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Enron Mail |
Physical Bandwidth Delivery Varies Among Market-Makers
Dow Jones Energy Service, 04/12/01 USA: UPDATE 1-U.S. must embrace energy efficiency-report. Reuters English News Service, 04/12/01 Panel recommends renegotiating pact with Enron Associated Press Newswires, 04/12/01 USA: Persistent problems chinking Enron's armor. Reuters English News Service, 04/12/01 USA: Enron says Morgan Point, Tx. MTBE plant has restarted. Reuters English News Service, 04/12/01 RUSSIA WATCH: Putin Takes Well-Timed Shot At Gazprom Dow Jones International News, 04/12/01 USA: U.S. must embrace energy efficiency-report. Reuters English News Service, 04/12/01 INDIA: India state committee suggests Enron re-negotiation. Reuters English News Service, 04/12/01 Indian Panel Submits Report On Enron Power Dispute Dow Jones International News, 04/12/01 Indian Panel Proposes Enron, Maharashtra Redo Pact (Update1) Bloomberg, 04/12/01 Physical Bandwidth Delivery Varies Among Market-Makers By Erwin Seba Of DOW JONES NEWSWIRES 04/12/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Two market-makers in the nascent bandwidth trading arena describe widely divergent levels of physical delivery to their customers. While Enron Corp. (ENE) said almost all of its trades go to physical delivery, an executive with Aquila Broadband Services, a unit of Utilicorp United Inc. (UCU), said only 10% of its deals go to physical delivery. The question of physical delivery is important because analysts and especially carriers question the accuracy of prices in the bandwidth market. While none of the critics want to be quoted, they alleged that the bandwidth market consists only of companies like Enron and Aquila swapping capacity among themselves, then settling their deals financially without delivering bandwidth. Though trading companies disagree on the number of deals going to physical delivery, they all describe huge growth in the number of transactions they have done in the first three months of this year. "In the first quarter of this year, we've well surpassed the number of trades we did in all of last year," said Shelly Mansfield, director of media relations for Enron Broadband Services, a unit of Enron. Enron did 321 trades last year. Aquila Broadband Services told Dow Jones Newswires that the number of trades it did in the first quarter this year was more than triple the number it did all of last year. In the first quarter, Aquila did 150 to 200 trades, said Sushil Nelson, senior vice president and general manager. The company did fewer than 50 trades in all of last year. About 10% of last year's trades required physical delivery of bandwidth, Nelson said. Only trades done last year would gone to physical delivery in the first quarter of this year, he said. He expects a lower percentage of this year's trades to go to physical delivery. "Right now the bandwidth market is akin to a futures market," Nelson said. "It's acting like a futures market in that it is pointing where the price should be." Market Physical, Not Financial, Enron Says In contrast, Enron's Mansfield said most of its trades require physical delivery. "There isn't a financial market in bandwidth," she said. "There's no index that can be settled against. Almost all go to delivery. We're definitely in a physical market." Aquila traded with 11 counterparties last year and five were other bandwidth-trading companies, Nelson said. It also traded with three major carriers and three local loop providers. In contrast, Enron said that last year it traded with 45 counterparties - 35% of them U.S. carriers and 33% network service providers. The rest were marketers, resellers or international companies. Mansfield declined to provide the number of trades Enron did in the first three months of this year. The company would give more information next week when it releases quarterly earnings and performance statistics, she said. El Paso Corp.'s (EPG) Global Networks declined to say how many of its trades required physical delivery. A spokesman did say the number of route miles it has traded in the first quarter tripled over the fourth quarter. A Williams Communications Group (WCG) spokeswoman would say only that bandwidth trading is profitable for the company. Other bandwidth-trading companies were unable to provide information in time for this report. -By Erwin Seba, Dow Jones Newswires, 713-547-9214 erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 1-U.S. must embrace energy efficiency-report. By Matthew Robinson 04/12/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, April 12 (Reuters) - The United States must adopt new conservation measures such as improved vehicle fuel efficiency if it is to ease its energy supply woes, a new report from an independent task force said on Thursday. The Bush administration's plan to increase domestic energy supplies is not enough to tackle a squeeze that has sent gasoline and heating oil costs soaring and pushed California's power system to the brink of collapse, the task force organized by the the Council on Foreign Relations (CFR) and the Baker Institute of Rice University said. "You can't have a supply side response without also taking into account a demand side effort, as well as environmental concerns. A compromise will result not in an inconsistent policy, but rather, is the only way to create