Impure For Sure
Outlook, April 04, 2005
So, that's petrol or diesel you're filling? Half of it may be naphtha/kerosene. And the scam starts from the top.
Rajesh Ramachandran
Everybody knows it happens, but on what scale, nobody quite knew. Adulteration of petrol and diesel is a big-ticket scam that involves an annual recurring loss of at least Rs 10,000 crore to the exchequer. And worse, there is hardly any player in the oil industry who can claim not to be involved. Be it the public sector oil companies, who run 23,000 petrol and diesel pumps that retail Rs 1 lakh crore worth of petroleum products a year, the public and private sector refineries, state and central governments and the politicians and bureaucrats who run them, why even the local police station. Many of them directly, others as facilitators.
Naphtha with petrol, kerosene with diesel, recycled engine-oil with fresh lubricants: this is the devious formula that is at the core of one of the biggest cesspools of corruption in public life. The ministry of petroleum has conducted various studies, including a survey by Tata Consultancy Services. All of these confirmed that the extent of adulteration is huge and peg the loss to exchequer at over Rs 10,000 crore. In 2002, the Oil Industries Training Cell, a department under the petro ministry which collected information and imparted training to tackle adulteration, wrote to Vijay Kelkar, then advisor to the finance minister, "The national loss today is about Rs 10,000 crore per year." The note also quotes V.M. Lal, principal secretary to the government of Maharashtra, who told the Mumbai High Court "that the loss is Rs 10,000 crore per year".
Public sector oil companies like Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation that run a network of petrol pumps are the primary culprits because it is here that the consumer gets spurious fuel. But adulteration at the petrol pump is only the end effect of an operation initiated elsewhere.
And here oil PSUs come in tainted. Most of the diesel adulteration is done by diverting kerosene meant for the public distribution system (PDS) which is very much within the PSUs' jurisdiction. Then, they release petro-products like naphtha and other solvents like pentane, benzene and toluene to non-existent factories, which go into adulterating petrol.
That PDS kerosene gets diverted was noted as early as 1998. The then additional secretary in the petroleum ministry, Devi Dayal, wrote to oil PSUs: "You are aware, the government of India is incurring a whopping sum of about Rs 6,000 crore per annum as subsidy on kerosene. Various studies on diversion of PDS kerosene and intelligence reports from the home ministry reveal that about 30 to 40 per cent kerosene meant for PDS is diverted to unauthorised uses."
This was reiterated in 2001 in a noting by the then petroleum secretary V.N. Kaul, "It is well-known that a significant amount of kerosene also gets diverted for use as adulterant." Kaul also made a valid point, that it is the source of adulteration that needs to be tackled: "Naphtha, various solvents and other petroleum products which are either produced by our refineries or imported into the country find their way into petrol and diesel sold through the retail outlets." Though Kaul put this in writing, his ministry never cared to check what the source of adulteration was.
What is the modus operandi and who are the benficiaries? The oil PSUs are only bothered about their profits and sales targets set by the ministry. This is why oil PSUs are uncomfortable with strict vigilance that could end up with the closure of many of their retail outlets. As for diversion of stocks, the oil PSUs as organisations do not make money. But corrupt officials both at the senior and junior levels are responsible for facilitating diversion of stocks. Given the nature of the trade, the payoffs are huge, running into crores of rupees. In fact, within each public sector oil major there exists a well-established network that keeps the illegal trade going.
Till recently, private companies could either export or sell diesel, petrol and kerosene only to the oil PSUs. But selling petro products, including naphtha, in the illegal market fetches higher prices. And there is never a dearth of buyers thanks to the government's pricing policy that leaves a wide gap between kerosene and diesel and naphtha and petrol. For instance, kerosene in the black market is at times Rs 8-10 cheaper than diesel per litre. So, if a retailer mixes 600 litres of diesel with 400 litres of kerosene, he would straightaway make Rs 3,200 to Rs 4,000 on it. His legitimate commission would have been only Rs 385 per 1,000 litres. Similarly, with a price difference of around Rs 20 now in Delhi between naphtha and petrol, the dealer pockets a neat Rs 8,000 for every 1,000 litres whereas his official commission would have been a humble Rs 639.
Every source of diesel and petrol alternative has been used for adulteration over the years. Which is why experts like K.L.N. Sastri (see interview) question the petroleum ministry's decision of February 10 to permit private refiner Reliance to sell kerosene in the open market. The fear is that this oil could also get diverted to adulterate diesel.
Even before opening up the market, the petroleum ministry under Mani Shankar Aiyar disbanded the anti-adulteration cell (AAC) in June 2004. The reason: two officials in the cell were caught taking money from those who adulterate petrol, kerosene and lubricants. All the files were seized, cases transferred to the CBI and the officials repatriated to their parent departments. Just six months before this, the Oil Industries Training Cell was closed. And earlier in April 2002, with the demise of the administered pricing mechanism for the oil industry, the top policymaking body, the Oil Coordination Committee (OCC), was wound up. In fact, it was out of the OCC's vigilance department that the AAC was created. Now, the ministry virtually has no statutory authority looking into adulteration.
Why were these watchdog bodies wound up? There is no explanation from the ministry. Despite repeated attempts, Mani Shankar Aiyar was not available for comment. Vigilance was slackened even though the ministry acknowledged in November 2003 that most of the kerosene imported into the country was being used to adulterate diesel. Here's the proof of adulteration: instead of a jump in diesel offtake after a good monsoon and increased sale of vehicles, it actually dipped by 3 per cent. Interestingly, almost eight lakh tonnes of kerosene was imported in the first seven months of 2003, leading to a ban on imports in October.
Kerosene importers had been having a free run since 1993 when the government decided that it could not cater to the industrial users as its kerosene was just enough to service the public distribution system (PDS). Then strict guidelines were laid down. The 100-odd importers had to furnish end-use certificates. But they were never even asked for them and the imported kerosene went to middlemen who sold it to petrol pump dealers.
The politician-illegal trader nexus is not far to seek. In Mumbai, the political links of the oil trade were exposed during the investigations into the Telgi scam. Former officials of the AAC suspect that Telgi was one of the financiers for many groups of importers who were mere letterhead companies.
Apart from PDS and imported kerosene, one of the other sources of adulteration is alternative fuel products from private players. A couple of years ago, a private refinery advertised in an economic daily for dealers for its Super LDO (light diesel oil).Though LDO is a standard fuel for boilers and pumps, it was not classified as an automobile fuel. But this private company advertised Super LDO as a "diesel alternative".When this issue was taken up by OCC and later the AAC, the petroleum ministry instructed the PSUs not to manufacture it "as there is every chance of this product going into diesel".
