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'Dabhol PPA must be made public'

After prolonged shadow-boxing, New Delhi finally tossed the Dabhol Power problem back into the lap of the Maharashtra government when it decided to honour the counter-guarantee it gave to Dabhol and allow third party sale of its power.

The catch lies in the fact that these payments will be adjusted against Maharashtra's plan allocations. This effectively means that the game plan to draw the Centre into the imbroglio has floundered and the Congress coalition at Bombay is back to square one.

What is the problem?

The answer is quite simple. The Maharashtra State Electricity Board (MSEB), is unable to lift all the power Enron-sponsored DPC can generate at full capacity of 740mw and anything lower than 90 per cent plant load factor means Dabhol power becomes prohibitively expensive. The situation will worsen once the Dabhol Phase II (1240mw) becomes operational by this year-end.

The moot question is whether there will be any takers outside the State for the surplus Dabhol power. Quite unlikely.

At over Rs 4.10/KWh at peak PLF (plant load factor) there will hardly be any takers, when cheaper power is available elsewhere.

The only solution lies in Enron and MSEB working in concert to match the price. Power-hungry states may then consider power purchase from DPC and Dabhol operating at peak capacity will become a reality. Hence, DPC should be ready to sacrifice.

Legally secure Dabhol Power is naturally unwilling to reopen the power purchase agreement (PPA) MSEB signed. It has, however, shown its willingness to cooperate with the state government as far as cost reduction is concerned.

This has infuriated, both, the Enron baiters and the power consumers in the state, who are demanding reopening of the PPA unilaterally, irrespective of the consequences.

Politics have further vitiated the atmosphere. That the Centre will refuse to pull Maharashtra Chief Minister Vilasrao Deshmukh's chestnuts out of fire is known.

Also expected was a rebuff to Sharad Pawar, who inducted DPC on the state's power map at the outset. What surprises is Union Power Minister Suresh Prabhu, whose boss Bal Thackerey blessed DPC contract renegotiations, left no escape route for the state.

The latest DPC move not to invoke, 'for the time being', New Delhi's counter-guarantee for non-payment of December bill is a tactical move not to precipitate matters now. It appears Enron and the state energy policy planners are working in concert.

It's a game of chess. Enron and its backers in the administration on one side and consumer activists and those not pro-Enron on the other.

How can Maharashtra shake off the Enron millstone around its neck?

A political coalition with multiple objectives and governed by back-seat driving can't have a stable, firm policy.

Look at the way the ministers contradicted each other.

First it was on the 'review' of the power project.

The bone of contention was the reopening the PPA.

Later, it was on the composition of the committee to study the power problem and the terms of reference to it.

The pro-Enron lobby in the state cabinet appears to have won on both the issues, though the terms of reference are enlarged to satisfy the anti-Enron lobby.

The unquantifiable factors are the consumer activists and the transparency mantra the state power regulator champions. If the former succeeds in baring the PPA for public scrutiny the battle of anti-Enron lobby is half won and the foundation laid for its repudiation.

The current impasse is due to slow growth in power demand, half-hearted reforms, which in turn is due to lack of political will. There has to be an agreement in the governing coalition on how to approach the problem.

Does it want to nurse Dabhol Power utilising at least 180mw and keep at least one of its turbines humming till such time when demand for power picks up? Or will Deshmukh overrule his coalition partner National Democratic Party and confront Enron?

He can bring Enron to the negotiating table. Just pay the fixed charge and not draw a single unit of power. In which case there is no violation of PPA.

Then it's a question of war of nerves. Enron has to answer its shareholders, who are interested in cash and not in confrontation per se.

Many cite Pakistan and Indonesia, which tore off PPAs with independent power producers. But there is no conclusive evidence as yet of the IPPs' surrender.

There the sovereign federal governments confronted the IPPs. In Enron case, the state government will have to battle it out without New Delhi's support.

International Power (IP) of the UK, for instance, slugged it out for almost five years with the Pakistani government on the power tariff Water and Power Authority (MSEB's counterpart) should pay to IP-sponsored Karachi-based Hub Power Company (Hubco).

International Power brought foreign investment there to a standstill, and forced the World Bank to pressurise the government to settle the issue. An agreement was finally reached two months ago, and the terms are not flattering to Pakistan.

Hubco agreed to bring the wholesale tariff down to 5.6 UScents/KWh from 6.5 cents/KWh -- a 13.8 per cent cut. In return, Pakistan agreed to pay $65 million over four years for lost revenues in the disputed years.

The transparency mantra and the power regulator should be able to bare the Dabhol PPA for public debate. Enron cannot afford adverse international publicity if the PPA has gone beyond the norms and therefore come to a bilateral agreement.

The wholesale tariff assumedly paid to Dabhol Power is far higher at Rs 4.02/kwh and lends itself to a sizable cut -- probably by a third.

Bulk of this one-third saving will be of course in variable charges including the saving on account of switchover to gas by this year-end.

The review committee appointed by the state government should focus on fixed charges.

Why for instance power consumers in Maharashtra should pay for Enron "educating" the Indians, the cost of which is obviously built into the fixed charges of Rs.1.88/KWh? NTPC's Kayamkulam (Kerala) plant, whose fixed charges are Rs.1.25/KWh, is a fair comparison.

At that level, the cost of DPC power wholesale should work out to less than Rs.3/KWh other things being equal.

Even if the strategy involves no legal violation, international financial institutions can put pressure on the state government. They can delay loan sanction for the state's new projects, postpone disbursements for the existing ones and bring the state down on its knees.

Clearly, the odds are against Deshmukh.

The tough stand Deshmukh may take should also be agreeable to his party's high command. Is it ready for fresh elections in the state if Deshmukh burns his bridges with National Congress Party?

Look, how Sonia Gandhi is dithering after AIDMK forged alliance with PMK, which is part of National Democratic Alliance at the Centre.

Will Sonia advise Deshmukh to go slow till a clear picture emerges on the political horizon? Looking at the piecemeal payments the state government is making that appears to be the game plan.

R C Murthy

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