a fully consistent policy," said Edward Morse, chairman of the task force and executive advisor of Hess Energy Trading Co. Oil and energy firms such as Royal Dutch/Shell , Chevron , BP Amoco ,Enron , Dynergy and Italy's ENI contributed to the task force. The panel released its findings as the administration's White House Energy Policy Development Group headed by Vice President Dick Cheney prepares for final deliberations. "The report has been presented at the highest levels of government, including President (George W.) Bush, Vice President Cheney, and (National Security Adviser) Condoleeza Rice," said Morse. Despite the Bush administrations concentration on supply side policies, Morse said that he expects the Cheney energy report "won't look much different," than the report presented by the task force. "The president has to begin educating the public about this reality and start building a broad base of popular support for the hard policy choices ahead," the report says. U.S TRAILS IN DEMAND MANAGEMENT "Supply side issues are very important, as is debottlenecking our infrastructure. But we have to look at demand management practices and fuel choice - we completely ignored that for more than a decade," said Amy Myers Jaffe, project director for the task force. The United States currently guzzles about a quarter of the 80 million barrels of oil products consumed each day worldwide, and according to the study lags other industrialized nations in exercising demand-based energy policies. The Bush administration's energy plan is currently focused on opening up more domestic land for hydrocarbon drilling, including the currently off-limits Arctic National Wildlife Refuge in Alaska to make the U.S. less reliant on foreign imports. "The United States has trailed other industrialized societies when it comes to oil-demand management," the report says. If light truck vehicles such as sport utility vehicles (SUVs) were required to have the same fuel efficiency as automobiles, it would shave five percent off U.S. demand in seven to 10 years, it said. The federal government could also stimulate development of greener transportation by purchasing vehicles for its fleet that incorporate nascent technologies, it added. Efforts toward the development of energy-efficient technologies would in turn encourage more efficient worldwide use of oil resources in developing countries, it said. With China expected to add more than 150 million automobiles to its fleet over the next 20 years, increasing the efficiencies of those vehicles would have global implications for oil demand. RELIANT ON IMPORTS Over fifty percent of oil consumed in the United States is imported, and looks to become dependent on sources outside of North America for significant volumes of natural gas in the near future. Growing U.S. dependence on foreign energy sources, means policy makers must also rethink its foreign policy with an eye toward the Russia, China, and the Middle East, including backing off some of the sanctions against major producer Iraq which are deemed less effective, the study says. In addition, environmental concerns such as greenhouse gas emissions are too large and too public to be ignored in a comprehensive energy policy. The study concludes that when it comes to energy, the American people cannot achieve "both a painless present and a secure future". "There is no overnight solution - there is no silver bullet," said Jaffe. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Panel recommends renegotiating pact with Enron By RAMOLA TALWAR BADAM Associated Press Writer 04/12/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. BOMBAY, India (AP) - A government-appointed committee recommended renegotiating a power supply agreement with U.S. energy giant Enron Corp. to lower prices being charged to a western Indian state. The panel also called for reform of a state power utility that defaulted on payments to Enron, which is based in Houston. A five-member committee prepared the 198-page report which was placed before legislators in the state assembly on Thursday. The committee was appointed in February by the Maharashtra government. The committee was examining the $2.4 billion Dhabol project in Guhagar, 210 miles south of Bombay and India's biggest foreign investment. State government ministers have been critical of Dabhol Power Co., Enron's Indian subsidiary, saying the power supplied by the two-year old plant as "unaffordable." While some demanded scrapping the project, others asked for renegotiating the 1995 power purchase agreement that covers the rate at which the company sells electricity to Maharashtra state. Costs have increased fourfold since 1995 for naphtha-generated electricity from the project's 740-megawatt plant. Enron has blamed depreciation of the rupee and the high cost of naphtha used as fuel in the first phase for the price hike. A second 1,444-megawatt plant is scheduled to run on liquefied natural gas later this year. Three separate state governments have negotiated with the company since the mid-1990s over pricing. The five-member committee said it was "troubled" by the "failure of governance" in matters relating to the project. The committee suggested that a forum comprising of the federal government, state government, state power utility and Dabhol Power Co. be involved in future discussion. It said the company had