A letter from the Oil Industries Training Cell to the AAC on July 2002 elaborates, "The Reliance distributor had clearly indicated that LDO is an alternative fuel for diesel, in other words indicating it can go straight into diesel, maybe at the retail outlet. This gives a clean profit of Rs 4,710 as against a dealer's (legitimate) commission of Rs 365 per kilolitre."
While kerosene imports were banned, naphtha imports continue. Dubai is the base for most of these importers and their agents. Naphtha has most of the properties of petrol but has a lower octane number (65) which implies lower power to fire the engine. In fact, many refineries add naphtha to high-octane petrol they produce to bring down the octane number to the required 88 level. Conversely, to increase naphtha's octane number, enhancers like benzene and toluene are added.
While investigating a naphtha processing unit in Gujarat, the AAC came across a ledger of a company that showed accounts of purchase of benzene and toluene from Reliance. The account book of this unit records procurement of benzene and toluene from Reliance from April 2001 onwards. But according to official petroleum ministry statistics on sale of petroleum products, the private sector has not sold even a single tonne of benzene in 2001-02. The same book of accounts mentions Adani Port Ltd as the provider of naphtha, but Adani is no manufacturer of naphtha. The AAC had, in fact, investigated Adani in connection with import of kerosene and naphtha.
Though there is official recognition of the scam, it has gone on unchecked for well over a decade. In the public perception, kerosene and petrol adulteration is a small-time operation involving a few petrol pump dealers. This is because, more often than not, only the small players are nabbed and the big fish get away. After all, they do not adulterate, they only produce adulterants!
Interview: KLN Sastri
Showing posts with label Scam. Show all posts
Showing posts with label Scam. Show all posts
Thursday, January 27, 2011
Wednesday, April 1, 2009
The Embraer Executive Jet Scam
Exclusive: CAG report suggests VIP jet scam
----------------------------------------------------------
Rajesh Ramachandran
NDTV Transcript
Friday, March 10, 2006
A draft report filed by the Comptroller and Auditor General (CAG) has
revealed the latest multi-crore scam.
According to the report, more than Rs 100 crore were paid extra to get jet
planes for MPs.
The deal in which the VVIPs bought planes for themselves, was a sordid waste
of public money and could also have led to a defence scandal.
The Embraer Executive jets were ordered by the NDA in 2003 to fly the
nation's VIPs.
At Rs 142 crore each, the plush Brazilian planes were bought to ensure the
President, Vice President and Prime Minister would travel not just in
comfort, but in style.
But the draft report submitted by the CAG to the defence ministry reveals
that the deal was questionable.
NDTV has a copy of the draft, a final report of which could be presented in
Parliament.
Questions raised
The draft says Rs 25.36 crore extra was paid for each aircraft to improve
interiors and in-flight entertainment, while every Embraer jet already had
plush interiors.
This was about 25 per cent of the cost of each aircraft.
The draft also mentions that there was no global tender for the deal and the
second lowest bidder Dassault Aviation has a substantial shareholding in
Embraer, proving that the bid was not competitive.
Also, in-flight entertainment and the interiors were arbitrarily priced and
Embraer's quote was five times higher than the second bidder, which the
Price Negotiating Committee (PNC) did not negotiate.
The draft also points out that the VIP squadron already had two Boeings,
seven Avros and six MI-8 helicopters.
Only four per cent of Avro time was used for VIPs and a whopping Rs 712
crore were spent on replacing the Avros.
Govt backs NDA
Even by today's prices, the NDA government paid Rs 18 crore extra for each
aircraft.
But defence ministry sources say that while replying to the CAG's queries,
the UPA government backed NDA defence minister George Fernandes.
That too, despite the CAG making out a clear case of overpayment which could
even mean kickbacks of over Rs 100 crore in the deal.
----------------------------------------------------------
Rajesh Ramachandran
NDTV Transcript
Friday, March 10, 2006
A draft report filed by the Comptroller and Auditor General (CAG) has
revealed the latest multi-crore scam.
According to the report, more than Rs 100 crore were paid extra to get jet
planes for MPs.
The deal in which the VVIPs bought planes for themselves, was a sordid waste
of public money and could also have led to a defence scandal.
The Embraer Executive jets were ordered by the NDA in 2003 to fly the
nation's VIPs.
At Rs 142 crore each, the plush Brazilian planes were bought to ensure the
President, Vice President and Prime Minister would travel not just in
comfort, but in style.
But the draft report submitted by the CAG to the defence ministry reveals
that the deal was questionable.
NDTV has a copy of the draft, a final report of which could be presented in
Parliament.
Questions raised
The draft says Rs 25.36 crore extra was paid for each aircraft to improve
interiors and in-flight entertainment, while every Embraer jet already had
plush interiors.
This was about 25 per cent of the cost of each aircraft.
The draft also mentions that there was no global tender for the deal and the
second lowest bidder Dassault Aviation has a substantial shareholding in
Embraer, proving that the bid was not competitive.
Also, in-flight entertainment and the interiors were arbitrarily priced and
Embraer's quote was five times higher than the second bidder, which the
Price Negotiating Committee (PNC) did not negotiate.
The draft also points out that the VIP squadron already had two Boeings,
seven Avros and six MI-8 helicopters.
Only four per cent of Avro time was used for VIPs and a whopping Rs 712
crore were spent on replacing the Avros.
Govt backs NDA
Even by today's prices, the NDA government paid Rs 18 crore extra for each
aircraft.
But defence ministry sources say that while replying to the CAG's queries,
the UPA government backed NDA defence minister George Fernandes.
That too, despite the CAG making out a clear case of overpayment which could
even mean kickbacks of over Rs 100 crore in the deal.
Tuesday, August 7, 2007
PAC Wants Details of Case Against RV Pandit’s Son
25 Aug 2002
Rajesh Ramachandran
Times News Network
NEW DELHI: Parliament’s Public Accounts Committee (PAC) — currently probing the handing over of official defence ministry documents to Samata party financier R V Pandit — has sought an ‘‘action taken note’’ from the department of revenue on the alleged tax anomalies by a company owned by Pandit’s son.
Pandit senior is a close aide of defence minister George Fernandes and Samata party leader Jaya Jaitly. Earlier this year, he wrote a controversial pamphlet on the ‘coffin scam’ defending Fernandes and attacking the Comptroller and Auditor-General.
He also paid the fees of an expert witness from Britain, who was flown in by Jaitly to testify on her behalf at the tehelka hearings. The PAC had stumbled upon an audit paragraph referring to alleged tax anomalies by M/s Frontier Trading, a company owned by Pandit’s son, Vasant R Pandit.
