From The Enron India Newsesk - June 1, 2001 Newsclips ,
 THE ECONOMIC TIMES
Friday, June 01, 2001, http://www.economictimes.com/today/bn04.htm
DPC willing to prune internal rate of return, Anto T Joseph=20
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BUSINESS STANDARD
Friday, June 01, 2001, http://www.business-standard.com/today/financ11.asp?=
Menu=3D5
DPC lenders plan 1-2% rate cut to save project=20
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THE ECONOMIC TIMES
Friday, June 01, 2001,  http://www.economictimes.com/today/01infr01.htm
Prabhu meets Sinha to discuss DPC-MSEB  row
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/eco11.htm=
l
Prabhu meets Sinha to discuss DPC, MSEB dispute=20
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THE ASIAN AGE
'No Counter-Guarantee On Power'
Friday, June 01, 2001,http://www.asianageonline.com/
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THE ECONOMIC TIMES
Friday, June 01, 2001, http://www.economictimes.com/today/01edit02.htm
Some light at last!
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/corp12.ht=
ml
MSEB sells 2.5 m units to Tata Power, Sanjay Jog
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/fed4.html
Dabhol, the FDI we didn't need , R Jagannathan
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THE FINANCIAL EXPRESS
Friday, June 01, 2001, http://www.financialexpress.com/fe20010601/news1.htm=
l
DPC expects MSEB to share 50% in $360-m loss on account of tariff cut ,  Sa=
njay Jog
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THE INDIAN EXPRESS
Friday, June 01, 2001, http://www.indian-express.com/ie20010601/bus2.html
Enron fallout: Fitch cuts India's rating to negative
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THE INDIAN EXPRESS
Friday, June 01, 2001, http://www.indian-express.com/ie20010601/bus1.html
As Enron backs out, NTPC steps in with 2 mega plans
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THE INDIAN EXPRESS
Friday, June 01, 2001, http://www.indian-express.com/ie20010601/ed1.html
Darkness over Dabhol
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MID DAY
Friday, June 01, 2001
http://www.chalomumbai.com/asp/article.asp?cat_id=3D29&art_id=3D11410&cat_c=
ode=3D2F574841545F535F4F4E5F4D554D4241492F5441415A415F4B4841424152
Enron knew about DPC plant's shortcomings, Deepak Lokhande
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MID DAY
Friday, June 01, 2001,
http://www.chalomumbai.com/asp/article.asp?cat_id=3D29&cat_code=3D2f5748415=
45f535f4f4e5f4d554d4241492f5441415a415f4b4841424152&art_id=3D11400
Govt allows Enron third party power sale
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MID DAY
Friday, June 01, 2001,
http://www.chalomumbai.com/asp/article.asp?cat_id=3D29&cat_code=3D2f5748415=
45f535f4f4e5f4d554d4241492f5441415a415f4b4841424152&art_id=3D11337
Enron shuts down plant, to issue termination notice
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THE ECONOMIC TIMES, Friday, June 01, 2001=20
DPC willing to prune internal rate of return, Anto T Joseph=20

THE Enron-promoted Dabhol Power Company has given a set of proposals to the=
 IDBI-led domestic lenders in a final effort to continue with the power pro=
ject at Dabhol. DPC is likely to make a similar presentation to its secured=
 creditors like the Japanese and Belgian Exim banks on June 5 and June 6, a=
nd other foreign banks on June 7, in meetings scheduled to be held in Singa=
pore. FI sources said DPC is now willing to bring down the internal rate of=
 return from the existing rate which is more than 30 per cent as well as th=
e dollar return of equity. All these will hinge around a reduction in tarif=
fs, as demanded by MSEB and the state and central governments. The domestic=
 lenders to the controversial project have agreed to consider a reduction i=
n rate of interest.=20

They have, however, shot down a proposal regarding delaying the phase II co=
nstruction till the first delivery of LNG starts by 2001-end. If these prop=
osals become a workable proposition for all the concerned parties, lenders =
may have to start disburse loans for the second phase of the project, that =
was withheld following the payment dispute. As part of the proposals, DPC h=
as demanded that the lenders allow it to complete the project with some tim=
e and cost overrun. "Though the exact cost overrun is yet to be calculated,=
 a rough calculation has put the figure at around $400 m," said FI sources.=
 DPC is believed to be now optimistic about completion of the project with =
the help of lenders and with various adjustments that are yet to be agreed =
upon by concerned parties. FI sources said some foreign developmental finan=
cial institutions have already supported DPC's  proposals to continue with =
the project. The lenders said there was no discussion over transfer of asse=
ts either to the electricity board or any special purpose vehicle.
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BUSINESS STANDARD, Friday, June 01, 2001
DPC lenders plan 1-2% rate cut to save project=20