shown it was open to renegotiation. Citing high transmission and distribution losses, the panel said the Maharashtra State Electricity Board should be reformed. While the state power utility is currently the sole purchaser of Dabhol's naphtha generated power, it said other buyers could be found for LNG-generated power. The report will be debated in the state assembly before the government takes a decision. Last week, Dabhol Power filed an arbitration notice on the federal government for not paying up outstanding dues. As part of the 1995 agreement, any dispute between Dabhol and the government can be resolved in the London Court of Arbitration. If committees set up by both sides cannot resolve the dispute within 60 days in India, proceedings will begin in London. The federal government is bound to pay electricity bills if Maharashtra state defaults. Enron invoked that guarantee in February, marking the first time in India's history that a company invoked a federal guarantee, when the state utility said it could not afford to pay Dabhol Power. The state government finally paid $17 million in outstanding bills. Another $48 million is still due to Enron in overdue bills. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Persistent problems chinking Enron's armor. By C. Bryson Hull 04/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, April 12 (Reuters) - The teflon around energy and trading powerhouse Enron Corp. is starting to show some scratches, as negative events over the past few months from India to its broadband unit, begin to take their toll, analysts say. Make no mistake, Wall Street still sees the Houston-based giant as the energy convergence sector leader. Analysts polled by Thomson Financial/First Call still believe Enron will meet its earnings per share targets of $1.75 for 2001. But the stock has dropped to its lowest levels since late 1999, a slide which started with news that Enron's keystone broadband content deal with Blockbuster Inc. had fallen apart. The stock had traded in the mid-$80s as recently as February, before the stock market's recent collapse and a string of negative news. On Friday, it traded at $57.45 on the New York Stock Exchange, down $1.06 cents or 1.8 percent, and well off its high of $90.56 last August. "Their share price hasn't been bulletproof and that's what counts. They were up pushing $90 and they're now in the $50s while the energy sector has done quite well, so they have underperformed quite a bit and that doesn't seem bulletproof to me," analyst Andre Meade of Commerzbank Securities said. Meade said the price fall came as investors took the bad news out of Enron's valuation, particularly in devaluing the broadband business. "With broadband the market initially gave them full credit. But investors got smart over the next year, and once you got some bad news out there, you could argue that valuation was pulled," Meade said. But the bad news neither starts nor ends there. The latest negative item came Wednesday, when a California federal judge ordered Enron to return the University of California and California State University systems to direct power access, which Enron says will cost them $12 million a month. The universities' lawsuit which claimed Enron Energy Services breached their power management contract, could cast a shadow over the Houston-based company's power risk management arm which recently saw a huge upsurge in business involving similar multimillion dollar deals with large corporations. Other bad news includes broadband layoff talk, failed water company spinoff Azurix Inc.'s impending sell-off its North American assets, the failure of the video on demand deal with Blockbuster, word that the $2 billion sale of utility Portland General is unlikely to go through and continuing payment problems at the Dabhol power plant in India. That long-running dispute in India reared its head again on Monday. Enron confirmed it issued a notice of political force majeure to the Maharashstra State Electricity Board (MSEB), which has consistently defaulted on payments. Force majeure is an event beyond the control of a contractual party that could not have been prevented. "It's one of the steps in the process of protecting our rights. It's one step, but it's not the only step," Enron spokesman John Ambler said. Enron has already invoked payment guarantees from the Indian national government, but it has refused to cover MSEB's $21.9 million December bill until Enron and MSEB settle another dispute over a fine. The MSEB wants the $85.8 million fine, which it levied, to cover its outstanding bills. LAYOFFS OR REDEPLOYMENTS? Another nettling problem for Enron is news of trouble at Enron Broadband Services (EBS), the cutting-edge unit that encompasses a nascent bandwidth trading operation and a broadband content services business. Most recently, Enron has had to answer questions about a reduction in the number of employees at EBS because of the stock market's faltering confidence in telecoms generally. Two weeks ago, the company characterized word of layoffs at the broadband unit as nothing more than an internal redeployment of staff to areas that were growing at a higher rate. "It's word games. Initially they said they were redeploying, and that was not the word I heard from inside the company, but that was the way they put it. It's probably a little of both," said analyst John Olson of Houston investment house Sanders Morris Harris. EBS spokeswoman Kelly Kimberly on Monday said 227 employees were leaving the broadband unit to work in other areas of the company. "Most of them have elected to go into the redeployment pool or are already moved into corporate or another business," Kimberly said. Kimberly did not have an exact figure on the number who have opted to take a severance package, but characterized it as a small percentage. It has been a rough few weeks for EBS, which also suffered from the Blockbuster debacle. Last month, the two announced a mutual end to a 20-year exclusive video on-demand deal, which had been considered a cornerstone of EBS' content services push. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron says Morgan Point, Tx. MTBE plant has restarted. 04/12/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, April 12 (Reuters) - Enron Corp. said Thursday its 15,000 barrel per day (bpd) methyl tertiary butyl ether (MTBE) plant in Morgan's Point, Tx, has restarted from scheduled maintenance. The plant came back up "a few days ago," an Enron spokeswoman said Thursday, but a specific date was unavailable. The plant was brought down for a planned turnaround on March 9. The MTBE plant is located along the Houston Ship Channel near Baytown, and is Enron's only MTBE plant. The company also owns a plant in La Porte, Tx. which makes 400,000 bpd of methanol, an MTBE ingredient. MTBE is an additive used to make the cleaner-burning gasolines required by the U.S. Environmental Protection Agency in a third of the nation's pumps. Current U.S. stock levels of MTBE are 22 percent lower than last year's supply, according to data from the Department of Energy. Last year's supplies were already considered tight by many in the industry. - ((Soo Youn, New York Energy Desk, 212-859-1621, soo.youn@reuters.com)). Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. RUSSIA WATCH: Putin Takes Well-Timed Shot At Gazprom By John Ryan Of DOW JONES NEWSWIRES 04/12/2001 Dow Jones International News (Copyright © 2001, Dow Jones & Company, Inc.) MOSCOW -(Dow Jones)- Few can doubt that the former head of the KGB hears the whispering around Moscow. But is Russian President Vladimir Putin slyly manipulating the talk, too? Putin won the presidency just over a year ago and, since then, Moscovites have gossiped that he promised his predecessor, Boris Yeltsin, not to take any steps that would embarrass him or his entourage. Putin's cautious behavior in his first year fueled the speculation. The one-time KGB man pounced almost exactly a year later, timing his move so closely to that anniversary that Russia's chattering classes - which includes most of the foreign community - heard a tacit confirmation of their speculative endeavor and were animated into a whole new cycle of cackling. The case is Gazprom. Putin issued a directive Monday for officials to bring "transparency and efficiency" to Gazprom, a company that publishes accounts audited to international standards but stands accused by its critics of opacity and questionable business practices. The company is run by 65-year-old Rem Vyakhirev, a man who seems to have as little regard for shareholders as he has for the press. Vyakhirev - Rem is an acronym for Revolution-Engels-Marx - rejected a recent bid by minority shareholders for an independent audit, though the law seemed clearly on the investors' side. He breezed into the company's New Year's party for the Moscow press corps last year, opened festivities with a sour toast to "less lies and more truth in the press" and was gone within minutes. The assembled journalists barely had time to choke on their drinks. The toast was true to form for the old gas man, as unreformed as any institution from the Yeltsin era. If any in Yeltsin's entourage was able to bargain for a year of untouchability, it was Vyakhirev. It's not clear what plan Putin has for the wily Vyakhirev but transparency and efficiency aren't likely to come naturally to a company under his management. The Gazprom chief's contract expires next month, and there's no word from the presidential administration which way Putin will lean. Reform of Gazprom could be the most welcome news the Russian share market has heard since its 18.5% rise the day Yeltsin resigned. Gazprom's size is staggering: 7% of Russian gross national product, 20% of tax revenues, one third of known world natural gas reserves, a quarter of European gas deliveries. That's the bright side. Gazprom's share price of just 40 cents is, for investors, the dark side. The company's market capitalization of $8.6 billion shows a price-to-sales ratio of well under 1. Compare that to Enron Corp. of the U.S., which has a P/S of 44 and a market capitalization five times bigger though its assets are a tenth or less those of Gazprom. That share price is near the company's current 52-week high, which reflects sentiment by Russian investors that Putin's words will translate into action. Investors clearly hope the 15-member commission created by Putin and chaired by Kremlin Deputy Chief of Staff Dmitry Medvedev will find a way to bring down the ring fence barring foreign investors from buying Gazprom's local shares. That fence compels foreign investors who want to own Gazprom to buy the company's American Depositary Receipts. Trouble is, those securities cost double the underlying