From The Enron India Newsdesk - October 20th - 22nd Newsclips ,
 THE FINANCIAL EXPRESS, Monday, October 22, 2001
Dabhol seeks dismissal of MSEB's special leave petition, Sanjay Jog=20
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THE ASIAN AGE, Monday, October 22, 2001
Judge name for Enron panel will be out in a week=20
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THE FINANCIAL EXPRESS, Sunday, October 21, 2001
Maharashtra govt seeks Lord Alexander at ?500 per hour, Sanjay Jog=20
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THE TIMES OF INDIA, Monday, October 22, 2001
DPC for written undertaking from Maharashtra govt=20
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THE INDIAN EXPRESS, Monday, October 22, 2001
Why Enron needs to simply 'Lay Off', Ramesh Chauhan=20
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THE TIMES OF INDIA, Saturday, October 20, 2001
MSEB asked to rescind tariff hike plan, Vidyadhar Date
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THE FINANCIAL EXPRESS, Monday, October 22, 2001
Dabhol seeks dismissal of MSEB's special leave petition, Sanjay Jog=20

The Dabhol Power Company (DPC), in its counter affidavit has appealed to th=
e Supreme Court to dismiss the special leave petition filed by the Maharash=
tra State Electricity Board (MSEB) against the Mumbai high court order with=
 regard to invocation of letter of credit (L/C) of Rs 136 crore towards Apr=
il power purchase bill by the DPC through its assignee, the Bank of America=
 (BoA). The Supreme Court, which has stayed the Mumbai high court order on =
September 21, would hold hearing on November 2. However, MSEB in its reply =
has made it clear that it will face irrepairable loss and harm if DPC was a=
llowed to draw a letter of credit. The invocation of letter of credit would=
 also upset the financial equilibrium. "DPC ought not to be permitted to up=
set the status quo and financial equilibrium as it now seeks to do particul=
arly after Supreme Court order of September 21," the board said.=20

The DPC has opposed the MSEB's pray to maintain status quo in view of May 2=
9 order passed by the Maharashtra Electricity Regulatory Commission (Merc) =
and later upheld by the high court and apex court with regard to reactivati=
on of escrow account and proceed on international arbitration. According to=
 the company, MSEB's claim of causing irrepairable harm in the wake of invo=
cation of letter of credit was "unsupported by reference to any factual bas=
is." The company has reiterated that the Merc was not a competent authority=
 to adjudicate the dispute and difference between DPC and MSEB. "Any attemp=
t to preserve status quo by freezing all payments and suspending all operat=
ions will have a contrary effect. MSEB is refusing to pay any payments. It =
has not paid since early May 2001," the company said.=20

However, MSEB has reiterated that the Merc's May 29 order has been issued k=
eeping in view the interest of the power consumers of Maharashtra and its f=
inding has not been disturbed by either Mumbai high court or Supreme Court.=
 The Board has made out special equities. The DPC has reiterated its argume=
nt that the letter of credit was an independent contract and on June 21, 19=
99, it had irrevocably transferred its right under letter of credit to the =
Bank of America, which is a trustee as per the provisions of PPA. The Bank =
of America is likely to intervene in the matter and is expected to make a p=
etition in this regard shortly. The letter of credit has been renewed from =
time to time. It was renewed on August 16, 2001 by the Canara Bank and its =
validity was extended up to May 2002. According to DPC, the invocation of l=
etter of credit was necessary as sufficient funds would be made available i=
n the onshore retention account to meet the debt service payment to be made=
 to the lenders and meet DPC's other liabilities.=20
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THE ASIAN AGE, Monday, October 22, 2001
Judge name for Enron panel will be out in a week=20

Chief Minister Vilasrao Deshmukh has described his two-year tenure as a tig=
ht rope walk. Addressing a district Congress meet at Satara on Saturday, Mr=
 Deshmukh said: "Running the government for the past two years has meant wa=
lking the tight rope. I learnt to keep an ice-pack on my head and put sugar=
 in my mouth while carrying out my responsibilities. That is why I am const=
antly smiling while doing my work and there is nothing wrong with it. Since=
 there is no money in the treasury, the development work is moving at a slo=
w pace and this is a fact. To add to it, I have to run an eight-party coali=
tion government where it is difficult to predict who would be satisfied wit=
h a decision and who would not." He said the government would name a judge =
within a week for the judicial inquiry set up to probe the Enron imbroglio.=
 "I am committed that the truth about Enron should come forth for it will b=
e in the interest of the people. Within a week, we will announce the name o=
f the judge to head the inquiry. The Congress is strong enough to weather t=
he consequence of this decision. Even if we have to lose the government bec=
ause of our decision, we will have no regrets," he said. The Nationalist Co=
ngress Party, which is a member of the Democratic Front government, has bee=
n insisting that the appointment of the judge be deferred and the state, al=
ong with the Centre, hold negotiations with Enron to resolve the issue. The=
 party had asked Mr Deshmukh to defer the inquiry by two months.=20
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THE FINANCIAL EXPRESS, Monday, October 22, 2001
Maharashtra govt seeks Lord Alexander at ?500 per hour, Sanjay Jog=20