Lenders to the $3-billion Dabhol Power Project are ready to make "sacrifice=
s" to save the controversial project from sinking. According to sources, In=
dian lenders-Industrial Development Bank of India (IDBI) and State Bank of =
India-are considering between one and two percentage point cut in interest =
rates to bring down the cost of funds for the promoters. Other domestic len=
ders -- ICICI, Industrial Finance Corporation of India (IFCI) and Canara Ba=
nk-may also follow suit.

The Indian lenders are also not averse to the idea of raising the moratoriu=
m on loan repayment by at least one more year The moratorium is currently p=
egged at one year. Besides, they are also willing to consider stretching th=
e repayment schedule from the existing level of nine years to about 12 year=
s. "The single point agenda is to complete the project. The lenders are rea=
dy to make sacrifices if that will help," said a source. To bring down cost=
s, the Godbole Committee had recommended conversion of the foreign currency=
 loans into rupee loans.=20

However, at this stage, none of the Indian lenders are willing to do so as =
it would increase their exposure. But they could, at a later stage, convert=
 the forex loans into rupee loans. Following the government's external comm=
ercial borrowing (ECB) guidelines, 25 per cent of forex loans can be conver=
ted every year following the pre-payment route. Both IDBI and SBI had cut i=
nterest rates earlier also. While IDBI slashed it from around 19 to 16.5 pe=
r cent, SBI cut it from around 17 to 15 per cent. The average interest cost=
 for the phase I rupee loan is pegged at 16.5 per cent and that of phase II=
 at 16.11 per cent. A percentage point cut in interest rate can translate t=
o only about 2 paise lowering in tariff of the project. The lowering of six=
-month Libor from over 5.5 per cent two years back to 4.25 per cent now has=
 also brought down the cost of forex loans for the project. The Dabhol proj=
ect has already had a cost over-run of $150 million.=20

However, this has not been borne by the lenders. Three Indian lenders -- ID=
BI, ICICI and SBI -- have a guarantee exposure to the tune of Rs  3,000 cro=
re, besides funded exposure of around Rs 2,255 crore. In rupee terms, the t=
hree lenders have a guarantee exposure of Rs 1,039 crore to phase I and Rs =
1,960 crore to phase II.=20
The outstanding rupee term loans on the Indian lenders' books is to the tun=
e of Rs 250 crore for phase I and Rs 1,156 crore for phase II. Besides, SBI=
 also disbursed $141 million worth  of foreign currency loans in phase II. =
"The decision on moratorium on payment or maturity of loans can only be tak=
en at the Singapore meeting on June 5-6, when the global lenders will discu=
ss the future of the project. However, the Indian lenders can go ahead and =
cut the rates on the rupee loan on their own," a source said.
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THE ECONOMIC TIMES, Friday, June 01, 2001=20
Prabhu meets Sinha to discuss DPC-MSEB  row
                                  =20
POWER minister Suresh Prabhu on Thursday met finance minister Yashwant Sinh=
a in the context of the ongoing dispute between Enron-promoted Dabhol Power=
 Company and Maharashtra State Electricity Board in a bid to break the dead=
lock over the cost of power and payment of bills. At the end of nearly an h=
our-long meeting, Prabhu declined to give any details about his discussion =
with Sinha. Sources said, among other things, the two ministers discussed t=
he situation arising out of Wednesday's development in which DPC stopped ge=
nerating power in the absence of any despatch order from the MSEB. Official=
s of both ministries were tight-lipped and refused to divulge any details a=
bout the meeting. (PTI)
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THE FINANCIAL EXPRESS, Friday, June 01, 2001=20
Prabhu meets Sinha to discuss DPC, MSEB dispute=20

POWER Minister Suresh Prabhu on Thursday met Finance Minister Yashwant Sinh=
a in the context of the ongoing dispute between Enron-promoted Dabhol Power=
 Company (DPC) and Maharashtra state electricity board (MSEB) in a bid to b=
reak the deadlock over the cost of power and payment of bills.At the end of=
 nearly an hour-long meeting, Mr Prabhu declined to give any details about =
his discussion with Mr Sinha. Sources said, among other things, the two min=
isters discussed the situation arising out of yesterday's development in wh=
ich DPC stopped generating power in the absence of any despatch order from =
the MSEB. (PTI)
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THE ASIAN AGE
'No Counter-Guarantee On Power', Friday, June 01, 2001