share price - a relic of the heady days of 1996 when investors bought up the pricey ADRs in the conviction that they were cheap even at twice the price. Trouble is, they still cost double the underlying share price because buyers nowadays flinch at the price difference. Medvedev said Tuesday his commission's recommendation, due in July, will fall between two extremes: pulling down the ring fence completely to allow foreigners to buy as much Gazprom shares as they want; and raising the de jure foreign ownership of Gazprom to the legal cap of 20% from 11.5% now. Analysts estimate that "gray schemes," whereby Moscow brokerages buy local Gazprom shares on behalf of foreign investors, bring the de facto foreign shareholding in Gazprom to between 20% and 25%. A senior official on the Medvedev commission said earlier this week that any decision will have to take the gray scheme shares into consideration. But investors have reason to hope the commission will plump for the full liberalization. Gazprom managers do have two seats on the commission, but reformers from the Kremlin and government headquarters at the White House have four or more seats. All of these people can be expected to favor bringing down the ring fence - Gazprom executives because they stand to gain as shareholders from the expected price rise, and reformers because of an instinctive dislike of the state participating in setting share prices. That, in any case, seems to be what the market now expects. Gazprom shares are up more than a quarter this week on expectations that foreign investors will soon have a chance to snap up Russia's cheapest big-company shares. Gazprom's buyers are probably right. The appointment of the Medvedev commission signals that the one choice that won't be made is do nothing. The other choice - letting foreigners buy more of the overpriced ADRs - can't be done by issuing new shares as ADRs because it's long been clear there are no investors willing to stomach such a purchase. Gazprom has even twice mulled issuing convertible bonds and twice been dissuaded by lead managers. In the end, the Medvedev commission seems likely to end up getting herded into letting foreigners buy local shares. A freely-traded Gazprom would soon find increased respectability and greater interest from the more cautious in the investment community. Share indices would include it in their rankings, compelling more investors - index trackers this time - to buy the stock. Unification of the company's share price will hurt current ADR holders at least at first as the ADR price converges down to meet the underlying share price, and they know it. By contrast with the underlying share, the ADR hasn't budged this week. An ADR priced the same as the underlying share would be a compelling buy for the many foreign investors lucky or wise enough not to be mired in the current double-standard share structure. There may be legs yet in the current rally in the underlying shares. Company Web site: http://www.gazprom.ru -By John Ryan, Dow Jones Newswires; 7095-974-8055; john.ryan@dowjones.com -0- 12/04/01 14-39G Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: U.S. must embrace energy efficiency-report. By Matthew Robinson 04/12/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, April 12 (Reuters) - The United States must adopt new conservation measures such as improved vehicle fuel efficiency if it is to ease its energy supply woes, a new report from an independent task force said on Thursday. The Bush administration's plan to increase domestic energy supplies is not enough to tackle a squeeze that has sent gasoline and heating oil costs soaring and pushed California's power system to the brink of collapse, the task force organized by the the Council on Foreign Relations (CFR) and the Baker Institute of Rice University said. The panel released its findings as the administration's White House Energy Policy Development Group headed by Vice President Dick Cheney prepares for final deliberations. Oil and energy firms such as Royal Dutch/Shell , Chevron , BP Amoco ,Enron , Dynergy and Italy's ENI contributed to the task force. "Supply side issues are very important, as is debottlenecking our infrastructure. But we have to look at demand management practices and fuel choice - we completely ignored that for more than a decade," said Amy Myers Jaffe, project director for the task force. The United States currently guzzles about a quarter of the 80 million barrels of oil products consumed each day worldwide, and according to the study lags other industrialized nations in exercising demand-based energy policies. The Bush administration's energy plan is currently focused on opening up more domestic land for hydrocarbon drilling, including the currently off-limits Arctic National Wildlife Refuge in Alaska to make the U.S. less reliant on foreign imports. "The United States has trailed other industrialized societies when it comes to oil-demand management," the report says. If light truck vehicles such as sport utility vehicles (SUVs) were required to have the same fuel efficiency as automobiles, it would shave five percent off U.S. demand in seven to 10 years, it said. The federal government could also stimulate development of greener transportation by purchasing vehicles for its fleet that incorporate nascent technologies, it added. Efforts toward the development