The Maharashtra government's woes vis-a-vis the Dabhol Power Company (DPC) =
continue to mount. Additional financial burden is on the cards for the stat=
e government to the extent of Rs 8 crore as payment towards the Queen's cou=
nsel and solicitors. This is to vacate the ex-parte order granted by the Lo=
ndon High Court of Justice restraining it from filing any suit in Indian co=
urts against the international arbitration proceedings initiated by DPC. Se=
nior state government sources told The Financial Express that the hunt is o=
n for the appointment of a counsel based in London. And on the shortlist: l=
eading Queen's Counsel Lord Alexander who is to be appointed soon. Sources =
said that Lord Alexander would plead the Maharashtra government's case befo=
re the London High Court of Justice (Queen's Bench division, Commercial Cou=
rt).=20

But the good Lord Alexander's services come at a price. The state coffers a=
re none-too-healthy. Efforts, therefore, are on so that Lord Alexander's se=
rvices can be contracted at 500 sterling pounds per hour instead of the quo=
ted 750 sterling pounds per hour. The state authorities, on their part, hav=
e appointed Messers DLA as its solicitors to provide back-up support to Lor=
d Alaxander, and a resolution has already been issued to this extent. The g=
overnment's solicitors in India, Rafiq Dada, Amit Harayani and Darious Kham=
bata would brief DLA and Lord Alexander. According to sources, Messers DLA =
has also been appointed as solicitors for the government during the interna=
tional arbitration proceedings initiated by DPC. The DPC has served arbitra=
tion notices for the violation of State Support Agreement, Supplemental Sta=
te Support Agreement and Government of Maharashtra Guarantee. The hourly ra=
tes at which fees would be paid to DLA are as follows: senior partner 325 p=
ounds, junior partner 300 pounds, senior advocate 235 pounds, assistant 180=
 pounds and paralegal/trainees at 100 pounds. These rates would be discount=
ed at between five per cent to 10 per cent for lawyers in their offices out=
side London. The London court in its ex-parte order of October 10 has restr=
ained the state government from filing any suit in the Indian court to chal=
lenge the international arbitration proceedings initiated by the DPC.=20

Simultaneously, the government has been prohibited from filing any suit wit=
h regard to fraud against DPC. The DPC had earlier pointed out that the inj=
unction ordered by the London court "facilitates the timely and impartial r=
eview by the international arbitration panel of the dispute between DPC and=
 Government of Maharashtra dealing with its failure to comply with its obli=
gations under the state guarantee and the state support and supplemental st=
ate support agreements". However, the anti-Enron lobby has alleged that the=
 London's order has created a disadvantageous situation for the State where=
 it would be unable to defend itself in the writ-petitions with respect to =
its disputes with the DPC and to which, it has been made a party pending be=
fore various courts and tribunals.=20
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THE TIMES OF INDIA, Monday, October 22, 2001
DPC for written undertaking from Maharashtra govt=20

US energy major Enron's Dabhol Power Company has demanded a written underta=
king from Maharashtra government stating that it will not file a civil suit=
 against the multinational as it was not a party to the power purchase agre=
ement.. "Any attempt by the Government of Maharashtra to file a civil suit =
agaisnt DPC in which the Power Purchase Agreement is impeached, is precisel=
y that which it undertook not to do as per the terms of the final consent a=
ward of December 1996", DPC's legal firm Linklaters and Alliance have said =
in a letter dated October 16 to Maharashtra government's lawyers M/s Hariya=
ni & Co.Referring to a media report, Linklaters has warned Maharashtra gove=
rnment that it was "not and has not ever been a party to the power purchase=
 agreement signed between DPC and Maharashtra State Electricty Board"."Acco=
rdingly, any civil suit such as that being referred (in the media report) m=
ust relate to the agreement to which the GoM is party, namely the guarantee=
s", the letter said. The firm said, it wanted a "written undertaking" from =
GoM that it will not file a civil suit against DPC in respect of any disput=
es arising out or in connection with any three GoM agreements, but that any=
 such dispute would be referred to arbitration in accordance with arbitrati=
on agreements. The media report has quoted the state as saying that Queen's=
 Court in London did not enjoy jurisdiction to issue an injunction restrain=
ing it from filing a suit against in India against on-going international p=
roceedings, Linklaters said.=20

