From The Enron India Newsdesk- May 15th newsclips ,
 THE ECONOMIC TIMES
Tuesday, May 15, 2001, http://www.economictimes.com/today/15econ03.htm
MSEB refutes allegations by Enron, DPC,  Girish Kuber=20
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THE FINANCIAL EXPRESS
Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/news2.htm=
l
Crucial meet today to finalise Centre's reply to DPC notices, Sanjay Jog

The above article also appeared in the following newspaper:

THE INDIAN EXPRESS
Tuesday, May 15, 2001, http://www.indian-express.com/ie20010515/bus5.html
Finance secy calls meet to review Dabhol situation, Sanjay Jog
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THE ASIAN AGE
Tuesday, May 15, 2001, http://www.asianageonline.com/
Prabhu Will Discuss Enron In France, Ranvir Nayar=20
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THE FINANCIAL EXPRESS
Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/news3.htm=
l
Recast counter-guarantees to attract FDI, says report, Anupama Airy
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THE FINANCIAL EXPRESS
Tuesday, May 15, 2001, http://www.financialexpress.com/fe20010515/corp11.ht=
ml
Merc to hear Prayas petition on May 16, Sanjay Jog
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BUSINESS TODAY
Tuesday, May 15, 2001, http://www.india-today.com/btoday/20010221/cf7.html
Enron Switches Off
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THE WEEK
May 20, 2001, http://www.the-week.com/21may20/events13.htm
Gridlock
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THE ECONOMIC TIMES, Tuesday, May 15, 2001
MSEB refutes allegations by Enron, DPC,  Girish Kuber=20

THE MAHARASHTRA State Electricity Board on Monday in a letter to Enron refu=
ted all allegations made against it by the company while invoking the polit=
ical force majeure. Enron-promoted Dabhol Power Company on April 9 had invo=
ked the political force majeure clause. DPC had indicated it was not in a p=
osition to fulfil its contractual  obligations to MSEB because of political=
 circumstances  beyond its control. MSEB in a reply on Monday denied Enron'=
s allegation of  'political circumstances' and said there was no reason why=
 it should have felt insecure. "Such a step was necessary under the Power P=
urchase Agreement and related security documents to notify the board of 'ce=
rtain events and to enforce our rights'," DPC had said. However, according =
to MSEB, such a step by DPC was uncalled for. For DPC, invoking the force m=
ajeure clause was necessary as 'certain events occurred that are beyond the=
 reasonable control of the affected party (DPC)'. MSEB has expressed surpri=
se in a letter on Monday.=20