of energy-efficient technologies would in turn encourage more efficient worldwide use of oil resources in developing countries, it said. With China expected to add more than 150 million automobiles to its fleet over the next 20 years, increasing the efficiencies of those vehicles would have global implications for oil demand. RELIANT ON IMPORTS Over fifty percent of oil consumed in the United States is imported, and looks to become dependent on sources outside of North America for significant volumes of natural gas in the near future. Growing U.S. dependence on foreign energy sources, means policy makers must also rethink its foreign policy with an eye toward the Russia, China, and the Middle East, including backing off some of the sanctions against major producer Iraq which are deemed less effective, the study says. In addition, environmental concerns such as greenhouse gas emissions are too large and too public to be ignored in a comprehensive energy policy. The study concludes that when it comes to energy, the American people cannot achieve "both a painless present and a secure future". "The president has to begin educating the public about this reality and start building a broad base of popular support for the hard policy choices ahead," the report says. "There is no overnight solution - there is no silver bullet," said Jaffe. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: India state committee suggests Enron re-negotiation. By Maria Abraham 04/12/2001 Reuters English News Service (C) Reuters Limited 2001. BOMBAY, April 12 (Reuters) - A committee set up by the western Indian state of Maharashtra to examine U.S. energy giant Enron's controversial power project on Thursday recommended it be re-negotiated. The state government presented the committee's report with a list of recommendations about Enron's Indian unit, Dabhol Power Co (DPC) in the legislative assembly. "...action needs to be taken concomitantly to address certain urgent and critical issues pertaining to the project through negotiations with DPC so as to bring down the cost of power," the report said. Enron and the Maharashtra State Electricity Board (MSEB) had been locked in a long-standing dispute over the state utility's unpaid bills. In March Enron, which owns 65 percent of DPC, invoked a counter-guarantee of the Indian government after MSEB failed to clear its bill of 1.02 billion rupees ($21.91 million) for December. Earlier this week, the multinational's Indian unit sent a political force majeure notice to MSEB. Such a notice is a contractual clause dissatisfied parties give as a first step towards possibly dissolving a contract. Last week, Enron notified the government of India that it was applying to an arbitration court in London to consider its claim for 1.02 billion rupees. DPC has come under fire because of the relatively high cost of its power. Critics object to it charging 7.1 rupees per kilowatt hour versus 1.5 rupees charged by other suppliers. The committee, chaired by a former bureaucrat Madhavrao Godbole, has suggested that the tariff be re-negotiated to make it cheaper and to remove the dollar linkage which resulted in a steep increase each time the rupee fell against the dollar. The report also recommended the financial restructuring of DPC so as to defer payment obligatons: "The Committee therefore recommends that the maturity of the debt be increased, preferably to 15 years, with an initial moratorium of five years". The Committee also wants the Escrow Agreement, designed to ensure future payments, between MSEB and DPC to be cancelled. Other recommendations included: * Tariff to be benchmarked to the lowest cost of supply from gas-based projects elsewhere. * Separate the Liquefied Natural Gas (LNG) facility into a separate unit whose capital costs are reflected in the fuel charge in proportion to the extent of fuel re-gasified for power generation compared to the total re-gasification capacity. * Allow the sale of DPC power outside MSEB but only if DPC agrees to relieve MSEB of all its contractual obligations relating to the power plant. The Committee report comes in the midst of DPC and the Indian government initiating the process of conciliation to settle contentious issues plaguing the $3 billion project at Dabhol in Maharashtra, the biggest foreign investment in India. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Indian Panel Submits Report On Enron Power Dispute 04/12/2001 Dow Jones International News (Copyright © 2001, Dow Jones & Company, Inc.) BOMBAY (AP)--A committee on Thursday recommended renegotiating an agreement with U.S. energy giant Enron Corp. (ENE) to lower power tariffs in a western Indian state and called for reform of a state power utility that defaulted on payments to Enron. A five-member committee prepared the 198-page report which was placed before legislators in the state assembly on Thursday. The committee was appointed in Feb. by the Maharashtra government, of which Bombay is capital. The $2.4 billion Dhabol project in Guhagar, 335 kilometers (210 miles) south of Bombay, is India's biggest foreign investment. State government ministers have been critical of Dabhol Power Company, Enron 's Indian subsidiary, and have dubbed the power supplied by the two-year old plant as "unaffordable." While some demanded scrapping the project, others asked for renegotiating the 1995 power purchase