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DAM-L Dabhol Power Project/Enron: INDIA (fwd)
----- Forwarded message from owner-irn-narmada@netvista.net -----
Date: Wed, 10 Jan 2001 19:25:14 -0800 (PST)
Message-Id: <200101110325.f0B3PE726973@DaVinci.NetVista.net>
subject: LS: Dharmadhikary: A Bubble Called Enron
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The Hindustan Times, New Delhi, January, 09, 2001
A bubble called Enron
Shripad Dharmadhikary
ENRON IS in the news again. The current mess that the
Government of Maharashtra finds itself in with Enron is
at once farcical and frightening. It is strange to see the
same politicians who had brazenly defended and pushed
the deal with Enron now squirming, calling for its
renegotiation, and saying that the state Government just cannot
pay up.
The Dabhol Power Project, popularly known as the Enron
project, with its Phase I of 728 MW, makes an
interesting case of how globalisation in a developing
country can be replete with dark ironies. This is one of the
nine ‘fast track’ power projects which were initiated in
1991 with the opening of the power sector to private
companies. These nine, launched with much fanfare, were
expected to herald the era of privatised power —
cheap and plenty of it. Enron promised to build fast, and
deliver power at around Rs. 2.40 per unit.
The project faced stiff opposition on many counts but
principally on the grounds that the power would be too
expensive and the contract (the Power Purchase Agreement —
PPA) was loaded in favour of the company. The
BJP-Shiv Sena combine made this a major issue in the 1995
Assembly elections with Gopinath Munde’s now
famous proclamation: “We will throw the Enron project in the
Arabian Sea.”
The BJP-Shiv Sena came to power in Maharashtra, a high level
committee was set up to study the project and
this recommended scrapping of the Enron project. A notice
was given to Enron which moved for arbitration in
London. There was talk of crippling fines if the contract
with Enron was breached. A picture was painted that
India would become an outcast in the global market if it did
not honour its commitments.
Against these ‘odds’, the BJP-Shiv Sena Government ‘forced’
Enron to renegotiate. And triumphantly announced
that the loaded contract has been straightened out and the
price of power would be Rs 1.86 per unit. Phase II of
the project, till then optional, was also agreed. The
project came back on line, arbitration was withdrawn,
Rebecca Mark became a corporate heroine. Critics were as
usual brushed aside and branded as
‘anti-development’ and ‘anti-national’. The courts cleared
all the cases against Enron.
Now the bubble has burst. As Enron presented its first
bills, it has become clear that the power cost is
amazingly exorbitant — Rs 7.80 per unit at the last count.
The Maharashtra Government initially put up a brave
face and pretended that there was no problem, that it can
easily buy power from Enron. But now, there have
been a series of conflicting statements. Finally, the Chief
Minister has conceded that Maharashtra just cannot
afford the high cost power from Enron.
A few months back, the Maharashtra Electricity Regulatory
Authority (MERC) made an order requiring the
Maharashtra State Electricity Board (MSEB) to purchase the
cheapest possible power. Since Enron’s power is
the most expensive, Enron will have to be the last supplier
from whom MSEB can purchase power. The MSEB
thus is not allowed to buy all the power Enron can produce.
(It is lifting currently less than 45 per cent Plant
Load Factor). But it is bound by the PPA to still pay Enron
for all the fixed charges. These are to the tune of a
whopping Rs 95 crore per month — over Rs 1,000 crore a year.
The MSEB has to pay additional fuel charges for every unit
of electricity purchased. When Phase II starts,
MSEB’s payments in the first year itself will be about Rs
6,000 crore. Compare this to MSEB’s total turnover
today — Rs 11,000 crore.
The Maharashtra Chief Minister and other politicians are now
calling for a renegotiation of the contract. There is
talk of how Maharashtra will have to pay Enron Rs 35,000
crore if it annuls the contract. In this din, a few things
are forgotten.
The most important question is — how did this situation
arise in the first place? The fact is that the PPA was
highly skewed and it resulted in such a high price being
paid for the power. It is difficult to believe that the
Maharashtra Government was not aware of this. So why was
such a loaded PPA signed?
When the Enron deal was signed, those who opposed it pointed
out that the PPA would result in extremely
expensive power. (One is not referring here to the BJP which
raised the issue and changed track after coming in
power). Everything that was being said by the protestors
then is coming uncannily true.
Those who were also involved in the protests faced severe
repression. In one particularly outrageous incident,
Medha Patkar and others were brutally beaten up. Today,
media commentators and even the Government are
echoing the same figures and words which Patkar had cited at
that time.
A small Pune-based energy research group, ‘Prayas’, was the
first to do an analysis of the PPA — a brilliant
piece of work. (This was before the PPA was made public). If
a group consisting of a couple of engineers,
working with a desktop PC was able to accurately predict how
much the power from Enron would cost, it is
difficult to believe that the Government with its hordes of
engineers and infrastructure found itself clueless.
Why is the Government unable to do any thing about this
issue? If the contract is so blatantly one- sided, why is
the Government reduced to a hapless entity? If the country
allows one MNC to hold it by the neck with a loaded
PPA, if it cannot act to correct what is clearly against the
interests of the country, then where is the sovereignty
of the nation? These are the issues being raised by those
who are questioning the one-way blind drive towards
globalisation and privatisation.
Enron is not the only power project with these implications.
Since the privatisation process began, several
hundred MOUs have been signed with private, mostly foreign
companies, for building, owning and operating
power plants. In most of these cases, the PPAs are similarly
skewed.
Take the example of the Maheshwar Hydel Power Project
(MHEP). The first privatised hydel power project in the
country, MHEP is a 400 MW plant being built on the Narmada
river in Madhya Pradesh. The owners, a textile
company, have been looking for foreign equity partners; but
in the last several years, three companies have
come in and walked away — PacGen of the US, Bayernwerk of
Germany and recently, Ogden of the US.
The project raises all the concerns that large dams raise,
as also issues of privatisation. An intense mass
struggle is going on here since several years. Apart from
displacement and ecological issues, the key query
raised by the Narmada Bachao Andolan has been regarding the
cost of power from the project.
The PPA of this project has been analysed by ‘Prayas’, the
same group which analysed the Enron PPA. The
PPA is heavily loaded. Their analysis shows that power will
cost about Rs 7 per unit — without including the
cost of transmission and distribution — and even higher for
peaking power. The NBA has asked the Madhya
Pradesh Government and the project promoters to answer one
question — how much will the power cost? They
have been evading a reply.
Remembering Enron, a sense of déjà vu prevails. It will be
really a tragedy after a farce, if five years hence (if the
Maheshwar project is at all built), the MP Government is
found to be squirming in a manner similar to that of the
Maharashtra Government today.
What is needed is a comprehensive and transparent review of
all the Power Purchase Agreements. The ability
and talent to do an accurate analysis of the PPAs is
certainly there in the civil society (if not with the
Government). But whether the Government has the courage and
honesty to do this seems doubtful.
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