The energy major had dispatched the notice to MSEB, as an affected party, w=
hich had been subjected to "concerted, deliberate and politically motivated=
 actions of state government, the Government of India and the Board, which =
will have a material and adverse effect on DPC's ability to perform obligat=
ions under PPA". "Given the cumulative effect of these political actions, D=
PC determined that the political force majeure declaration is an appropriat=
e mechanism for providing that notice, and that is  an appropriate and nece=
ssary step in protecting DPC and  its stakeholders' rights," the statement =
added. However, for MSEB this was 'yet another move' from Enron to avoid pa=
ying Rs 402 crore penalty the MSEB has slapped on it for failing to supply =
electricity as per the agreement. MSEB, in today's letter, reiterated its s=
uggestion to adjust December 2000 and Januray 2001 bills, against the Rs 80=
0 crore penalty it has slapped on Enron for not supplying electricity as pe=
r demand. MSEB has refused to pay DPC's December 2000 and January 2001 bill=
s worth Rs 213 crore.
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THE FINANCIAL EXPRESS, Tuesday, May 15, 2001
Crucial meet today to finalise Centre's reply to DPC notices, Sanjay Jog
 THE union finance secretary Ajith Kumar has convened a crucial meeting tod=
ay to take stock of the Dabhol power imbroglio in the wake of completion of=
 three weeks' deadline given by the offshore lenders for continuing with th=
e suspension of loan disbursement. The meeting will also finalise the Centr=
e's reply to the arbitration and conciliation notices served by the Dabhol =
Power Company (DPC). Mantralaya sources told The Financial Express that sta=
te principal secretary (energy) VM Lal and Maharashtra State Electricity Bo=
ard (MSEB) technical director Prem Paunikar will attend the meeting and app=
rise Mr Kumar of the situation. The Centre, which has already appointed the=
 Law Commission chairman Jeevan Reddy as a conciliator and proposed to adop=
t a conciliatory route, is expected to submit its replies before June 4 (wi=
thin 60 days since the issue of notices on April 4).
Mr Kumar is likely to review the situation in the wake of suspension of loa=
n disbursement by offshore lenders since April 25. The overseas lenders had=
 agreed to show restraint in view of the Centre's indications of starting a=
 fresh dialogue and constituting a committee for this purpose comprising it=
s representative. The overseas lenders had demanded that the Centre dischar=
ge its guarantee obligations by honouring the December last payment within =
a week and that MSEB should hold back preliminary termination notice to DPC=
. The lenders also sought MSEB to immediately reactivate the escrow arrange=
ments and asked it to arrange for increase in the amount of letter of credi=
ts from Rs 133 crore to Rs 357 crore. They also sought initiation of negoti=
ation within three weeks.
The state government and MSEB have, however, stuck to their stand and have =
refused to pay the December (Rs 102 crore) and January (Rs 111 crore) bills=
 to DPC on the grounds that it should be adjusted against the rebate of Rs =
401 crore served for misdeclaration and default on the availability of powe=
r on January 28. The union finance ministry has also upheld this stand on t=
he advise of the Attorney General of India. The Centre is expected to reite=
rate this stand while replying to the arbitration and conciliation notices.=
 The state government and MSEB are also expected to reiterate their appeal =
to the Centre for its direct intervention in resolving the Dabhol impasse. =
The state government and MSEB have expressed serious concern over the state=
ment by union power minister Suresh Prabhu that the Centre would clear thir=
d-party sale of Dabhol power if MSEB and the company submit a joint proposa=
l identifying a 'willing' buyer. The state government and MSEB are of the v=
iew that the Dabhol- II power can be purchased by power-deficit states afte=
r renegotiating at an "acceptable" tariff.=20
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THE ASIAN AGE, Tuesday, May 15, 2001
Prabhu Will Discuss Enron In France, Ranvir Nayar=20