The Centre has ruled out any counter-guarantee to power projects even as fo=
reign investors are approaching government expressing apprehensions in the =
wake of the
dispute between Enron-promoted Dabhol Power Company and Maharashtra State E=
lectricity Board over the cost of power and payment of bills. "I will not s=
ay that they (foreign investors) do not have any apprehensions. They want t=
o know about the fate of their projects. We are making it clear that our po=
licy is transparent and unambiguous and we want foreign investment to suppl=
ement domestic investment," power minister Suresh Prabhu said.

 "I have told all foreign investors that counter guarantee is out of questi=
on. Success of any project is through making it commercially viable," he sa=
id. Mr Prabhu clarified that any kind of Central guarantee would not put pr=
essure on the state electricity boards and commercial success of the projec=
ts would depend on making the SEBs financially strong and viable. He, howev=
er, promised all the Central help in working out a sound payment mechanism =
for the power projects to assuage the fears of both foreign and domestic in=
vestors.Meanwhile, Mr Prabhu met finance minister Yashwant Sinha in the con=
text of the ongoing dispute between DPC and MSEB in a bid to break the dead=
lock over the cost of power and payment of bills.

At the end of nearly an hour-long meeting on Thursday, Mr Prabhu declined t=
o give any details about his discussion with Mr Sinha. Sources said, among =
other things, the two ministers discussed the situation arising out of deve=
lopment in which DPC stopped generating power in the absence of any despatc=
h order from the MSEB.
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THE ECONOMIC TIMES, Friday, June 01, 2001=20
Some light at last!

NEW Delhi's intervention in the tussle between Enron and the Maharashtra go=
vernment is a welcome development. The government wants the Central Electri=
city Authority to  find out whether electricity generated by Dabhol Power C=
ompany can be sold to states which need power badly if it can't be used by =
Maharashtra. This is a good idea - India is seriously short of reliable, qu=
ality electricity supply. Maharashtra claims that it doesn't need even the =
740 MW now generated by DPC at going rates. This creates further trouble: t=
he lower Maharashtra's offtake, the higher the unit price of DPC power. Onc=
e other power hungry states start buying up electricity from DPC, the price=
 per kilowatt hour will fall sharply.=20

The first step to getting DPC out of the hole that Enron, Maharashtra and s=
uccessive Indian governments have dug it into, is to allow the utility to s=
ell power to anyone who wants to purchase it at going rates. However, askin=
g central utilities like the fledgling Power Trading Corporation to evacuat=
e DPC power for sale outside Maharashtra won't solve the hassles of the sec=
tor for all time. The government should modify electricity laws to allow ge=
nerating companies to sell electricity to all users immediately. An ordinan=
ce passed by New Delhi will do the trick - power is a concurrent subject, w=
ith central legislation overriding states'. But even if that happens, it is=
 doubtful if there will be too many buyers for Dabhol power at its present =
price - about Rs 4 per unit with the plant running at high capacities. If t=
he price is to be brought down further, the deal with MSEB will have to be =
renegotiated.=20

The Godbole Committee says that some financial restructuring, de-dollarisin=
g of debt and equity, and so on can bring prices down by about 30 per cent =
from DPC's  minimum Rs 4 per unit rate today. Otherwise, as the GC points o=
ut, it will be impossible for the project to be viable at current tariffs. =
India desperately needs electricity to grow. For the power sector to grow, =
reforms are necessary at every level - renegotiations, yes, but also change=
s in laws and the rules of the game.
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THE FINANCIAL EXPRESS, Friday, June 01, 2001=20
MSEB sells 2.5 m units to Tata Power, Sanjay Jog

THE Maharashtra State Electricity Board (MSEB), which has suspended the pow=
er purchase from the Dabhol Power Company since May 29 noon, has been selli=
ng 2.5 million units at a per unit tariff of around Rs 3.60 to Tata Power. =
MSEB sources confirmed these developments and told The Financial Express on=
 Thursday that it will also sell its power to various states if they come f=
orward with the proposal.  "We have sold over 5 million units since last th=
ree days to Tata Power whose Trombay plant is undergoing certain overhaulin=
g," sources said.