The PAC wrote to the finance ministry on August 8, requesting the department of revenue to inform the PAC secretariat about the action taken on an audit objection raised by CAG regarding duty exemptions granted to Frontier Trading.
The ‘‘action taken note’’ was due on July 15 on the audit para referring to Frontier Trading’s classification of mattresses. A duty of around Rs 40 crore was imposed on Frontier by Mumbai customs commissioner (import) M C Thakur on August 31, 2001, for wrongly classifying imported luxury mattresses as magnetic acupressure treatment instruments and thereby claiming lower customs duty.
But the case has already gone in favour of Pandit’s son. R V Pandit had presented a case on behalf of his son to the Central Board of Excise and Customs (CBEC) on October 5, 2001. Within 20 days, the CBEC issued a clarification nullifying Thakur’s order. Pandit’s presentation was made to the chairman (excise and customs), member (customs) and joint secretary (customs).
Frontier proprietor Vasant Pandit told The Times of India, ‘‘Dad is my guarantor. I hadn’t gone to the board, Dad presented the case on my behalf.’’ He said everything is above board and he got speedy redressal from the board simply because he is an honest tax payer.
Rajesh Ramachandran
Times News Network
NEW DELHI: Parliament’s Public Accounts Committee (PAC) — currently probing the handing over of official defence ministry documents to Samata party financier R V Pandit — has sought an ‘‘action taken note’’ from the department of revenue on the alleged tax anomalies by a company owned by Pandit’s son.
Pandit senior is a close aide of defence minister George Fernandes and Samata party leader Jaya Jaitly. Earlier this year, he wrote a controversial pamphlet on the ‘coffin scam’ defending Fernandes and attacking the Comptroller and Auditor-General.
He also paid the fees of an expert witness from Britain, who was flown in by Jaitly to testify on her behalf at the tehelka hearings. The PAC had stumbled upon an audit paragraph referring to alleged tax anomalies by M/s Frontier Trading, a company owned by Pandit’s son, Vasant R Pandit.
The PAC wrote to the finance ministry on August 8, requesting the department of revenue to inform the PAC secretariat about the action taken on an audit objection raised by CAG regarding duty exemptions granted to Frontier Trading.
The ‘‘action taken note’’ was due on July 15 on the audit para referring to Frontier Trading’s classification of mattresses. A duty of around Rs 40 crore was imposed on Frontier by Mumbai customs commissioner (import) M C Thakur on August 31, 2001, for wrongly classifying imported luxury mattresses as magnetic acupressure treatment instruments and thereby claiming lower customs duty.
But the case has already gone in favour of Pandit’s son. R V Pandit had presented a case on behalf of his son to the Central Board of Excise and Customs (CBEC) on October 5, 2001. Within 20 days, the CBEC issued a clarification nullifying Thakur’s order. Pandit’s presentation was made to the chairman (excise and customs), member (customs) and joint secretary (customs).
Frontier proprietor Vasant Pandit told The Times of India, ‘‘Dad is my guarantor. I hadn’t gone to the board, Dad presented the case on my behalf.’’ He said everything is above board and he got speedy redressal from the board simply because he is an honest tax payer.
Coffin Scam Resurfaces With Old Ghosts
25 Jan 2002
Times News Network
New Delhi: Though it is not clear where they were obtained from, shiny new aluminium caskets of the ‘coffin scam’ fame were the star exhibits at a press conference held on Thursday to denounce the Comptroller and Auditor General (CAG) — and the media — for highlighting irregularities in the Kargil-era purchase of 150 coffins. ‘Activist’ and pamphleteer RV Pandit, who hosted the press conference, vigorously defended George Fernandes and casket supplier Victor Baiza.
A pamphlet written by Pandit and distributed by a Samata party activist termed the ‘coffin scam’ a minor defence ministry ‘‘goof-up’’. It suggested the defence ministry — which found the caskets unusable — should induct the caskets and drop its case against baiza for recovery of money already paid to him.
For Pandit, however, the real culprit is the CAG: ‘‘His report is half-baked, almost intentionally malicious.’’ Pandit also attacked the Times of India for first reporting the CAG’s allegations. Pandit’s pamphlet, which otherwise draws freely on internal defence ministry papers, contains crucial omissions. ‘‘At no time ever did the commander of the Indian forces in Somalia authenticate the price tag of $172...in 1994 for transporting the 11 bodies of indian personnel,’’ writes pandit.
But the CAG based its report on official documents. Maj M Sajjad of the Somalia-based 66 Infantry brigade wrote in December 1994 ‘‘for’’ his ‘‘commander’’ that ‘‘the approximate cost of casket and body bags are as follows: casket - $ 172’’.
Pandit also said the CAG had no basis to assert that 75 per cent of the casket price was accounted for by the cost of aluminium. However, the CAG took this figure from the minutes of the MOD’s price negotiating committee, another document Pandit chose not to reproduce.
Also present at the press conference was MP and former Army chief Shanker Roychoudhary. However, not everything he said meshed fully with the message Pandit wanted to convey. For example, while answering questions, Gen Roychoudhary said the controversial deal needed to be inquired into since the army has declared the coffins unfit for use. He also felt the fact that DRDO and R&DE pune had indicated their willingness to manufacture these caskets indigenously is a ‘‘major aspect’’ of the controversy that needs to be looked into.
Pandit, on the other hand, argued that the MOD was entirely at fault for having asked Baiza to supply die-pressed caskets weighing 18 kilos when the us army did not insist on such specifications. But even though Baiza signed a contract with the MOD’s specifications only to renege on the terms of the contract, Pandit said the government should accept his caskets.
And though it was the MOD which referred the caskets’ purchase to the CAG as part of a special audit of Kargil-related deals, Pandit insisted that the media was wrong to report that the caskets were meant for the Kargil war.
Times News Network
New Delhi: Though it is not clear where they were obtained from, shiny new aluminium caskets of the ‘coffin scam’ fame were the star exhibits at a press conference held on Thursday to denounce the Comptroller and Auditor General (CAG) — and the media — for highlighting irregularities in the Kargil-era purchase of 150 coffins. ‘Activist’ and pamphleteer RV Pandit, who hosted the press conference, vigorously defended George Fernandes and casket supplier Victor Baiza.
A pamphlet written by Pandit and distributed by a Samata party activist termed the ‘coffin scam’ a minor defence ministry ‘‘goof-up’’. It suggested the defence ministry — which found the caskets unusable — should induct the caskets and drop its case against baiza for recovery of money already paid to him.