The fallout of the current controversy surrounding American energy major En=
ron over its power project in Maharashtra will figure high on the agenda of=
 Union power minister Suresh Prabhu who is paying a four-day visit to Franc=
e. Though Mr Prabhu is arriving in Paris on an invitation by the Paris-base=
d industrialised countries' club, the Organisation for Economic Cooperation=
 and Development, he will  also use the opportunity to meet French minister=
s and power companies to seek French investments in the Indian power sector=
. On Tuesday afternoon, Mr Prabhu will meet the junior French minister for =
industry, Christian Pierret, to discuss bilateral matters, especially Frenc=
h investments in the Indian industry. Mr Pierret is believed to be very kee=
n to promote French investments in India and has expressed a keen desire to=
 visit the country. (IANS)
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THE FINANCIAL EXPRESS, Tuesday, May 15, 2001
Recast counter-guarantees to attract FDI, says report, Anupama Airy
 THE Centre should eliminate existing unused counter-guarantees and free up=
 capacity for new projects in the generation and transmission and distribut=
ion (T&D) sector. Moreover, in order to restore investors confidence and pr=
omote foreign direct investment (FDI) in the power sector, the Centre shoul=
d consider providing guarantees till the time the state electricity boards =
(SEBs) become creditworthy.These are some of the recommendations made by le=
ading investment banker, Credit Suisse First Boston (CSFB) in a recent pres=
entation to the power ministry on 'Foreign Direct Investment in the Indian =
Power Sector'. Says CSFB, "The current market situation in India is not att=
ractive to investors, when compared with other alternatives." This, it said=
, was mainly due to inconsistent regulatory framework, uncertain power purc=
hase agreement (PPA) tariff structure, and the poor financial health of SEB=
s, leading to payment concerns amongst the independent power producers (IPP=
s) over there being no credit worthy offtaker of electricity.
Taking note of the FDI experience in India's power sector, CSFB has noted t=
hat little progress has been achieved even after 10 years of power sector r=
eform and opening up of the sector to foreign investment. Besides this, it =
added, there has been an uneven implementation of reform from state to stat=
e."Enron's Dabhol plant was the only thermal 'mega project' under productio=
n, construction, for which there lies a bumpy road ahead with extremely vis=
ible ups and downs. This would have an impact on FDI going forward," notes =
CSFB.
As per CSFB, only a few power projects have been able to close or are under=
 construction and IPP development has virtually stalled. Moreover, nothing =
has happened in the T&D sector. It attributed this to the weak financial po=
sition of SEBs and the lengthy negotiation and re-negotiation process. Howe=
ver, as against this, CSFB has pointed that energy market consolidation and=
 liberalisation has resulted in tremendous opportunities in developed marke=
ts such as the US and Europe. Moreover, upcoming privatisation programmes i=
n countries like Singapore, the Phillipines, Korea, Thailand and China, wou=
ld directly compete with India for FDI.=20
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THE FINANCIAL EXPRESS, Tuesday, May 15, 2001
Merc to hear Prayas petition on May 16, Sanjay Jog
THE Maharashtra Electricity Regulatory Commission (Merc) would hear on May =
16 a petition filed by the Pune-based non-governmental organisation (NGO) P=
rayas to declare the power purchase agreement (PPA) between the Maharashtra=
 State Electricity Board (MSEB) and Reliance Patalganga Power Ltd (RPPL) fo=
r the 447-MW project as "null and void."  Prayas claimed that MSEB and RPPL=
 had not sought prior approval for amending the PPA in February 2000 after =
the establishment of Merc, and thereby have violated the Electricity Regula=
tory Commission (ERC) Act, 1998, and also the Merc regulations.Through this=
 amendment, the MSEB has agreed to provide escrow cover and certain other b=
enefits to the Patalganga project. These amendments were made in view of th=
e state government's decision to withdraw its permission granted for the th=
ird party sale to the RPPL and accord escrow cover.
Prayas has prayed that MSEB should seek Merc's approval before entering int=
o or amending or approving any power purchase-related contract such as PPA,=
 escrow agreement, fuel supply agreement and financing agreements with RPPL=
 or any other generating company. Prayas said the Merc, as per section 22 o=
f the ERC Act, 1998, is empowered and dutybound to regulate the power purch=
ase and procurement process of the transmission and distribution utilities,=
 including the price at which power shall be procured from the generating c=
ompanies, stations or from other sources for transmission, sale, distributi=
on and supply in the state.According to Praya, as per Merc Regulations 1999=
, no. 73, any generating company proposing to enter into any agreement for =
supply of electricity between the generating company and any buying party s=
hall get the Merc approval for the tariff before entering into such contrac=
t. "From these provisions in the ERC Act, 1998, and Merc regulations, 1999,=
 it is evident that no utility or generating company can amend the PPA with=
out prior approval of Merc," Prayas opined.
Prayas' petition deserves special importance, especially when the Madhav Go=
dbole energy review committee has recently observed that neither the RPPL n=
or the Ispat Group (promoter of the 1,082-MW Bhadravati project) would be a=
ble to match the load requirements of Maharashtra, "as both are structured =
as base load plants, with high plant load factor." The Godbole committee ha=
d said that allowing RPPL and Ispat Group to proceed, "would only result in=
 a problem similar to DPC re-emerging in future years." The committee has t=
herefore recommended that MSEB should defer its PPAs with RPPL and Ispat Gr=
oup and re-examine then in accordance with a least-cost plan, in any case, =
till such time as the demand levels in the state permit full absorption of =
power generated from such independent power producers (IPPs). The Godbole c=
ommittee has observed that the MSEB needs to justify its projections in mor=
e detail as to the type of demand, before proceeding further with these pro=
jects.=20
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BUSINESS TODAY, Tuesday, May 15, 2001
Enron Switches Off
CEO Sanjay Bhatnagar's exit could well be one more indication that the US m=
ajor has gone cold on India.