The US energy major's legal firm said, "DPC simply could not understand how=
 the state government is not enjoined from filing a civil suit against DPC =
of the sort described in the article". The multinational has also filed a s=
uit in the London Queen's Court alleging that GoM had breached the consent =
agreement which it had entered with itself in 1996. On October 10, DPC deal=
t a legal blow to Maharashtra by obtaining an injunction from Commerical Co=
urt of London, restraining the state from filing a suit in India challengin=
g international arbitration proceedings to be held in UK. The injuction was=
 obtained due to the state's failure to comply with its obligations under G=
oM guarantee dated February 10, 1994, state support agreement dated June 24=
, 1994 and supplemental state support agreement dated July 27, 1996. "Over =
the last few months, Maharashtra and other government entities have taken a=
ctions to aviod complying with their contractual oblogations. This has frus=
trated the rights of international investors that were legally agreed to by=
 the relevant parties several years ago", DPC said. Meanwhile, the state ad=
ministration is gearing up to present its case before the London commercial=
 court with a team comprising of lawyers, state energy secretary V M Lal an=
d MSEB chief Vinay Bansal leaving for London on October 29. ( PTI )=20
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THE INDIAN EXPRESS, Monday, October 22, 2001
Why Enron needs to simply 'Lay Off', Ramesh Chauhan=20

Surfing the net, the other day, I came across an interesting debate. It ema=
nated from a comment made by the California Attorney General Bill Lockyer, =
who is investigating the energy crisis in that state and has offered hundre=
ds of millions of dollars in reward for information about law breaking in t=
he energy business. It is a comment that has had the gay rights groups, the=
 prisoners' rights groups and assorted other civil liberties groups up in a=
rms. But it has even more interesting import for India. So what is the comm=
ent anyway? Well talking about Enron and the way the energy major conducts =
its business Lockyer said, 'I would love to personally escort (Enron Corp c=
hairman Kenneth) Lay to an 8 x 10 cell that he could share with a tattooed =
dude who says, Hi honey! My name is Spike'.=20

Remember, this is the AG of the State of California. Not some money grabbin=
g, 'property expropriating' communist ideologue from a third world country.=
 Does he know something that we in India don't? Enron Corp has its back to =
the wall and has made it abundantly clear that it is desperate to get out o=
f India. Good riddance all of us would say, except for the caveats attached=
 for this exit. It has been claimed the project has been financed using a c=
ombination of debt (about $2.2 billion odd) and the rest by equity. The equ=
ity number varies from time to time, but their claim is about billion plus,=
 perhaps as much as 1.2 billion. Enron wants the equivalent of 1.2 billion =
odd dollars (about Rs 6,000 crore) to make an exit. On the face of it this =
would seem to be a perfectly reasonable argument. After all as a businessme=
n, if I want to exit a project mid-way, the least I expect the buyer to pay=
 is what I have invested in the project. But herein lies the problem.=20

If these numbers were correct, then the project cost of Dabhol is now adds =
up about $3.4 billion that is, the equivalent of $1.7 million per MW. This =
would have the dubious honour of the MOST expensive gas fired power station=
 in the history of the world and winning the honours without even a close c=
ompetitor. Let us keep the Enron issue aside for a minute and look at three=
 power plants that were set up over the last eight years in our part of the=
 world. Seoinchon, Korea has a 2,000 MW combined cycle gas turbine plant. I=
n every technical sense, it is a clone of the Dabhol Plant. The same GE STA=
G 207FA turbines are being used, as those in the Dabhol plant. Guess what i=
s the cost of the plant? $900 million or $0.45 million/MW! Less than a thir=
d of the Dabhol cost.=20