According to sources, MSEB's power supply has not been affected despite it =
has stopped power purchase from DPC. Thanks to the daily load availability =
of over 10,000 mw and a frequency of 49 per cent. MSEB has a generating cap=
acity of nearly 9,767 mw in addition to this it receives in all 2,185 mw fr=
om the  National Thermal Power Corporation and Nuclear Power Corporation an=
d nearly 190 mw from Tarapur automatic power station.Furthermore, sources s=
aid that there has been no peak load shortage neither there has been load s=
hedding across the state mainly due to a much needed relief received after =
pre-monsoon rains and low uptake of power especially from the agricultural =
consumers due to prevailing drought conditions.  Similarly, MSEB's drive to=
 contain power thefts have started paying off.

Moreover, the industrial consumers have shifted their load during night hou=
rs when the power availability is more but also at off peak rates. In a rel=
ated development, Indian rupee lenders consortium headed by the Industrial =
Development Bank of India will hold meeting with the MSEB chairman Vinay Ba=
nsal on Saturday for apprising him their position over Dabhol impasse. IDBI=
 along with Indian Financial Institutions (IFIs) have taken a stand that th=
e legal issues be kept aside and make united efforts to save their funds cr=
ossing over Rs 5,152 crore blocked in the Dabhol project. MSEB sources said=
 that the IDBI would also be briefed about the circumstances under which it=
 has filed a petition in the Maharashtra Electricity Regulatory Commission =
after rescinding the power purchase agreement. "However, we still feel that=
 MSEB and IDBI should work together to safeguard their interests as well as=
 their money," sources added.=20
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THE FINANCIAL EXPRESS, Friday, June 01, 2001=20
Dabhol, the FDI we didn't need , R Jagannathan

The question is not of scrapping the deal, but how and on what terms=20

If there is one thing that stands out in the Dabhol power project controver=
sy, it is the surprising unanimity all parties to the conflict have achieve=
d: all of them actually want to get out. Enron, main promoters of the Dabho=
l Power Company, which got a cushy bargain with no risks, wants to walk out=
 because it does not see itself as a power-plant runner in the long run. No=
r does it want to be seen as the company that stole millions from a poor co=
untry by making suckers out of Indian politicians and bureaucrats while neg=
otiating the power purchase agreement (PPA). Maharashtra state electricity =
board (MSEB), a self-declared victim, obviously wants to exit for reasons o=
f its own long-term survival. The central and Maharashtra governments would=
 like to close the chapter since they want to welsh on the guarantees that =
were foolhardily given to Enron. The only people who still have a stake in =
the PPA and the deal are mostly Indian financial institutions and banks. Ev=
en they are unlikely to hang on if they can see a way to pull their chestnu=
ts out of the fire. If no one is ready to admit this, it is because everybo=
dy has egg on his face. It is, therefore, best to cut one's losses, learn t=
he lessons and move on.=20

The first lesson to be learnt is this: you cannot have a deal where the cos=
ts are stated in one currency and prices in another. In the Enron project, =
MSEB's power purchase costs were linked to the dollar when its revenues wer=
e in rupees. The only way it could have taken up this risk was if it knew t=
hat the rupee was actually going to strengthen against the dollar in the me=
dium term - a historically invalid assumption. With dollar-rupee parities l=
iving up to past form, the project was a dead duck from day one.

Second, any deal done without keeping in mind a customer's willingness to p=
ay the required price is folly. The Dabhol PPA makes its obvious that DPC c=
onsidered MSEB the customer, when in reality it is the ultimate power users=
 (factories, offices, farmers, households) who are the real customers. The =
deal would have worked only if MSEB believed it could raise tariffs by 100 =
per cent or more every year for several years, or if Enron was given the op=
tion to find its own customers and given a distribution area. This implies =
that the Enron deal could have worked only if power sector reforms had prec=
eded the deal, and not followed it.

Third, nobody should ever try to guarantee profits to any commercial entity=
. While it may sometimes   make sense to give incentives (free land, tax re=
lief) or even forgo revenues (through sales tax deferrals) to lure investme=
nt in any given sector, it makes no sense at all to offer to pay anyone mon=
ey to ensure his profitability. But this is what the Maharashtra government=
 and central counter-guarantees amounted to. If the power customer doesn't =
pay higher tariffs, the Maharashtra government (or its central counter-guar=
antor) would make up the shortfall for DPC.