Darkness at Noon
Enron's India odyssey which started with the largest American FDI in India =
is ending in a whimper. (Debojyoti Chatterjee)

That was back in 1996. Rebecca Mark was the face of US energy major Enron i=
n India then. Her charm swayed India's industry and wowed its politicians-f=
rom  reluctant union ministers to the Shiv Sena's firebrand  leader Bal Tha=
ckeray. Mark managed to wrest the controversial Dabhol Power Project back f=
rom the jaws of defeat. Enron then was on a roll in India. Five years later=
, today, it could roll off the map. Two years after Mark's own fall from gr=
ace at Enron's Houston headquarters, the US major seems to be winding down =
its once-ambitious Indian operations. Suggest that to Enron's spokesperson =
in Houston and the answer is a terse: ''No comment.'' But tap Enron  watche=
rs and insiders and the picture becomes clearer. Enron's operations in Indi=
a and in several other emerging markets seem to have become a major headach=
e for the company. Want to know something else? These are the very projects=
 that Mark was gung-ho about. Surprised?

Well, don't be. Not only is Enron miffed about its aggressive forays in eme=
rging markets, most of which  were spearheaded by Mark, but it's also weedi=
ng out  many of Mark's old faithfuls in the company. The most recent being =
Sanjay Bhatnagar, the dapper former CEO of Enron India, who moved to head E=
nron Broadband Services in Singapore as recently as in January 2001. Last f=
ortnight, Bhatnagar quit the company. Just three months back, Bhatnagar's p=
redecessor in India and an Executive Vice-President of Enron Corp, Joe Sutt=
on, left the company. Sutton had played a key role in Enron's negotiations-=
both with the Sharad Pawar government in Maharashtra and then with the Shiv=
 Sena government. A quick recap: Enron's Dabhol project was first cleared b=
y the Pawar government in 1993; then when the Shiv Sena-BJP alliance came t=
o power, it rescinded the approval on the grounds that the tariff for Enron=
's power was too  high; finally, Enron mustered all its lobbying power and =
got the project approved again. But controversy still dogs Enron and its Da=
bhol project, the latest being the payments crisis involving Maharashtra St=
ate Electricity Board (MSEB).

Today, Dabhol seems like a $1 billion disaster and Bhatnagar's successor Wa=
de Kline is not deterred from taking a tough stance in his negotiations wit=
h  the state government. Of course, some of that has to do with the fact th=
at the current CEO of Enron, Jeffrey Skilling (who took over in 1999 from t=
he high  profile Kenneth Lay, who is still the company's Chairman) wants to=
 focus more on developed markets where the power sector is deregulated and =
pegged to market forces. He is also credited with the huge success of Enron=
's Tyeside operations in the UK.

One of the first things Skilling did was to review Rebecca Mark's business =
decisions, many of which were fuelled by her penchant for tapping the poten=
tial of developing markets. The fact that two of her projects-in India and =
in Croatia-backfired did not help. Two other forays led by Mark-in Kuwait a=
nd the Phillipines-had also come unstuck in the mid-nineties. Eventually, M=
ark moved out. Cut to India and things look rough. Recently, the outgoing U=
S ambassador hinted that the Dabhol project, which is the single largest di=
rect investment from the US in India, may turn out to be a huge disappointm=
ent. And observers don't rule out the possibility of the Houston-based ener=
gy major selling out or invoking penal clauses in its contractual agreement=
 to exit what may have begun as a dream but has clearly ended up as a bad n=
ightmare.
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THE WEEK, May 20, 2001
Gridlock