For Pandit, however, the real culprit is the CAG: ‘‘His report is half-baked, almost intentionally malicious.’’ Pandit also attacked the Times of India for first reporting the CAG’s allegations. Pandit’s pamphlet, which otherwise draws freely on internal defence ministry papers, contains crucial omissions. ‘‘At no time ever did the commander of the Indian forces in Somalia authenticate the price tag of $172...in 1994 for transporting the 11 bodies of indian personnel,’’ writes pandit.
But the CAG based its report on official documents. Maj M Sajjad of the Somalia-based 66 Infantry brigade wrote in December 1994 ‘‘for’’ his ‘‘commander’’ that ‘‘the approximate cost of casket and body bags are as follows: casket - $ 172’’.
Pandit also said the CAG had no basis to assert that 75 per cent of the casket price was accounted for by the cost of aluminium. However, the CAG took this figure from the minutes of the MOD’s price negotiating committee, another document Pandit chose not to reproduce.
Also present at the press conference was MP and former Army chief Shanker Roychoudhary. However, not everything he said meshed fully with the message Pandit wanted to convey. For example, while answering questions, Gen Roychoudhary said the controversial deal needed to be inquired into since the army has declared the coffins unfit for use. He also felt the fact that DRDO and R&DE pune had indicated their willingness to manufacture these caskets indigenously is a ‘‘major aspect’’ of the controversy that needs to be looked into.
Pandit, on the other hand, argued that the MOD was entirely at fault for having asked Baiza to supply die-pressed caskets weighing 18 kilos when the us army did not insist on such specifications. But even though Baiza signed a contract with the MOD’s specifications only to renege on the terms of the contract, Pandit said the government should accept his caskets.
And though it was the MOD which referred the caskets’ purchase to the CAG as part of a special audit of Kargil-related deals, Pandit insisted that the media was wrong to report that the caskets were meant for the Kargil war.
Friday, July 27, 2007
Big Payoff In Small Print
To get ol' Dabhol going, Rs 10,000 crore of public money will be spent, and most of it to retire its foreign debt.
25 April, 2005
Rajesh Ramachandran
Outlook
After the meeting of the Cabinet Committee on Economic Affairs (CCEA) last week, defence minister Pranab Mukherjee made what seemed an innocuous announcement. "We are negotiating with all parties concerned for settling the issue amicably. This, it is hoped, will help them (stakeholders) settle these issues early." The issues in question were Enron and the revival of the Dabhol Power Company (DPC). Mukherjee stepped in because finance minister P. Chidambaram, former lawyer for Enron, had 'recused' himself.
What Mukherjee left unsaid was that it was the Indian taxpayer who would be bearing the burden of the Rs 5,000-crore bailout package for the promoters and lenders of the dubious US power company and its contractors. Outlook is in possession of the note prepared for the CCEA, which reveals shocking details of Enron's foreign loans that the government is promising to pay off. These include:
Offshore lenders: $230 million
Export credit agencies: $450 million
Overseas Private Investment Corporation (OPIC) loan: $138 million
OPIC political risk insurance: $111 mn
Buying out GE-Bechtel's stake and dues: $250-$350 million
The question of how the money would be generated has been left to Indian financial institutions (IFIS) which have already lost Rs 3,600 crore in DPC. The government isn't giving any details, neither to the media, nor even to Parliament. When the issue of Indian banks and financial institutions tapping the Employees' Provident Fund to repay Enron's loans was first reported by Outlook, the government refused to comment on it. When the matter was raised in the Rajya Sabha, minister of state for personnel, Suresh Pachauri, said it was improper to give out details since the issue is at negotiation stage.
The government's reluctance is understandable. It has never really revealed the full details of Enron's liabilities. Now, it has to subsidise a hugely unpopular project, the revival of which is fraught with questionable compromises.
April 21 is the deadline the government has set to pay off creditors. Through the Indian lenders to Enron—IDBI, ICICI, IFCI, SBI and Canara Bank—the government has promised to repay $230 million to 20 creditors, including Bank of America and ABN Amro Holding NV. To quote the cabinet note: "A settlement has been reached for the buyout of offshore lenders in the meeting between the negotiating committee and offshore lenders held in Singapore on January 21, 2005, and payments have to be made in the next 90 days. As per the terms of settlement, payment of US $230 million will be made against the principal debt outstanding of US $289, the outstanding interest will be waived, implying recovery of approximately 80 per cent of the principal dues of the offshore lenders."
That's not all. Enron owes $450 million to export credit agencies (ECAs) which have provided such credit for goods and services supplied to DPC. The primary ECA is the Japan Bank of International Cooperation. This debt too has fallen on IFIS, which have sought time till December 1, 2005. Then, the US government's lending arm OPIC had advanced $78 million for Dabhol's first phase and $60 million for the second stage. The total of $138 million is outstanding. Apart from this amount, OPIC had issued political risk insurance to Enron, equipment suppliers and contractors, GE and Bechtel and lenders Bank of America.
According to OPIC's official communication to the Indian government, it had paid $111 million under various political risk insurance policies and now wants all these to be repaid by the Indian government under the 'Investment Incentive Agreement between the Government of India and Government of USA'. A negotiating team led by Anoop Mishra, joint secretary of finance ministry, met OPIC representatives on January 12, 2005, and then again on March 7 and 9 in Washington to discuss the settlement of OPIC's claims.
The final settlement is to the benefit of OPIC: an upfront cash payment for the political risk insurance of $20.7 million before July 5, 2005, and the remaining $91 million to be repaid in eight years with 2 per cent interest. The deferred payment for $91 million would be guaranteed by the special purpose vehicle formed by IFIS and counter-guaranteed by the Indian government. The other upfront cash payment involves $108 million which goes towards the repayment of OPIC's $138 million loan. What the government's therefore agreed to pay under various heads is some $900 million or about Rs 4,000 crore.
This was stitched up even as the government told the Rajya Sabha that it could not reveal the details of the deal. Dipankar Mukherjee of the CPI(M) had sought a white paper on Dabhol on February 18. The CCEA note was written on February 19.
Another huge amount of over Rs 1,000 crore is at stake. For DPC to be revived, equipment suppliers GE and Bechtel have to be paid off. These two companies together had 20 per cent stake in DPC. Later, they bought 49 per cent of shares of Dutch shell company Offshore Power Production from Enron's liquidators, effectively controlling 85 per cent of DPC. The Mishra-led team went to New York on March 17 and the cabinet note written two days later says, "Information on the meeting was received orally by telephone from Mrs Kalpana Moreparia, deputy managing director, ICICI, on the morning of March 19, 2005."