Again in Korea, construction of the 2,000 MW combined cycle gas turbine pla=
nt at Poryong began in 1996 and the plant was commissioned in 1999. And the=
 price. $850 million or $0.425 million/MW! Interestingly, the efficiency of=
 the Pryong power plant is 60 per cent, while that of Dabhol is effectively=
 48 per cent. As recently as this month, Malaysian state-owned utility Tena=
ga Nasional Bhd signed a PPA to buy power from Malakoff Bhd for its 640-MW =
project. The project's cost are estimated at about $370 million or about $0=
.58/MW. This is slightly higher than the other two examples, but bigger pla=
nt would always be cheaper due to efficiencies of size. Prayas, a tiny, thr=
ee-member NGO from Pune, has studied project costs of about 40,000 MW of po=
wer projects between 1991 and 1998. The average project cost was in the reg=
ion of $0.6 million/MW and this included small 30 MW plants as well.=20

As a businessman, the cost of electricity matter to me to run my business e=
fficiently. The main reason for my interest in the subject is the ridiculou=
sly high cost of power and the decline of competitiveness on this among oth=
er reasons. As a matter of interest, the energy from the Malaysian PPA is s=
lated to be delivered at energy prices of about 3.2 cents/kWh under a 21-ye=
ar PPA that is about Rs 1.54/unit. This represents the cheapest power on th=
is side of the world and less than a one-third of both Enron as well as the=
 price my plants pay today. So let us look at the calculations for investme=
nt in Dabhol again. $900 million is cost of an identical plant (the first K=
orean one of the same size and using identical turbines that is nearly a cl=
one). 'Wait a minute,' you may ask me here, 'but did Enron not spend more m=
oney.' Yes we would probably need to factor some 'additional' costs.=20

Let us add the cost of the LNG jetty, the regassification terminal and othe=
r add ons. (By the way these had very little to do with the Dabhol Power Pl=
ant. The LNG jetty was to the cornerstone of Enron's energy distribution bu=
siness in India. But like any good supplier Enron billed all of it's costs =
to its client-Maharashtra State Electricity Board (MSEB)- which like any go=
od public sector unit agreed to pay for things it did not need in the first=
 place). Even with these add ons, the capital costs (proportionately) to MS=
EB ought not exceed $1.2 billion. Now doing business in India is particular=
ly difficult. As Enron itself said, it had to spend a lot of money to 'educ=
ate' Indian decision makers. ('Educating' IDBI and ICICI on how to lend. So=
 let us assume that the cost of doing business in India is an additional on=
e or two per cent of project costs -two per cent in this case, adds another=
 24 million-Enron had of course claimed about 20 million in these 'addition=
al' costs (in other words 'over and above project costs'-the now infamous '=
education monies' of 20 million). The figure does not budge. 1,224 million.=
 This represents a difference of 250 odd per cent!=20

Let me be more generous and add, on say another 30 per cent to this-say $40=
0 million. ($400 million is a very large number by the way, in today rupee =
terms nearly Rs 2,000 crore) for completely arbitrary costs. But this still=
 brings us to $1,600 million odd. One would think the number above, $1,600 =
million, would be the cost of the project. However, we are not even close. =
Enron has claimed project costs to be nearly $3,400 million. I can think of=
 perhaps a difference of a few per cent, but over a 100 per cent? The expla=
nation perhaps lies in a little story that was related to a friend of mine.=
 A few years ago, he was a consultant to an industrialist setting up a stee=
l plant. He was looking at the numbers and felt that they did not add up. T=
he industrialist put his head back, laughed and said, 'No one puts up proje=
cts in India so that you can make money after the project is commissioned a=
nd product starts selling. You put up a project so that you can make money =
while the project is being implemented'.=20

I suspect that is exactly what has happened in the Enron project. The missi=
ng $1.7 billion odd has been probably siphoned off by over invoicing and ot=
her time honoured tricks. In other words, Enron has already recovered all i=
ts money that it had invested and also made a very generous return on the m=
oney it actually invested. At this stage, instead of demanding money at all=
, Enron should be worrying about returning the siphoned money in equity, pe=
rhaps about $400 million, and additionally, the $400 million it owes MSEB a=
 result of the breach of its contractual obligations. To summarise, an equi=
table settlement at this stage would be that Enron pays us $800 million (ab=
out Rs 3,800 crore) and in return, we agree to forget the whole issue! Thre=
e days after the tragic events of September 11, when not only America but t=
he entire world was in a state of deep shock, Lay ought to be told to stop =
screaming 'expropriation' and threatening sanctions on us. Instead he ought=
 to be grateful for small mercies, count the money he has already made and =
simply lay off. Otherwise he may have to worry about some Indian prosecutio=
n.=20
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THE TIMES OF INDIA, Saturday, October 20, 2001
MSEB asked to rescind tariff hike plan, Vidyadha Date