Four, the Enron kind of foreign direct investment (FDI) is not something th=
at needs to be encouraged. If governments have to bankroll the profits of a=
 foreign company, if domestic institutions have to guarantee most of the lo=
ans, and if local customers are not prepared to pay the price for all that =
these things cost, what is the point in seeking such investment? McDonald's=
 and Kellogg's are not here because they are guaranteed pots of money, but =
because they see a profitable market somewhere in the future. There is no r=
eason why power should be any different. In future, if we are going to invi=
te foreign investment, it must be on the basis of reforms that make investm=
ents inherently viable and not by profit guarantees. Power purchase contrac=
ts should be bid for on the basis of guaranteed rupee-based tariffs, subjec=
t to reasonable escalation clauses, and not capital costs or dollar-based i=
nputs or returns.

To exit from the unholy mess, there are only three options: one, the govern=
ment can negotiate compensation costs for Enron based on what it has invest=
ed and additionally give it a reasonable return on this capital. A new prom=
oter may then have to be roped in to finish the project on the basis of a n=
ew PPA. He will then have to decide whether the existing contractors can be=
 retained to complete the project on new or existing terms; and new avenues=
 have to be found to make the project viable using cheaper and alternative =
fuels. The tab will, obviously, have to be picked up by the central and Mah=
arashtra governments, MSEB and the lenders in some proportion. The key to r=
esolving the deadlock lies with Enron: whether it will be mature enough to =
accept a compensation that is less than what its deal itself specifies.

Mr Jagannathan is Editor, myiris.com
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THE FINANCIAL EXPRESS, Friday, June 01, 2001=20
DPC expects MSEB to share 50% in $360-m loss on account of tariff cut ,  Sa=
njay Jog

DABHOL Power Company (DPC) has for the first time come up with a figure of =
$360 million, which it says is on account of the 10 per cent reduction in t=
ariff. This amount was indicated by the DPC at a recent meeting with the Ma=
harashtra State Electricity Board (MSEB) officials.  Interestingly, while t=
he DPC expects MSEB to share 50 per cent of this burden, the MSEB, before a=
ccepting its part of the burden, wants DPC to give the basis on which this =
figure has been arrived at.According to DPC, the per unit tariff at 90 per =
cent availability, will be reduced to Rs 3.50-Rs 3.59 from the estimated Rs=
 4.30 after the commissioning of Dabhol phase-II to be run on the liquified=
 natural gas (LNG). The DPC is of the view that the tariff cut will be poss=
ible only if the Centre waives 5 per cent customs duty on LNG and the India=
n Financial Institutions (IFIs) restructure the repayment schedule and cut =
the interest rate to 12 per cent from the prevailing 16.5 per cent.

DPC has estimated a suspension period of nearly 18 months, comprising 12 mo=
nths for the completion of renegotiations and six months for various other =
formalities. Sources said that the implementation of tariff cut, if at all =
agreed by both MSEB and DPC, would be possible after reworking the present =
power purchase agreement, which has already been rescinded by the MSEB. How=
ever, MSEB, which will have to share a burden of $180 million, has asked th=
e DPC to explain with a backup data and formula on what basis it has arrive=
d at a figure of $360 million. Sources told The Financial Express that the =
prima facie DPC has ruled out the possibility of cutting the tariff at Rs 2=
.50 per unit as demanded by the MSEB on the grounds that it would not even =
cover the fixed charges, leave aside the variable charges. However, MSEB, a=
s reported first by The Financial Express on May 29, wants to stick to its =
stand that the tariff will have to be brought down at Rs 2.50 per unit.

Curiously, MSEB's stand has been supported by the Infrastructure Developmen=
t Finance Corporation (IDFC) which is providing secretarial assistance to t=
he Madhav Godbole renegotiation committee. MSEB is of the firm view that th=
e tariff cut is quite possible only after the DPC delinks dollar linkage, s=
eparates its regassification unit from the Dabhol project and also sacrific=
es equity earnings in dollar terms. According to sources, DPC has also aske=
d the MSEB to submit its formula and backup data to lower the per unit tari=
ff at Rs 2.50. However, MSEB officials have told the DPC that it would shar=
e necessary data only after seeking approval of the renegotiations committe=
e chief Dr Madhav Godbole.

