Despite the Union government's sanction for the controversial Enron power project in Dabhol in 1992, the new Shiv Sena-BJP dispensation in Maharashtra decided to suspend Phase-I (695 MW) and cancel Pahse-II (2,015 MW) of the project after it assumed power in March 1993. The grounds cited were absence of competitive bidding, high capital cost, high tariff and substantial foreign exchange outflow.

However, the project was later revived after a committee appointed by the state government negotiated the PPA, which was amended for an enhanced 2,184 MW capacity. The government claimed a gain of Rs 1,977 crore due tocost reduction and enhanced capacity and that benefits would accure to the MSEB.But the CAG now observes that all the benefits were agreed to be passed on to the MSEB only in the second phase, which could have been negotiated without suspending Phase-I.

On the second claim that there was further cost reduction of Rs 1,580 crore due to delinking of the regassification facility, the CAG says that since the MSEB will have to pay regassification charges separately, there will be no actual accrual of benefit from cost reduction on this account.

On the MSEB's contention that the suspension cost, estimated at $ 175 million, will be absorbed by the DPC, the CAG observes that the absorption of suspension cost will not benefit the MSEB in any way. In fact, absorption of loss indicates that DPC's costs were overstated to that extent.

Thus, had the project been renegotiated without suspending Phase-I, the MSEB may have been able to secure a reduction of a portion of $ 175 million with consequent reduction intariff.

With regard to the PPA condition that the entire project will work at 90 per cent load factor on lower tariff, the CAG says the commitment is in fact detrimental to the interests of the MSEB in view of anticipated surplus capacity during off-peak hours and particularly in the context of the board's planned absorption of only 80 per cent power from independent power producers during off-peak hours.

Thus, the MSEB will be paying Rs 55.96 crore per annum as capacity charges without absorbing power (478 MUs) during off-peak hours.

The CAG points out that since the installed capacity in Phase-II was much higher than Phase-I, the benefit of higher capacity should normally reflect by way of comparatively lower tariff in the second phase. However, the levelised capacity charges for second phase was Rs 1.58 KWH against Rs 1.32 KWH in the first phase.

``The capacity charges in Phase-II were heavily inflated by DPC and it was in its own interest to have a firm commitment for the second phase. Thegovernment was vested with a powerful bargaining instrument by way of a clause in the original PPA empowering them to cancel the second phase if so desired. The suspension of Phase-I led to a claim for compensation by DPC and arbitration, thus weakening the bargaining strength of the government,'' the CAG observes.

Negotiations with DPC without resorting to suspension of Phase-I would have enabled the government to bargain from a position of strength for considerable reduction in tariff for both phases, particularly in the light of substantial higher returns to the DPC only in the second phase, the CAG states.

Referring to the delay in implementing the project (as per the original PPA, Phase-II was supposed to be commissioned in January 1998), the CAG says the delay will contribute to slower economic growth in view of the anticipated shortfall of 2,423 MW in 1998-99, 2,185 MW in 1999-2000 and 1,066 MW in 2000-2001, which could have been reduced by 1,444 MW with implementation of the second phase as perthe original schedule.

The CAG also fears that the levelised tariff of Rs 2.21 KWH in the second phase would increase to Rs 3.35 KWH on account of fuel escalation, tax adjustable charges and exchange rate variation.