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Enron Mail |
India: Enron aftermath
Business Line - 02/21/2000 Abhay Mehta Copyright (C) 2000 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) - Asia Intelligence Wire Power Play A Study of the Enron Project * Publishers: Orient Longman, New Delhi * Price: Rs. 195 THE Enron power project at Dabhol in Ratnagiri district of Maharashtra has been mired in nationwide controversy ever since the inception of the project proposal in 1992; and the sordid tale ends only in 1997, with the Supreme Court of India refusing to even admit an appeal against the Bombay High Court decision, of December 1996, which while commenting that "This case has highlighted to the people as to how even after 50 years of Independence, political considerations outweigh the public interest and the interest of the State and to what extent the Government can go to justify its actions not only before the public but even before the courts of law" - yet dismissed a public interest petition against the project on the (purely technical) ground of res judicata, even though new facts, new arguments, new evidence of the violation of the laws of the land had been advanced by the petitioners. The fact that the fresh violations of the law were not even considered and recorded, despite the petitioners adducing the required evidence, can only be termed as strange, perhaps bizarre. Abhay Mehta's simple, factual documentation - in fact a chronological narration - of all events, including the process of bending all rules, of subverting the law for promoting a project involving unparalleled future liabilities for Maharashtra, indeed for the whole of India - is not only masterly, it is devastating. It is a short, pithy book which deserves to be read from cover to cover by all thinking citizens of this country. Barring the concluding chapter, the epilogue, there are no personal comments, only facts, disseminated from the original papers, mostly 'secret' documents. All documentation has been carefully, faithfully recorded, including extracts from supposedly 'top secret' minutes of cabinet committee meetings; and the specific violations of the law (which were opposed by a few public spirited civil servants, much to their disadvantage) have been pointed up. Apart from an introductory 'Primer on Electricity' - introduced for the benefit of the layman, explaining some technical issues relating to electricity generation, transmission and distribution - and the background of the events of 1991, the foreign exchange crisis, and the aftermath of the crisis, the other fifteen chapters, three appendices and fourteen annexes of the small book (of 226 pages) packs in an enormous volume of factual information. The strange saga of the Enron project, and the sheer magnitude of the future problems this one single project poses for the country, need to be briefly recounted here, for essentially, it is the coming generation which would have to face the problem. The MSEB has contracted to buy - and if not used, to pay for - 2000 MW of electricity (for a period of 20 years) from the Dabhol Power Company (the legal entity set up by Enron, as an unlimited liability company registered in India, through a maze of intricate crossholdings of equity by half a dozen or more 'front' companies registered in various tax-free havens. Abhay Mehta has indicated the total payments to Enron over 20 years amount to $ 35 billion (at 1998 exchange rates, around Rs. 1,25,000 crores) over the life of the project. One must record that: (a) crude oil/oil product prices have as of writing, more than doubled since the above calculations were made. A per the 'doctored' figures presented by the company (and its advocate), the charge per unit of electricity supplied, at the 1998 level of prices, was to 4.39 cent (per unit) as 'capacity charge' and 3.43 cents (per unit) for 'energy costs'. The former is indexed to the US inflation rate, and the latter to international fuel prices. The former may be assumed to have gone up only marginally (rounded to 4.4 cents per unit); we know that fuel prices have more than doubled internationally over 1999. Assuming the 'fuel costs' to have increased less than 100 per cent - even though international prices have more than doubled - we may assume (for 1999) energy costs of 6.85 cents per units, making for a total payment of 11.25 US cents per unit of electricity supplied by the Dabhol Power Company (DPC) to MSEB in late 1999, in Phase I of the project. Within another two years, at 2000 MW, the annual offtake (for 365 days X 24 hours/day) would be 17.52 billion KWH; and at 11.25 cents per unit, the total payment amounts to $1.97 billion annually; for 20 years, this workout to $ 39.4 billion. This is not counting any further inflation in either energy costs or capacity charge. At today's exchange rate - about Rs.43.5 per US dollar - in rupee terms this works out to wore than Rs. 175,000 crores (as compared to Rs. 125,000 crores indicated by Abhay Mehta). This is the cost to MSEB in rupee; and to the country in foreign exchange as payment to just one project authority, for supply of part of the power required in Maharashtra. The really significant point to note in