The IDFC officials would meet Dr Godbole on this front and thereafter come =
out with the relevant data pertaining to tariff reduction at the next meeti=
ng slated for June 2 between MSEB and DPC officials. In a related developme=
nt, MSEB and DPC are believed to have expressed serious doubts over Union m=
inister Suresh Prabhu's directives to the Central Electricity Authority (CE=
A) to find buyers for the Dabhol power in the wake of the MSEB's decision t=
o stop power purchase from Dabhol. They are reportedly doubtful over the fe=
asibility and durability of this proposal as it would all depend upon the p=
ower demand and the payment capacity of the "buyer" state.
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THE INDIAN EXPRESS, Friday, June 01, 2001=20
Enron fallout: Fitch cuts India's rating to negative

Fiscal imbalance, Enron row take toll on India's rating

International rating agency Fitch today changed the rating outlook on India=
's sovereign ratings from 'stable' to 'negative' citing  well-flagged conce=
rns about fiscal policy, privatisation, deterioration in the foreign invest=
ment climate and the Enron fracas. Fitch currently rates the foreign and lo=
cal currency obligations of India 'BB+' and 'BBB-' respectively.The negativ=
e rating outlook reflects the slow progress of the government in implementi=
ng privatisation and addressing the weaknesses in public finances, it said.=
 The fiscal-monetary policy mix in India remains unfavourable, resulting in=
 relatively high real interest rates and crowding out of private sector inv=
estment. Italso expressed concern over high government guarantees - which c=
an become liabilities - to various projects in the wake of the Enron imbrog=
lio.

Fitch also expressed additional concerns over the dispute between Enron, th=
e country's largest foreign investor, and the government and worried that t=
his may herald a broader deterioration in the foreign investment climate. F=
oreign direct investment remains extremely low in India (less than 1 per ce=
nt of GDP). Until the authorities display a concerted willingness to addres=
s fiscal imbalances, India will remain locked in a stop-go cycle of growth =
and the sovereign could slip into a debt trap, it said. The recent corrupti=
on scandal, involving the ruling BJP-led coalition government, threatens to=
 exacerbate these trends and further slow economic reform, Fitch said. Indi=
a's fiscal deficit at over 9 per cent of GDP is among the highest in the re=
alm of rated sovereigns. Persistently high fiscal deficits have led to a bu=
ild-up of the general government's debt burden, estimated to be over 60 per=
 cent of GDP.

In addition, the government (both central and state) has guarantees outstan=
ding amounting to 9 per cent of GDP. Fitch reiterates the point that such g=
uarantees, issued to back mainly infrastructure projects, are contingent li=
abilities of the government. This has most recently been borne out in the c=
ase of Enron, where                    the US power company has invoked a c=
entral government guarantee for payment arrears accumulated by the MSEB. On=
 the revenue side, the tax base remains small, while the expenditure profil=
e remains rigid due to the high level of interest payments, subsidies, pers=
onnel and defence costs. Interest payments comprise                     nea=
rly 50 per cent of revenues, leaving little to be spent on the much-needed =
infrastructure and social sectors.

Fiscal management is also questionable given the repeated slippage in its f=
iscal deficits in the past several years. Despite the weak state of public =
finances, Fitch is disappointed that the government is envisaging only a mo=
dest fiscal consolidation in 2001-02 and even this target could prove chall=
enging, as growth                     and revenue projections seem optimist=
ic. Although the budget contains some positive structural reform measures, =
the Tehelka scandal and State elections next year could put pressure on the=
 government to delay these initiatives.
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THE INDIAN EXPRESS, Friday, June 01, 2001=20
As Enron backs out, NTPC steps in with 2 mega plans

NTPC to set up coal-based plants in Maharashtra

WHILE private sector power producers like Enron are finding the going tough=
 in Maharashtra, government-owned National Thermal Power Corporation (NTPC)=
 has decided to set up two new mega power projects in the State. This is de=
spite Enron's Dabhol project is sputtering and projects ofReliance and Ispa=
t have failed to get government clearances.NTPC plans to set up two 1,000 m=
w plus coal-based power plants in Vidarbha and Konkan areas of Maharashtra =
with an investment of more than Rs 4,000 crore each. "NTPC does not have a =
power plant in the state, so in order to make our presence, we have shortli=
sted Mauda near Nagpur for setting up a power station with two units of 500=
 mw each," said NTPC executive director (western region) R D Gupta.