When negotiations first began in January 2005, GE-Bechtel had sought $460 million for its equity and unpaid dues. The Indian government's offer began at $158 million and was then raised to $213 million while GE-Bechtel lowered its demand to $290 million. On March 12, 2005, GE and Bechtel wrote that the $213 million offer was "well below the $250 million verbally offered by (former IDBI chairman) Mr Damodaran in (GE chief executive officer) Scott Bayman's last meeting with him". They also upped their demand to $350 million. Mishra's team that reached New York on March 17 raised the Indian offer to $250.
Interestingly, Damodaran had told the government that while GE was keen on a settlement, Bechtel was insisting on full payment of dues because, "the personal funds of one of the directors of Bechtel were included in the contract". Thus the government has already committed $250 million or over Rs 1,000 crore to GE and Bechtel. This figure can only go up as the government bends over backwards to meet their demands.
Even this Rs 5,000-crore bailout package will not get the Dabhol plant going. The government has already asked NTPC, GAIL and IFIS to invest Rs 500 crore each to get the plant running. At the end of the day, over Rs 10,000 crore (including the Rs 3,600 crore already lost) would have been spent to get the 2,184 MW plant going. This is at least Rs 2,000 crore more than what a wholly new plant would have cost! Reliance's gas-based 3,500 MW plant in UP is expected to cost just Rs 10,000 crore.
Power experts have already asserted that by selling power at the competitive rate of Rs 2.2 per unit (as clearly indicated in the cabinet note), all the money sunk in Enron's bailout and GE-Bechtel's equity and dues can never be recovered. Who knows, the government may be waiting with yet another bailout package for this FDI once it gets revived.
25 April, 2005
Rajesh Ramachandran
Outlook
After the meeting of the Cabinet Committee on Economic Affairs (CCEA) last week, defence minister Pranab Mukherjee made what seemed an innocuous announcement. "We are negotiating with all parties concerned for settling the issue amicably. This, it is hoped, will help them (stakeholders) settle these issues early." The issues in question were Enron and the revival of the Dabhol Power Company (DPC). Mukherjee stepped in because finance minister P. Chidambaram, former lawyer for Enron, had 'recused' himself.
What Mukherjee left unsaid was that it was the Indian taxpayer who would be bearing the burden of the Rs 5,000-crore bailout package for the promoters and lenders of the dubious US power company and its contractors. Outlook is in possession of the note prepared for the CCEA, which reveals shocking details of Enron's foreign loans that the government is promising to pay off. These include:
Offshore lenders: $230 million
Export credit agencies: $450 million
Overseas Private Investment Corporation (OPIC) loan: $138 million
OPIC political risk insurance: $111 mn
Buying out GE-Bechtel's stake and dues: $250-$350 million
The question of how the money would be generated has been left to Indian financial institutions (IFIS) which have already lost Rs 3,600 crore in DPC. The government isn't giving any details, neither to the media, nor even to Parliament. When the issue of Indian banks and financial institutions tapping the Employees' Provident Fund to repay Enron's loans was first reported by Outlook, the government refused to comment on it. When the matter was raised in the Rajya Sabha, minister of state for personnel, Suresh Pachauri, said it was improper to give out details since the issue is at negotiation stage.
The government's reluctance is understandable. It has never really revealed the full details of Enron's liabilities. Now, it has to subsidise a hugely unpopular project, the revival of which is fraught with questionable compromises.
April 21 is the deadline the government has set to pay off creditors. Through the Indian lenders to Enron—IDBI, ICICI, IFCI, SBI and Canara Bank—the government has promised to repay $230 million to 20 creditors, including Bank of America and ABN Amro Holding NV. To quote the cabinet note: "A settlement has been reached for the buyout of offshore lenders in the meeting between the negotiating committee and offshore lenders held in Singapore on January 21, 2005, and payments have to be made in the next 90 days. As per the terms of settlement, payment of US $230 million will be made against the principal debt outstanding of US $289, the outstanding interest will be waived, implying recovery of approximately 80 per cent of the principal dues of the offshore lenders."
That's not all. Enron owes $450 million to export credit agencies (ECAs) which have provided such credit for goods and services supplied to DPC. The primary ECA is the Japan Bank of International Cooperation. This debt too has fallen on IFIS, which have sought time till December 1, 2005. Then, the US government's lending arm OPIC had advanced $78 million for Dabhol's first phase and $60 million for the second stage. The total of $138 million is outstanding. Apart from this amount, OPIC had issued political risk insurance to Enron, equipment suppliers and contractors, GE and Bechtel and lenders Bank of America.
According to OPIC's official communication to the Indian government, it had paid $111 million under various political risk insurance policies and now wants all these to be repaid by the Indian government under the 'Investment Incentive Agreement between the Government of India and Government of USA'. A negotiating team led by Anoop Mishra, joint secretary of finance ministry, met OPIC representatives on January 12, 2005, and then again on March 7 and 9 in Washington to discuss the settlement of OPIC's claims.
The final settlement is to the benefit of OPIC: an upfront cash payment for the political risk insurance of $20.7 million before July 5, 2005, and the remaining $91 million to be repaid in eight years with 2 per cent interest. The deferred payment for $91 million would be guaranteed by the special purpose vehicle formed by IFIS and counter-guaranteed by the Indian government. The other upfront cash payment involves $108 million which goes towards the repayment of OPIC's $138 million loan. What the government's therefore agreed to pay under various heads is some $900 million or about Rs 4,000 crore.
This was stitched up even as the government told the Rajya Sabha that it could not reveal the details of the deal. Dipankar Mukherjee of the CPI(M) had sought a white paper on Dabhol on February 18. The CCEA note was written on February 19.
Another huge amount of over Rs 1,000 crore is at stake. For DPC to be revived, equipment suppliers GE and Bechtel have to be paid off. These two companies together had 20 per cent stake in DPC. Later, they bought 49 per cent of shares of Dutch shell company Offshore Power Production from Enron's liquidators, effectively controlling 85 per cent of DPC. The Mishra-led team went to New York on March 17 and the cabinet note written two days later says, "Information on the meeting was received orally by telephone from Mrs Kalpana Moreparia, deputy managing director, ICICI, on the morning of March 19, 2005."
When negotiations first began in January 2005, GE-Bechtel had sought $460 million for its equity and unpaid dues. The Indian government's offer began at $158 million and was then raised to $213 million while GE-Bechtel lowered its demand to $290 million. On March 12, 2005, GE and Bechtel wrote that the $213 million offer was "well below the $250 million verbally offered by (former IDBI chairman) Mr Damodaran in (GE chief executive officer) Scott Bayman's last meeting with him". They also upped their demand to $350 million. Mishra's team that reached New York on March 17 raised the Indian offer to $250.