agreement that covers the rate at which the company sells electricity to Maharashtra state. Costs have increased fourfold from 1.8 rupees (four cents) per unit agreed in 1995 for naphtha-generated electricity in the 740-megawatt plant. Prices shot up to 7 rupees (15 cents) per unit because worldwide fluctuation of oil prices and a depreciation of the Indian rupee hiked the cost of naphtha. Enron has blamed rupee depreciation and the high cost of naphtha used as fuel in the first phase for the hike in tariff. The second phase 1,444-megawatt plant is scheduled to run on liquefied natural gas later this year. Three separate state governments have negotiated with the company since the mid-1990s over pricing. Stressing this point, the five-member committee said it was "troubled" by the "failure of governance" in matters relating to the project. The report said a "clear political mandate" should be evolved to negotiate issues such as lowering of tariff and capital cost. The committee suggested that a forum comprising of the federal government, state government, state power utility and Dabhol Power Company be involved in future discussion. It also said the Dabhol company had shown it was open to renegotiation. "During discussions held with Dabhol Power Company, the committee emphasized the need for reform of the utility. The committee also mooted redefining the tariff in rupee instead of dollar terms, permitting Dabhol to sell power to other states and allowing the under-construction liquefied natural gas facility to be marketed to other gas marketers and importers. While the state power utility is currently the sole purchaser of Dabhol's naphtha-generated power and the second LNG phase, the report said other buyers could be found for LNG. "The current market conditions for spot LNG make it quite attractive to trade LNG on the spot market." The report will be debated in the state assembly before the government takes a decision. Last week, the Dabhol Power Company served an arbitration notice on the federal government for not paying up outstanding dues. As part of the 1995 agreement, any dispute between Dabhol and the government can be resolved in the London Court of Arbitration. If committees set up by both sides cannot resolve the dispute within 60 days in India, proceedings will begin in London. Earlier this week, India's finance minister Yashwant Sinha told reporters the federal government had agreed on a conciliation process. "We will go ahead with conciliation," said Sinha after a finance ministry meeting in New Delhi decided to adopt the conciliation route rather than arbitration to settle the pricing issue. As part of a counter guarantee agreement, the federal government is bound to pay electricity bills if Maharashtra state defaults. Enron invoked that guarantee in February, marking the first time in India's history that a company invoked a federal guarantee, when the state utility said it could not afford to pay Dabhol Power Company. The state government finally paid $17 million in outstanding bills. Another $48 million is still due to Enron in overdue bills. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Indian Panel Proposes Enron, Maharashtra Redo Pact (Update1) 2001-04-12 16:22 (New York) Indian Panel Proposes Enron, Maharashtra Redo Pact (Update1) (Updates dollar conversion in third paragraph.) Mumbai, April 12 (Bloomberg) -- Maharashtra, India's biggest industrial state, and the local unit of Enron Corp., the world's largest energy trader, should renegotiate their agreement to resolve a dispute over unpaid bills, a three-member panel said. The panel said Dabhol Power Co., which is 65 percent owned by Enron, should link its charges to a fixed exchange rate because a weakening rupee has made its power more expensive. The Indian rupee has declined 7 percent against the U.S. dollar the past 12 months. The panel, which includes representatives from Dabhol Power and the Indian government, recommended the renegotiations today in the fight over 3 billion rupees ($65 million) in unpaid bills. The company invoked ``political force majeure' on Tuesday to stop selling power to Maharashtra without being penalized after the state declined to pay the energy bills for December and January. The Maharashtra State Electricity Board, Dabhol's only customer, said the bills are too high, arguing Dabhol is charging more than other generators. The canceled payments led Dabhol to invoke payment guarantees by India's federal and the state government. The two sides yesterday agreed to submit the case to the panel. Enron's $3 billion, 740 megawatt-a-year project, is the biggest foreign investment in India. The project faced numerous delays and at one point was canceled after a change of government at the state. Enron revived it after agreeing to cut power prices by 22 percent and sell a 30 percent stake to the state government. India wants to double its capacity to 200,000 megawatts over the next 10 years. The country needs $100 billion to do that, and is relying mainly on foreign companies. The panel said Dabhol should be allowed to sell to buyers other than the electricity board, such as state-run National Thermal Power Corp., which generates a quarter of the country's power. Dabhol will have to relieve MSEB of all its ``contractual obligations'' before it does that.
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