13 Feb 2001
Rajesh Ramachandran
The Times of India
NEW DELHI: The Dabhol power project, India's first fast-track private venture promoted by Enron, continues to be mired in controversy, with the US energy major seeking to encash the Centre's guarantee after the Maharashtra State Electricity Board defaulted on its dues.
As per contractual obligations, the MSEB has to buy 90 per cent of Dabhol's installed capacity of 740 mw at a tariff that guarantees a 16 per cent rate of return to Enron, regardless of whether the state's pattern of demand justifies this. Anticipating payment difficulties at the state level, Enron had demanded - and received - a commitment from the Centre (known as a counter-guarantee) that the dues would be paid if Maharashtra defaulted. This commitment was given in 1996 by Jaswant Singh, who was finance minister in the 13-day Vajpayee-led government.
For some time now, Maharashtra has been complaining of Enron's high tariffs and that it would have to stop buying power from cheaper sources in order to use the 90 per cent of Dabhol's capacity. In July last year, the MSEB bought just 33 per cent of the power produced by Dabhol and paid Enron a staggering Rs 7.8 per unit. Though matters have only now come to a head, all the problems experienced by Maharashtra were painstakingly documented by Parliament's standing committee on energy in 1995-96.
Interestingly, this committee was chaired by Jaswant Singh, the present external affairs minister. This was how Singh explained what was wrong with the project: Maharashtra has surplus electricity in the night, with a `backing down' - i.e. shutting down of generation due to lack of demand - of seven billion units after office hours in the western region of the state alone. Hence, demand was for `peaking power' and not `baseload', which is the constant demand round the clock.
During a hearing of the standing committee's sub-panel on fast-track projects, SN Roy, former chairman of the Central Electricity Authority, warned: ``There is no question of Enron designing Dabhol as a baseload station. If Enron is there, they (MSEB will) have to close down most of their thermal power stations at night.''
In the standing committee's report, Jaswant Singh was conclusive: ``...Plant availability at levels significantly greater than the peak load demand for power (implies) that the existing power generation plants will have to `back down' well beyond present rates, thereby making them inefficient and financially non-viable. This alone would significantly increase the average cost of power to the consumer.''
Despite this recommendation, Dabhol was designed as a base-load station from which the MSEB is forced to buy electricity. To make matters worse, the Enron project was sanctioned on the basis of Enron's claimed costs, instead of competitive bidding on the lowest tariff. This cost, according to the committee, was the highest in comparison with other private projects.
For, as the committee explained, ``...guaranteed rate of return is tempting the investors to inflate their costs to ensure better returns. ...lack of competitive bidding has led to significant padding in the investment costs.'' Without any bidding, the government assured Enron a 16 per cent return on equity at 68.5 per cent plant load factor (PLF), a measurement of capacity utilisation. Even though the committee said ``return of 16 per cent..is questionable and calls for a review'', the Vajpayee government agreed to extend the guaranteed return to 90 per cent of Dabhol's capacity.
Tomorrow: How the counter-guarantees were given
Rajesh Ramachandran
The Times of India
NEW DELHI: The Dabhol power project, India's first fast-track private venture promoted by Enron, continues to be mired in controversy, with the US energy major seeking to encash the Centre's guarantee after the Maharashtra State Electricity Board defaulted on its dues.
As per contractual obligations, the MSEB has to buy 90 per cent of Dabhol's installed capacity of 740 mw at a tariff that guarantees a 16 per cent rate of return to Enron, regardless of whether the state's pattern of demand justifies this. Anticipating payment difficulties at the state level, Enron had demanded - and received - a commitment from the Centre (known as a counter-guarantee) that the dues would be paid if Maharashtra defaulted. This commitment was given in 1996 by Jaswant Singh, who was finance minister in the 13-day Vajpayee-led government.
For some time now, Maharashtra has been complaining of Enron's high tariffs and that it would have to stop buying power from cheaper sources in order to use the 90 per cent of Dabhol's capacity. In July last year, the MSEB bought just 33 per cent of the power produced by Dabhol and paid Enron a staggering Rs 7.8 per unit. Though matters have only now come to a head, all the problems experienced by Maharashtra were painstakingly documented by Parliament's standing committee on energy in 1995-96.
Interestingly, this committee was chaired by Jaswant Singh, the present external affairs minister. This was how Singh explained what was wrong with the project: Maharashtra has surplus electricity in the night, with a `backing down' - i.e. shutting down of generation due to lack of demand - of seven billion units after office hours in the western region of the state alone. Hence, demand was for `peaking power' and not `baseload', which is the constant demand round the clock.
During a hearing of the standing committee's sub-panel on fast-track projects, SN Roy, former chairman of the Central Electricity Authority, warned: ``There is no question of Enron designing Dabhol as a baseload station. If Enron is there, they (MSEB will) have to close down most of their thermal power stations at night.''
In the standing committee's report, Jaswant Singh was conclusive: ``...Plant availability at levels significantly greater than the peak load demand for power (implies) that the existing power generation plants will have to `back down' well beyond present rates, thereby making them inefficient and financially non-viable. This alone would significantly increase the average cost of power to the consumer.''
Despite this recommendation, Dabhol was designed as a base-load station from which the MSEB is forced to buy electricity. To make matters worse, the Enron project was sanctioned on the basis of Enron's claimed costs, instead of competitive bidding on the lowest tariff. This cost, according to the committee, was the highest in comparison with other private projects.
For, as the committee explained, ``...guaranteed rate of return is tempting the investors to inflate their costs to ensure better returns. ...lack of competitive bidding has led to significant padding in the investment costs.'' Without any bidding, the government assured Enron a 16 per cent return on equity at 68.5 per cent plant load factor (PLF), a measurement of capacity utilisation. Even though the committee said ``return of 16 per cent..is questionable and calls for a review'', the Vajpayee government agreed to extend the guaranteed return to 90 per cent of Dabhol's capacity.
Tomorrow: How the counter-guarantees were given
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