 "While private power producers have found it tough running power plants, g=
overnment utilities seem to be quietly consolidating their position in spit=
e of huge dues," said an analyst with a foreign brokerage. NTPC alone has d=
ues of over Rs 16,000 crore from various state electricity boards. "The loc=
ation for Konkan will be finalised soon as we are yet to select suitable la=
nd for the project," Gupta added. For the Vidarbha project, the Corporation=
 has been able to finalise the prospects of coal availability and was await=
ing State's response on procurement of water, Gupta said, adding "For the c=
oastal plant, NPTC is looking for imported coal, which would be later blend=
ed with the Indian quality for usage."=20

The State government, which is in a battle with Enron over the Dabhol proje=
ct, had recently put on hold providing an escrow cover and signing of power=
 purchase agreement with NTPC for the purchase of additional power from its=
 new projects. The government has, in no uncertain terms, also expressed it=
s inability to consider an escrow cover at this point of time especially wh=
en the Madhav Godbole energy review committee is in the process of finalisa=
tion of its report on reforms and restructuring of ailing Maharashtra State=
 Electricity Board (MSEB). Simultaneously, neither the State nor MSEB were =
in a position to give any assurance on purchase of power from NTPC's upcomi=
ng projects especially when the State was meeting the power demand with the=
 present installed capacity of over 12,000 mw.

The government had told the NTPC that the escrow cover would not be require=
d in the wake of proposed implementation of Montek Singh Ahluwalia report o=
n one time settlement of dues of state electricity boards (SEBs). Similarly=
, the government made it clear that it would not be possible for provide es=
crow cover in                     the wake of current 'precarious' financia=
l conditions. NTPC pressed for PPAs for the supply of additional power of 1=
,345 mw from Kawas II (202 mw), Gandhar II (186 mw), Vindhyachal II (319 mw=
) and Sipat (638 mw). NTPC has already been providing around 1,900 mw to 2,=
400 mw to the MSEB.
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THE INDIAN EXPRESS, Friday, June 01, 2001=20
Darkness over Dabhol

There can be no excuses for these monumental 'enwrongs'

NOTHING confirms the need for transparency in decision-making more forceful=
ly than the Dabhol Power Company imbroglio. Operations at the power station=
 have been stopped for a second time since the original contract was signed=
. In 1994, alleging corruption in the deal, the then Shiv Sena-BJP governme=
nt ordered                        suspension of the project but soon backtr=
acked and signed a new contract, three times the size of the first. This ti=
me the closure comes amidst claims of breach of agreement by the Maharashtr=
a State Electricity Board and by the DPC. If renegotiation of the contract =
does not result from this impasse, both parties willconfront each other in =
court. Either way, what assurances are there that Maharashtra will be the w=
inner this time? Very few, if matters proceed as they did in the past when =
contracts were negotiated and renegotiated with the DPC. The Godbole commit=
tee reveals there has been a comprehensive failure of governance in dealing=
 with Enron, the US energy company which holds a majority stake in the DPC.=
 For anyone wanting to understand why Maharashtra has 2184 MW of power it d=
oes not need and cannot afford, the Godbole report is essential reading. It=
 has this to say: ''The committee is surprised at the breadth of governance=
 failure which has occurred across time, across governments and across agen=
cies, right from 1992 till as late as 1999.''

Successive governments of Maharashtra, the MSEB, the Central Electricity Au=
thority and several Central government ministries are all indicted. It must=
 be said that the judicial process also failed when many public interest pe=
titions were filed but the courts chose not to intervene. A few errors in j=
udgement on the part of government agencies would be understandable given t=
he lack of experience at the time in negotiating commercial power contracts=
. But every one of the assertions relating to the benefits from the project=
, the effectiveness of negotiations, project design and size, the need for =
power and the competitiveness of the tariff proved to be false, according t=
o Godbole. Some decisions did not even meet the test of common sense. Monit=
oring of compliance with negotiating committee recommendations was poor. Sm=
all wonder that corruption at every stage is suspected.

With greater transparency during the process, it is highly unlikely so many=
 wrong assumptions and so many bare-faced lies would have gone unchallenged=
. The more open the process, the greater the chances of the whistle being b=
lown before too much damage is done. But try telling officialdom to open up=
 and repose itsfaith in public scrutiny. From the start NGOs, opposition pa=
rties, trade unions were denied information on unsustainable grounds of com=
mercial secrecy. Even now MSEB refuses to divulge information in the public=
 interest despite being ordered to do so by the Maharashtra Electricity Reg=
ulatory Commission. If Maharashtra does not learn from the past, it will re=
peat its mistakes a third time. All documents relating to the Dabhol projec=
t must be made public without delay and further  proceedings should be cond=
ucted in a completely transparent manner. There must be no scope for ''undu=
e influence'', no more failures of governance.
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MID DAY, Friday, June 01, 2001
Enron knew about DPC plant's shortcomings, Deepak Lokhande

