price of petroleum products being the same, the 
price of power 
from Dabhol is estimated at about Rs. 5.43 per unit but that too to a 
financially crippled power board is stiff. But it can do little because of 
the "take or pay" deal 
with Enron. 

If the petroleum prices remain steady and the rupee does not slide, and when 
the second block of Phase II is operational, the price of power could dip but 
"we 
are talking of a situation which we can guess at." This is on the basis that 
MSEB can buy all the power and not merely end up paying capacity charges for 
not 
buying energy. 

According to present estimates, outgo towards power bought and not bought, 
would be Rs. 511 crores per month June 2001 onward, Rs. 712 crores per month 
October 2001 onward when the current realisation for the MSEB is only Rs. 920 
crores per month from all power sold from all sources it accesses, its own 
and 
others. That is unlikely to go up substantially, not in the near future.




Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.