The Maharashtra government has been announcing subsidy on electricity sold =
to farmers, powerloom owners and other categories but not actually passing =
on the benefit to the Maharashtra State Electricity Board (MSEB), the distr=
ibution agency. This has added to the financial problems of MSEB. The dues =
to be given to MSEB run into hundreds of crores of rupees. It includes a su=
bsidy of Rs 700 crore for farmers, Rs 300 crores for powerloom operators, R=
s 600 crore to municipal bodies for use of power for water supply and Rs 21=
5 crore for the Mula Pravara cooperative electric distribution society.The =
chairperson of MSEB Vinay Bansal has appealed to the Maharashtra Electricit=
y Regulatory Commission to ask the government to pay the arrears to MSEB. M=
r Bansal was responding to opposition voiced by a number of representatives=
 of domestic, commercial and powerloom consumers before the Maharashtra Ele=
ctricity Regulatory Commission (MERC) against the proposed power tariff? hi=
ke by MSEB. If it recovered the arrears and reduced its losses, MSEB could =
manage very well without any tariff increase, they said.Mr Bansal said the =
board suffered from various constraints. It could not cut off the power sup=
ply of municipal bodies because this would be in conflict with public inter=
est. He said the board had improved its performance in various ways. There =
had been no load shedding in the past one week, he said. There had been no =
increase in arrears in the past one year as against the previous two years.=
 MERC chairperson P. Subrahmanyam observed that the board was `more sinned =
against than sinning.' Its job was not easy and it could not improve its pe=
rformance overnight, he said.

Experts during their submissions strongly opposed MSEB's move to increase t=
ariff every year. S.R. Paranjpe, a former director of the Indira Gandhi Cen=
tre for Atomic Research, Kalapakkam, said his techno-economic evaluation of=
 MSEB's working revealed several shortcomings and lapses. He said the board=
 deliberately created the impression of a power shortage in the state last =
year in a bid to justify its purchase of power from Dabhol Power of Enron a=
t exorbitant rates. The board resorted to deliberate load shedding as part =
of this exercise and in the process it lost revenue. Besides, sections whic=
h were getting? subsidised power were deprived of the supply. The power sta=
tions also? performed at an `under frequency' level posing several problems=
. The board should have resorted to demand and supply management. It should=
 have asked farmers to consume power at night when the supply was easily av=
ailable.When Dabhol company's power supply was reduced, MSEB's generation s=
uddenly went up. This shows that earlier the board had deliberately operate=
d below capacity. MSEB was disconnecting power supply to many consumers to =
show that it was taking action against defaulters. Yet, the consumption of =
power by consumers in these categories had gone up. It means, some consumer=
s drew power from their neighbours unauthorisedly or resorted to some other=
 means.

The small fry among them were being penalised while the big fish were being=
 allowed to scot free, Mr Paranjpe said. Pradyumna Kaul, a management consu=
ltant and environmentalist, said MSEB had failed to improve its performance=
 on the lines suggested by MERC last year. S.C. Karandikar, appearing on be=
half of the Bhiwandi citizens' welfare society, complained that powerloom o=
wners in Bhiwandi were unjustifiably being given a bad name. He faulted the=
 MSEB on several counts and showed photographs depicting the sorry state of=
 transformers in the town. He also complained that Bhiwandi experienced dai=
ly power cuts for three hours in morning and three hours in evening.He said=
 transmission and distribution losses of the board had gone up, though the =
commission had stipulated last year that they be brought down. Some consume=
rs also alleged that the MSEB was claiming subsidy from the government even=
 for power not supplied to subsidised consumers. Pratap Hogade, vice-presid=
ent of state Janata Dal (secular), called for? rejection of the entire tari=
ff proposal. It was wrong to penalise consumers for the inadequacies of the=
 board, he said. The board's deficit and its expenditure had gone up instea=
d of going down. The commission should not allow frequent tariff revisions.=
 More reprehensible, he said, was that the board had sought to effect the m=
aximum increase for ordinary consumers, including domestic users, small tra=
ders, farmers and gram panchayats. Those using two or three bulbs face an i=
ncrease of almost 250 per cent, Mr Hogade said.
nikita.varma@enron.com