Interestingly, Damodaran had told the government that while GE was keen on a settlement, Bechtel was insisting on full payment of dues because, "the personal funds of one of the directors of Bechtel were included in the contract". Thus the government has already committed $250 million or over Rs 1,000 crore to GE and Bechtel. This figure can only go up as the government bends over backwards to meet their demands.
Even this Rs 5,000-crore bailout package will not get the Dabhol plant going. The government has already asked NTPC, GAIL and IFIS to invest Rs 500 crore each to get the plant running. At the end of the day, over Rs 10,000 crore (including the Rs 3,600 crore already lost) would have been spent to get the 2,184 MW plant going. This is at least Rs 2,000 crore more than what a wholly new plant would have cost! Reliance's gas-based 3,500 MW plant in UP is expected to cost just Rs 10,000 crore.
Power experts have already asserted that by selling power at the competitive rate of Rs 2.2 per unit (as clearly indicated in the cabinet note), all the money sunk in Enron's bailout and GE-Bechtel's equity and dues can never be recovered. Who knows, the government may be waiting with yet another bailout package for this FDI once it gets revived.
Thursday, July 26, 2007
Big Bang Bailout
The government has chalked out a Rs 9,000-crore package to save IDBI. Or is it to save Dabhol Power?
11 Oct, 2004
Rajesh Ramachandran
Outlook
It's the Indian taxpayer who is being made a sucker again. On September 29, the Union government pumped in Rs 9,000 crore in a move to bail out defaulting promoters and infuse badly required finance to save one of the country's biggest financial institutions, the Industrial Development Bank of India (IDBI).
This is the biggest rescue package since UTI was bailed out of its mess in 2002. With this Rs 9,000 crore, IDBI can erase from its books all non-performing assets (NPAs) or loans it has not been able to recover from corporate promoters who owe the financial institution in billions of rupees.
Critics describe this generosity to corporates as an attempt to help defaulting companies which have failed to repay their debts. Bankers, however, feel it is a smart move to keep IDBI afloat. They give its chairman M. Damodaran full credit for a 'strategy' that would make IDBI healthy just when it is switching from being a financial institution to a commercial bank.
Damodaran reportedly has said: "As a result of this transaction, IDBI would not have to provide for its ageing of assets any more and thus would come out healthy. And the 20-year term (the lock-in period for the money in the form of government securities) I think is sufficient for a problem even of the magnitude of Dabhol to be resolved".
The biggest beneficiary of this controversial bailout package is the notorious US multinational, Enron. Its Indian arm, the Dabhol Power Corporation (DPC), is still mired in controversial litigation. Its new owners GE and Bechtel have slapped a Rs 26,000-crore arbitration case against the Maharashtra State Electricity Board. Yet, DPC's liabilities are being taken out of the books of its biggest Indian lender, IDBI, without any immediate attempt to take over DPC's assets.
Says Abhay Mehta, author of Power Play, an expose on the Dabhol deal: "This huge bailout is largely on account of Enron. IDBI should have ideally moved the US bankruptcy court to take over the Dabhol plant."About 25 to 30 per cent of the Rs 9,000 crore bailout package for IDBI is for Dabhol.
Then, there are the steel majors who had turned around their businesses in the last couple of years with the growing global demand for iron and steel, but are still to clear old debts. Interestingly, the government has not named corporates who owe IDBI money even while dishing out the largesse. The government note only says, "With the cleaning up of IDBI books, the net NPA position of IDBI is expected to improve."
The method adopted by the government to keep IDBI afloat is this: it has formed a 'Stressed Assets Stabilisation Fund' (SASF). This special purpose vehicle has got Rs 9,000 crore from the government. The SASF in turn will use this money to buy government securities. These zero-interest government bonds will be exchanged for IDBI's bad debts. In effect, the government would have bought IDBI's bad debts for Rs 9,000 crore through the SASF.
The catch: though the government is not paying any real money now, it is issuing bonds that would mature in 20 years. And if the bad debts are not recovered by then, the taxpayer would have actually bankrolled the promoters, some of whom the government had declared as "wilful defaulters."
E.A.S. Sarma, expenditure secretary during the Vajpayee government and member of the Godbole committee which examined the Dabhol deal, maintains that finally it is the taxpayer who will haul the burden. He told Outook: "The scheme announced by the government for cleaning up the IDBI balancesheet is not strictly 'budget-neutral'. It may not involve any cash outflow during the current year, but the government has indirectly incurred a liability by issuing securities covering Rs 9,000 crore, as the securities are required to be redeemed in the future. Budget-neutrality is only cosmetic, as bad loans cannot become good loans overnight!"
Dr Sarma is certain that this tripartite arrangement merely implies that the IDBI's bad debts are being taken over by the government through the SASF, which has been created for this purpose. "It is the taxpayer who takes the hit finally," he says.
The most optimistic projection done by finance ministry officials is that around 60 per cent of the bad debts would be recovered by the SASF. That implies writing off Rs 3,600 crore worth of bad debts. But even this is wishful thinking given the fact that the SASF does not have a magic wand to make all the IDBI debtors pay up.
After all, IDBI failed to recover funds from its debtors so it does not seem possible for the SASF to achieve that feat. Also, the NDA government had set up Asset Reconstruction Companies (ARC) to recover bad loans and the IDBI is part of one such venture. Yet, the government chose a special fund instead of ARCs implying that these bad loans are not easily recoverable.
In the case of Dabhol, the IDBI was not willing to classify it as a bad debt till the government assured it of the bailout package. Had the bank done it, its NPA ratio would have zoomed past permissible levels, ringing in the bank's imminent death. So is the case with most of the loans taken by steel companies.
Now, the government is busy planning Dabhol's revival, first by paying off its foreign lenders and then by encouraging fresh promoters to take over the assets and run the company. In fact, a committee comprising former US ambassador Naresh Chandra and Vijay Kelkar, advisor to the finance minister, had recommended 'de-dollarisation' of all loans with an Indian bank paying off all the foreign debts.
Foreign lenders thus would be relieved off their burden.On October 1, a group of ministers led by defence minister Pranab Mukherjee will have a re-look at the project. Former Maharashtra chief minister Sharad Pawar, who first struck the Enron deal, and Planning Commission deputy chairman Montek Singh Ahluwalia, who had approved the project and the counter-guarantee as finance secretary, and power minister P.M. Sayeed, are members.