Dabhol Project: If Enron pulls out the costs will be heavy for Maharashtra =
By Harish Rao and Nandkumar Pudhari

The endgame has begun. The decision of the foreign lenders to authorise bot=
h Enron India's managing director, K. Wade Cline, and Dabhol  Power Company=
's (DPC) president and CEO, Neil Mcgregor, to issue termination notices, as=
 and when appropriate, signals the first move in the decade-long power play=
. But company Chairman Kenneth Lay has apparently vetoed the idea of withdr=
awing from the project at least for now. Surprisingly, the government, whic=
h should have been happy to see Enron's back, seems to be developing cold f=
eet. A few politicians have gone on record saying that Enron's threatened p=
ull-out will not be in the country's interest!=20

White elephant: Dabhol power plant

The project was jinxed from the very beginning. There was no way the countr=
y could absorb 2,200 MW of base load in the current scenario. The projectio=
ns about the demand were clearly wrong. Pushing ahead for the second phase =
was another mistake. The demand for Phase-II may not emerge for another six=
 to seven years. "While Enron has used every clause to its advantage, we ha=
ve not done so," said Kirit Parikh, professor emeritus, Indira Gandhi Insti=
tute of Development Research.=20

Over the last one year, Enron's image has taken a global beating, with the =
company being forced to  withdraw from Croatia, followed by its alleged inv=
olvement in the California energy crisis. If Enron does ultimately pull out=
, what is the liability of the state government? If merger and acquisition =
and takeover rules are applied, Enron will have to be compensated for the p=
roject cost as well as the discounted value of the future cash flow. It wil=
l be a hefty sum that the state government can't afford. As for the salvage=
able value of the project, the Enron Virodhi Andolan estimated the Dabhol P=
roject's fair business value at Rs 350 crore. Enron's reported demand varie=
s between Rs 1,800 and 2,800 crore. "Dabhol is a failed business model," sa=
id Pradyuman Kaul of the Andolan. "The project cannot be valued on a going
concern concept."

Even if the Maharashtra State Electricity Board (MSEB) takes over the proje=
ct, running it will be a challenge, considering the high cost of operation.=
 The already inflated Dabhol power project cost includes the LNG project co=
st as well. DPC has set up a 5 million tonne LNG plant whereas the power pr=
oject requires only 2.1 million tonnes. The Godbole committee recommended h=
iving off the LNG project, so as to substantially reduce the cost of the po=
wer project. Even if the project cost is brought down, the operating cost i=
s already on the higher side.

According to Abhay Mehta, a crusader who has been following the Enron case,=
 the cost of LNG quoted by the company is substantially higher than the pre=
vailing market price. But it was also a fact that the price of LNG in the i=
nternational market is manipulated by a handful of manufacturers and trader=
s. This could have an adverse impact on the cost of power generated by the =
company. Even if MSEB wants to transfer this plant to, say, the NationalThe=
rmal Power Corporation, this factor alone may discourage the new buyers. In=
 all this, what is the Central government's liability? Union Minister of St=
ate for Power Jaywantiben Mehta had stated in the Rajya Sabha in March that=
 the Central government had given a guarantee for making payments to the DP=
C--if the MSEB and the state government fail to do so--in respect of capaci=
ty and energy payments as well as payments upon termination in respect of P=
hase-I (740 MW). However, this liability is subject to a ceiling of Rs 1,50=
0 crore in a financial year.

Won't Enron's exit spook other investors from coming to India? No, says Meh=
ta. "The Dabhol project is a symbol of inefficiency. By letting them operat=
e, we are sending wrong signals to long-term investors. We are setting a ba=
d precedent and forcing the foreign investors to believe that rules and law=
s can be changed by managing politicians." While Dabhol and Enron officials=
 were unavailable for comment, opponents like Kaul suggest that Enron may l=
ike to leave Dabhol with dignity and without trouble from the lenders. Enro=
n, according to him, will be more than happy to dump the project in MSEB's =
lap and salvage whatever amount they can get in the bargain.