Enron could have been aware that the Dabhol power plant might be unable to =
generate electricity at full capacity within three hours of the plant's mac=
hinery being started, which was why the United States energy giant must hav=
e wanted the penalty clause removed from its Power Purchase Agreement (PPA)=
 with the Maharashtra State Electricity Board (MSEB).  The MSEB has slapped=
 a notice for a penalty of Rs 401 crore to be paid by the Dabhol Power Corp=
oration (DPC), Enron's Indian subsidiary, after the DPC could not run its p=
lant at full capacity in January when MSEB demanded power.

 Later, the MSEB also claimed the PPA with DPC was no longer valid on the g=
rounds that the plant had been fitted with substandard machinery. The MSEB =
has taken up the issue with the Maharashtra Electricity Regulatory Commissi=
on (MERC) and won the first round by getting an interim stay order on activ=
ation of the escrow account by the DPC and halting arbitration proceedings =
in London.Several legal experts, including the attorney general of India, S=
oli Sorabjee, have opined that the MSEB is on strong legal ground with rega=
rd to the penalty notice and can humble the US energy major. It now appears=
 that Enron must have been aware that the penalty clause might cause troubl=
e and hence suggested it be removed from the PPA. Enron India Managing Dire=
ctor K Wade Cline has said the company would like to renegotiate the penalt=
y clause.

Wade Cline showed a willingness to amend the PPA on May 30 when the state r=
equested the Centre take over Phase II of the Dabhol power project. Speakin=
g to select media persons at the Oberoi Towers on the evening of May 30, he=
 said his company was welcome to the idea of sharing power with the Nationa=
l Thermal Power Corporation, but said Enron would also want permission to s=
ell power to a third party.
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MID DAY, Friday, June 01, 2001,
Govt allows Enron third party power sale

The union government on Thursday allowed the Enron-promoted Dhabol Power Co=
mpany (DPC) to sell power to third parties so as to sustain itself in the f=
ace of the dispute with the Maharashtra State Electricity Board (MSEB). The=
 Ministry of Power has proposed that power deficient states can directly bu=
y power from DPC.Power Minister Suresh Prabhu, in a statement in the capita=
l, said this has been done in  response to discussions with the negotiating=
 committee and the reported willingness of DPC to reduce the cost of power.=
 He said directions had already been issued to the Central Electricity Auth=
ority (CEA) for discussions with power deficient states on the quantity of =
power they can absorb and the tariff at which it can be sold. Earlier, A V =
Gokak, the Centre's nominee in the negotiating committee, called on finance=
 and power ministry officials to discuss the situation as the Maharashtra E=
lectricity Regulatory Commission (MERC), in its order, had restrained the D=
PC from proceeding with the arbitration process till June 14.
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MID DAY, Friday, June 01, 2001,
Enron shuts down plant, to issue termination notice

Amidst a plethora of allegations, counter attacks and legal wrangles, US en=
ergy major Enron-promoted Dabhol  Power Company (DPC) is set to issue the m=
uch vexed Termination Notice to its partner MSEB and has also shut down the=
 USD three billion Guhagar plant.With MSEB not drawing power since Tuesday =
noon, the multinational had no other option but to shut down as MSEB is the=
ir sole customer, a senior Godbole committee member said on Wednesday. "DPC=
 is reeling under tremendous pressure from its lenders who have already giv=
en the multinational a go-ahead for a wrap up by terminating the contract,"=
 he added. He said Enron India chief K Wade Cline had conveyed DPC lenders'=
 nod over the termination to the Committee members on Tuesday and had said =
"we will have to terminate the contract, if no solution is found to this gr=
ave crisis. As it is, even now DPC cannot see a way out."=20

 DPC had served a Preliminary Termination Notice to MSEB on May 19. "Even t=
hough there exists a cushion period of six months, the energy major will is=
sue the notice," the official said. On the other hand, MSEB officials are n=
ot worried over the termination of the contract. "MSEB has already rescinde=
d the PPA. So even if they terminate the contract, it hardly matters to us,=
" they said.  Meanwhile, the Godbole committee panel would meet MSEB offici=
als on June 6 but DPC representatives have not been invited for the same.
nikita.varma@enron.com