Former Enron lawyer and Union finance minister P. Chidambaram has kept himself away since there could be a conflict of interest. With $1.3 billion Indian loans and $600 million foreign loans, Dabhol is not exactly a prime asset that a new promoter would look at, particularly with GE-Bechtel's arbitration for Rs 26,000 crore and their demand for $500 million as its original investment. The revival formula that is being worked out is to provide concessions to potential buyers like Tatas, Reliance, British Gas or Shell.
These concessions would obviously imply a reduction in the liabilities like the over Rs 2,500-crore loan from IDBI, along with guarantees for foreign loans. Says Sarma: "It will be interesting to watch how the government is going to deal with projects covered by IDBI's bad loans, especially Dabhol. Would the government grant all sorts of concessions to make it appear as though electricity from that project had become cheaper? If it is made cheaper, it would only be at the expense of the taxpayer again."
In effect, public money is being spent on protecting private interests. This also involves larger governance issues. For instance, the badly appraised Dabhol project was forced on IDBI in the name of "power sector reforms". And reformers who hate even a penny of public money being spent in the public sector have greeted the huge bailout package for the private promoters with silent approval.
11 Oct, 2004
Rajesh Ramachandran
Outlook
It's the Indian taxpayer who is being made a sucker again. On September 29, the Union government pumped in Rs 9,000 crore in a move to bail out defaulting promoters and infuse badly required finance to save one of the country's biggest financial institutions, the Industrial Development Bank of India (IDBI).
This is the biggest rescue package since UTI was bailed out of its mess in 2002. With this Rs 9,000 crore, IDBI can erase from its books all non-performing assets (NPAs) or loans it has not been able to recover from corporate promoters who owe the financial institution in billions of rupees.
Critics describe this generosity to corporates as an attempt to help defaulting companies which have failed to repay their debts. Bankers, however, feel it is a smart move to keep IDBI afloat. They give its chairman M. Damodaran full credit for a 'strategy' that would make IDBI healthy just when it is switching from being a financial institution to a commercial bank.
Damodaran reportedly has said: "As a result of this transaction, IDBI would not have to provide for its ageing of assets any more and thus would come out healthy. And the 20-year term (the lock-in period for the money in the form of government securities) I think is sufficient for a problem even of the magnitude of Dabhol to be resolved".
The biggest beneficiary of this controversial bailout package is the notorious US multinational, Enron. Its Indian arm, the Dabhol Power Corporation (DPC), is still mired in controversial litigation. Its new owners GE and Bechtel have slapped a Rs 26,000-crore arbitration case against the Maharashtra State Electricity Board. Yet, DPC's liabilities are being taken out of the books of its biggest Indian lender, IDBI, without any immediate attempt to take over DPC's assets.
Says Abhay Mehta, author of Power Play, an expose on the Dabhol deal: "This huge bailout is largely on account of Enron. IDBI should have ideally moved the US bankruptcy court to take over the Dabhol plant."About 25 to 30 per cent of the Rs 9,000 crore bailout package for IDBI is for Dabhol.
Then, there are the steel majors who had turned around their businesses in the last couple of years with the growing global demand for iron and steel, but are still to clear old debts. Interestingly, the government has not named corporates who owe IDBI money even while dishing out the largesse. The government note only says, "With the cleaning up of IDBI books, the net NPA position of IDBI is expected to improve."
The method adopted by the government to keep IDBI afloat is this: it has formed a 'Stressed Assets Stabilisation Fund' (SASF). This special purpose vehicle has got Rs 9,000 crore from the government. The SASF in turn will use this money to buy government securities. These zero-interest government bonds will be exchanged for IDBI's bad debts. In effect, the government would have bought IDBI's bad debts for Rs 9,000 crore through the SASF.
The catch: though the government is not paying any real money now, it is issuing bonds that would mature in 20 years. And if the bad debts are not recovered by then, the taxpayer would have actually bankrolled the promoters, some of whom the government had declared as "wilful defaulters."
E.A.S. Sarma, expenditure secretary during the Vajpayee government and member of the Godbole committee which examined the Dabhol deal, maintains that finally it is the taxpayer who will haul the burden. He told Outook: "The scheme announced by the government for cleaning up the IDBI balancesheet is not strictly 'budget-neutral'. It may not involve any cash outflow during the current year, but the government has indirectly incurred a liability by issuing securities covering Rs 9,000 crore, as the securities are required to be redeemed in the future. Budget-neutrality is only cosmetic, as bad loans cannot become good loans overnight!"
Dr Sarma is certain that this tripartite arrangement merely implies that the IDBI's bad debts are being taken over by the government through the SASF, which has been created for this purpose. "It is the taxpayer who takes the hit finally," he says.
The most optimistic projection done by finance ministry officials is that around 60 per cent of the bad debts would be recovered by the SASF. That implies writing off Rs 3,600 crore worth of bad debts. But even this is wishful thinking given the fact that the SASF does not have a magic wand to make all the IDBI debtors pay up.
After all, IDBI failed to recover funds from its debtors so it does not seem possible for the SASF to achieve that feat. Also, the NDA government had set up Asset Reconstruction Companies (ARC) to recover bad loans and the IDBI is part of one such venture. Yet, the government chose a special fund instead of ARCs implying that these bad loans are not easily recoverable.
In the case of Dabhol, the IDBI was not willing to classify it as a bad debt till the government assured it of the bailout package. Had the bank done it, its NPA ratio would have zoomed past permissible levels, ringing in the bank's imminent death. So is the case with most of the loans taken by steel companies.
Now, the government is busy planning Dabhol's revival, first by paying off its foreign lenders and then by encouraging fresh promoters to take over the assets and run the company. In fact, a committee comprising former US ambassador Naresh Chandra and Vijay Kelkar, advisor to the finance minister, had recommended 'de-dollarisation' of all loans with an Indian bank paying off all the foreign debts.
Foreign lenders thus would be relieved off their burden.On October 1, a group of ministers led by defence minister Pranab Mukherjee will have a re-look at the project. Former Maharashtra chief minister Sharad Pawar, who first struck the Enron deal, and Planning Commission deputy chairman Montek Singh Ahluwalia, who had approved the project and the counter-guarantee as finance secretary, and power minister P.M. Sayeed, are members.
Former Enron lawyer and Union finance minister P. Chidambaram has kept himself away since there could be a conflict of interest. With $1.3 billion Indian loans and $600 million foreign loans, Dabhol is not exactly a prime asset that a new promoter would look at, particularly with GE-Bechtel's arbitration for Rs 26,000 crore and their demand for $500 million as its original investment. The revival formula that is being worked out is to provide concessions to potential buyers like Tatas, Reliance, British Gas or Shell.