Dabhol dilemma=20
      Pros and cons of the Enron power project=20

Pros
?=09One of the few power projects that have been set up within the stipulat=
ed time period.=20
?=09Implementation of second phase is ahead of schedule.=20
?=09Project involves the single largest foreign direct investment in the co=
untry.=20
?=09It is a multi-fuel integrated power plant with jetty and LNG regassific=
ation terminal.=20
?=09Equity participation by GE and Bechtel.

Cons
?=09Cost of the project is on the higher side. The cost of the construction=
 of jetty and LNG terminal included in the total project cost, thus increas=
ing the cost per =09MW, and, in turn, the power tariff.=20

?=09Cost charged by Enron for LNG is higher than the prevailing internation=
al price. Though LNG is considered to be one of the cleanest fuels, its pri=
ce in the =09international market is manipulated by a cartel of LNG manufac=
turers and traders.

?=09All disputes are to be settled by the Arbitration Committee in London, =
in accordance with English laws.=20

?=09Maharashtra government ignored the contrary opinion given by the World =
Bank on demand-supply
     =09 projections.=20

?=09Power tariff designated in dollars and subjected to rupee-dollar exchan=
ge-rate fluctuations.

?=09PPA structured in such a way that MSEB would be required to pay DPC Rs =
508 crore a month, without  even drawing a single unit of power from the pl=
ant.




A peek into the past
The project being set up by the Dabhol Power Company (DPC) is promoted by t=
he Enron Development Corporation (USA), which holds a 65 per cent stake. Th=
e project envisages two phases of implementation, for establishing a total =
capacity of 2,184 MW at Dabhol, on a build-own-operate basis (BOO). A Power=
 Purchase Agreement (PPA) of a 20-year duration was also signed.=20

The first phase involving 695 MW was completed in 1999. The second phase is=
 nearing completion. The project is based entirely on imported fuel. Phase-=
I will use imported distillate oil. After the installation of Phase-II, the=
 entire 2,015 MW capacity (now 2,184 MW) will be operated on imported LNG. =
The Central Electricity Authority cleared it in 1999 on the basis of the ta=
riff notification given by the state government and the MSEB that the power=
 tariff was lower than that stated in the PPA. However, the Madhav Godbole =
committee report stated that the payments made by MSEB were higher than tho=
se mentioned in the PPA.

The Enron project is the first and only project in India based solely on im=
ported LNG. The annual foreign exchange outgo at the 1997 rupee-dollar rate=
 is estimated at $1.45 billion, which has a built-in potential for increase=
 on account of escalation. The total cost of the project is over $2.85 bill=
ion for both phases, of which $910 million relates to Phase-I. The arrangem=
ent between DPC and MSEB involves a guaranteed purchase of power at 90 per =
cent PLF (plant load factor) at rates calculated by a formula in the PPA, w=
hich has built-in escalation provisions.=20

In addition, the Maharashtra government has guaranteed payment of dues unde=
r the PPA by MSEB to DPC. This is also counter-guaranteed by the Central go=
vernment. The choice of Enron for the project was made not by inviting publ=
ic bids, but by private negotiations with a single party. Now, by the state=
 government's own admission, Phase-I entails a monthly fixed charge of Rs 9=
5 crore. After the commissioning of Phase-II in 2001-02, MSEB will be requi=
red to pay at least Rs 508 crore a month to Enron, without drawing even a s=
ingle unit of electricity. And this will go on for 20 years.=20

This is the cost one has to pay for letting Enron invest in Maharashtra.

(The authors are with Project Monitor, a fortnightly newspaper on projects =
brought out by the Mumbai-based Economic Research India Limited.)
nikita.varma@enron.com