Cheques and balances by Sucheta Dalal

Cheques & Balances by Sucheta Dalal

December 03, 2000

No power may end up being better than that high cost power

The Maharashtra Government and DPC have been leaking out numbers ranging from Rs 20,000 crore to Rs 35,000 crore as the cost of breaking the Enron contract

There was a time when Rebecca Mark, Enron’s best known face in India, used to strut around the country claiming that she had fought 18 court cases and won all of them. The problem with winning those court cases is now clear to everybody. At Rs 7.80 per unit, Dabhol Power Corporation’s (DPC) electricity is set to ruin both the Maharashtra State Electricity Board (MSEB) as well as the State government.

The Indian judiciary has often distinguished itself with its remarkable activism; on innumerable occasions it has been the sole guardian of the people by boldly preventing government from going ahead with anti-people policies and actions. Why did the courts then allow Enron’s DPC project to slip through unchecked?
It is simple. It was a financially and technically complex project with all key costs (rupee dollar parity and fuel prices) being allowed on a pass through basis and was being attempted for the first time in India. In the face of three reputed multinationals claiming that the cost of power would be a little over Rs 2 per unit, it was difficult for the courts to see through the extent of gold plating of the project. At the same time allegations of corruption were impossible to prove. Moreover, the three promoters - Enron, General Electric and Bechtel - ensured that governments at the State and the Centre backed the project to the hilt and also lined up highly connected academics to support their case.

In the circumstances, the judges who heard various petitions against the DPC project refused to go into the technical and financial feasibility of the project. The truth is that they were not even equipped to do so without expert help. As a result the project was never re-reviewed, the courts only looked at whether various permissions and clearances were in order. Regrettably, this too was not thoroughly established and there are at least four cases pending in the Supreme Court of India which could establish how various rules were given the go by.

The tragedy is that even when things have reached the crisis point, the government is disinclined to act in public interest. Instead of forcing Enron to the negotiating table, the State is bleating about dumping the expensive mess on to the Central government. This is clearly a gimmick aimed at embarrassing the Bharatiya Janata Party coalition with Shiv Sena Minister Suresh Prabhu at the helm of the power ministry.

The Congress-NCP government, however, seems to forget that Dabhol Phase I is also unaffordable and the then Congress government headed by Sharad Pawar is to blame. The BJP-Sena combine managed to mess up only the second phase as well. State politicians need to realise that the power tariff problem has reached the crisis point with farmers, powerlooms, domestic consumers as well as industry set to oppose any further hike. In its misguided effort to embarrass the Centre, they may end up losing the State.

On Friday, Maharashtra power minister Padamsinh Patil once again whined about the government’s inability to break the DPC contract. This too is complete nonsense. Such gold-plated power projects have been scrapped in several countries including Pakistan, Turkey and Indonesia without leading to compensation demands. In Indonesia, it is the corruption in power contracts which were mainly responsible for ending the Suharto regime.

The Maharashtra government and DPC have been leaking out numbers ranging from Rs 20,000 crore to Rs 35,000 crore as the cost of breaking the Enron contract. This is balderdash. If the government can prove that the contract is bad in law and violates several established regulations, there can be no compensation claim. In fact, the NGOs and other litigants who have fought the Enron deal claim that they are in a position to establish that the contract violates the law and should be nullified. In fact, there are at least four court cases pending in the Supreme Court which could establish these facts.
But even while it tackles the Enron problem, a lot more needs to be straightened out in the power sector.

* MSEB has made scant progress in reducing transmission and distribution losses which are a high 38 per cent plus. Large chunks of these are due to industrial default and theft. A ruthless recovery programme is clearly overdue.

* Secondly, the State needs to make a full disclosure about the true demand-supply situation in Maharashtra. It is still not clear how the government can claim a 1000 MW shortfall during peak periods and yet curb the setting up of captive consumption units by industry groups. Fortunately, this too would be clarified by the courts. In response to a petition filed by the Vidarbha Industries Association alleging that MSEB is making false claims regarding power shortages, the Nagpur bench has already ordered the MSEB to provide facts and figures.

* So far, the MSEB has been protected from the full impact of the cost of Enron because of the Maharashtra State Electricity Commission’s (MERC) ruling which mandates a merit order dispatch of power. The MERC ruling forces MSEB to buy the cheapest power first and the most expensive power last. Though the MSEB ends up paying a capacity charge of Rs 95 crore to DPC every month, this is far cheaper than having to purchase its entire offtake. Interestingly, informed sources say that Enron has armed itself with legal opinion against the validity of the MERC order. Pradyumna Kaul, one of the main litigants against the Enron however argues that the Indian Electricity Act is very clear on this head. Sec. 55 says “every licensee or generation company shall comply with such reasonable directions as the board may from time to time give him for the purpose of achieving the maximum of economy and efficiency in the operation of the undertaking or any part thereof”.

The law is also fairly clear that every generating company has to “follow all the directions of the regional electricity board and conduct their operations in accordance with the instructions of the regional load dispatch centre in order to ensure integrated grid operations”. It is important that the MSEB should stop being swayed by Enron’s continued persuasion.

Finally, there is the issue of Enron’s quiet threats to the government that it will walk away from the project. That in fact, may be in everyone’s best interest, so long as the gold plated deal does not transfer to anyone who takes over from the foreign company. Already Enron has chosen to withdraw from its oil exploration and the company also plans to withdraw from the power generation business globally. It can probably write off its Indian experience as an expensive ‘education’ on how not to gold plate deals with poor countries by promoting slogans such as ‘power at any cost being better than no power at all’.