These concessions would obviously imply a reduction in the liabilities like the over Rs 2,500-crore loan from IDBI, along with guarantees for foreign loans. Says Sarma: "It will be interesting to watch how the government is going to deal with projects covered by IDBI's bad loans, especially Dabhol. Would the government grant all sorts of concessions to make it appear as though electricity from that project had become cheaper? If it is made cheaper, it would only be at the expense of the taxpayer again."
In effect, public money is being spent on protecting private interests. This also involves larger governance issues. For instance, the badly appraised Dabhol project was forced on IDBI in the name of "power sector reforms". And reformers who hate even a penny of public money being spent in the public sector have greeted the huge bailout package for the private promoters with silent approval.
Wednesday, July 25, 2007
Enron Saga: Power Of Political Will On Test
15 Feb 2001
Rajesh Ramachandran
The Times of India
NEW DELHI: Is there a way out of the Enron imbroglio? Contrary to what `experts' and the government say, there seem several options available to the government. But to avail them would require some political will.
S N Roy, former chairman of the Central Electricity Authority, points out that just as Pakistan got a US power company to reduce its tariff by half, India too should get the Enron tariff reduced.
When asked whether it is ready to re-negotiate the power purchase agreement (PPA) and bring down the tariff, Enron did not respond. Instead, a public relations agency replied that ``tariffs are not high''.
Observers assert that even after ensuring a reasonable profit for Enron, the tariffs can be cut. K K Govil, director projects, Power Finance Corporation insists, ``The present PPA is heavily in favour of Enron. The PPA should be re-negotiated to get capital costs and rate of return calculated in rupees and not dollars.''
According to Govil, pegging the costs and tariffs to foreign exchange is unheard of. ``The capacity related incentive should also go. Ideally, the cost of a gas-based plant should be half that of a coal-fired plant. But in Enron's case it is not so. This too has to be rectified,'' said Govil.
The government is tight-lipped, but sources say the government may palm off the burden to utlilities like National Thermal Power Corporation, Power Trading Corporation or Power Grid Corporation. That will end the public scrutiny of the project, contrary to what is happening in Maharashtra now, and the account will be shared by central utilities, state electricity boards and others.
Also making the round is a politically powerful industrial house's name, which might broker the deal. But will all this help? Roy feels it would be a disaster: ``Impossible. How can the government force NTPC or PTC, a commercial enterprise, to buy power at Rs 5 a unit and sell it at Rs 2?''
Even at full capacity, Enron's power is expected to cost around Rs 5 a unit, much higher than the NTPC's selling rate of about Rs 2 per unit. Prasant Bhushan, fighting a public interest litigation in the Supreme Court, has another set of solutions: Nationalise the project by an Act of Parliament, paying Enron a token or fair amount as in the case of bank nationalisation. Or, the Maharashtra Electricity Regulatory Commission's statutory power should be invoked to override the PPA and regulate the tariffs.
The Supreme Court had earlier limited the petition's scope to accountability of the public servants. ``If the SC gives full leave, the project will be voided since there was much illegality involved. Most importantly, if a criminal investigation into the bribes is initiated, enough evidence could be unearthed in three months,'' said Bhushan.
Will all this deter foreign investment in India? Ashok Rao, convenor of national working group for power, feels the bogey of foreign investment fleeing is a blackmail tactic. He points out that India is a bigger power industry market than most of Europe, West Asia or Latin America. ``There is a global recession in power industry. So, most private power companies are just a front for power equipment manufacturers who have to sell their equipment in India. That is why they insist there should be no competitive bidding for equipment.''
Would it hurt much if the government synchronised people's needs with those of the investor.
Rajesh Ramachandran
The Times of India
NEW DELHI: Is there a way out of the Enron imbroglio? Contrary to what `experts' and the government say, there seem several options available to the government. But to avail them would require some political will.
S N Roy, former chairman of the Central Electricity Authority, points out that just as Pakistan got a US power company to reduce its tariff by half, India too should get the Enron tariff reduced.
When asked whether it is ready to re-negotiate the power purchase agreement (PPA) and bring down the tariff, Enron did not respond. Instead, a public relations agency replied that ``tariffs are not high''.
Observers assert that even after ensuring a reasonable profit for Enron, the tariffs can be cut. K K Govil, director projects, Power Finance Corporation insists, ``The present PPA is heavily in favour of Enron. The PPA should be re-negotiated to get capital costs and rate of return calculated in rupees and not dollars.''
According to Govil, pegging the costs and tariffs to foreign exchange is unheard of. ``The capacity related incentive should also go. Ideally, the cost of a gas-based plant should be half that of a coal-fired plant. But in Enron's case it is not so. This too has to be rectified,'' said Govil.
The government is tight-lipped, but sources say the government may palm off the burden to utlilities like National Thermal Power Corporation, Power Trading Corporation or Power Grid Corporation. That will end the public scrutiny of the project, contrary to what is happening in Maharashtra now, and the account will be shared by central utilities, state electricity boards and others.
Also making the round is a politically powerful industrial house's name, which might broker the deal. But will all this help? Roy feels it would be a disaster: ``Impossible. How can the government force NTPC or PTC, a commercial enterprise, to buy power at Rs 5 a unit and sell it at Rs 2?''
Even at full capacity, Enron's power is expected to cost around Rs 5 a unit, much higher than the NTPC's selling rate of about Rs 2 per unit. Prasant Bhushan, fighting a public interest litigation in the Supreme Court, has another set of solutions: Nationalise the project by an Act of Parliament, paying Enron a token or fair amount as in the case of bank nationalisation. Or, the Maharashtra Electricity Regulatory Commission's statutory power should be invoked to override the PPA and regulate the tariffs.
The Supreme Court had earlier limited the petition's scope to accountability of the public servants. ``If the SC gives full leave, the project will be voided since there was much illegality involved. Most importantly, if a criminal investigation into the bribes is initiated, enough evidence could be unearthed in three months,'' said Bhushan.
Will all this deter foreign investment in India? Ashok Rao, convenor of national working group for power, feels the bogey of foreign investment fleeing is a blackmail tactic. He points out that India is a bigger power industry market than most of Europe, West Asia or Latin America. ``There is a global recession in power industry. So, most private power companies are just a front for power equipment manufacturers who have to sell their equipment in India. That is why they insist there should be no competitive bidding for equipment.''
Would it hurt much if the government synchronised people's needs with those of the investor.
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