this connection is that this payment - and considerably more, depending on (a) future increase in'capacity charges' depending on US inflation rate, and international prices of LNGaphtha (for 'fuel costs'), and (b) depreciation of the exchange rate of the rupee vis-a-vis the US dollar - is obligatory; the assets of the MSEB, the Maharashtra government indeed, all assets of the Government of India (present and future) are mortgaged to Enron, by way of sovereign guarantees extended by both governments. The other significant point in this connection is that - as predicted by all independent Indian experts as well as the World Bank -the Enron project he forced the MSEB to cut its offtake of Tata Electric Company's and its own much cheaper thermal power already; in a postscript dated August 1999, Abhay Mehta has indicated that already, the MSEB had stopped buying between 200 and 250 MW of power from Tata Electric (available at Rs. 1.80 per unit) and has had to backdown its own Chandrapur thermal power station (cost of this power being Rs. 1.20 per unit), while forced to buy more expensive Enron power at Rs. 5 per unit. The loss to MSEB on this count alone comes to Rs. 460 crore per year. This had in fact, been predicted earlier even by the World Bank. It is pointless here to go into the details of how precisely all this was contrived, by a deliberate campaign of 'disinformation', of blatant lies, of sidelining of expert opinion, not only of independent experts but also the GOI's own official advisers in this matter, namely, the Central Electricity Authority as well as that of the World Bank, which was resolutely opposed to this project. The detailed facts, the letters exchanged in the above context, the pressure tactics adopted, the flouting of all procedures norms, even statutory provisions of the Electricity (Supply) Act, are all carefully documented by Abhay Mehta. Mehta correctly concludes: "We frequently blame external agencies - like the World Bank - for all our problems, when, as a matter of fact, we ourselves are our own worst enemies. In the instant case, the World Bank not only advised the Government of India against the project, it stood resolutely firm in its assessment of the total inadvisability of this project. In fact, one must note here that in 1996, neighbouring Pakistan, which had entered into a somewhat similar MoU with Enron, cancelled the project (and the Power Purchase Agreement with Enron), for a $ 670 million, 782 MW residual oil-fuelled power plant, even though that Agreement had stipulated Enron power supply at a fixed rate of 6.4 US cents per KWH over a 30 year period. (Note the estimated rate of 11.25 cents per KWH for Dabhol power for the MSEB in December 1999, which works out to around Rs. 5 per unit). One could go on; but one must leave the reader to go through Abhay Mehta's crisp, factual, matter of fact narration of the Enron saga, and switch over to the point made by him in the epilogue to the story, about 'The Next Round of Scams'. For quite some time, the ruling elite in India has been intent on 'privatising' all public enterprises; and even 'utilities' are no exception. The 'unbundling' of infrastructure with a view to privatisation of all the 'profitable' segments. All this - as per the current 'disinformation campaign' - is supposedly in the interest of rationalisation and greater efficiency of poorer supply. The author has referred in this context to the acquisition from the Government - by the Torrent Group - of the Ahmedabad and Surat Electricity companies at less than one-tenth of the market value of the assets of thee facilities. Again, much like the Enron saga, all objections by the Finance Department of the Gujarat government were overruled. And, Abhay Mehta has predicated that this onslaught - the break-up of power utilities into three segments, generation, transmission and distribution, - with a view to their privatisation is likely to be the new thrust by the ruling elite, for reasons that do not require to be spelt out. Though Mehta had the examples of the Torrent Group takeover of Ahmedabad and Surat Electricity companies, and of the break up of the Orissa State Electricity Board before him, yet his statement can be stated today to be prophetic; the UPSEB is now on the firing line. The recent strike by the workers and engineers of the UPSEB in protest of the announced UP government decision to trifurcate the UPSEB; and the Union Minister of Power, Mr. Rangarajan Kumaramangalam's statement that the UPSEB is a loss making, inefficient unit and that privatisation of the facilities after the trifurcation - need to be noted. That 40 per cent of the dues of the UPSEB are from the UP Government; that tariffs for UP electricity supply are fixed by the UP government and not by the UPSEB; that the UPSEB does not have the cash even for routine maintenance as a result of the above - these are facts that nobody is prepared even to consider. That the remedy for UPSEB lies in a different kind of reform and restructuring, is not even to be debated. The whole idea is to privatise the profitable segments, and to leave the public sector entity with all the problem areas, including rural energy supply. It is against this background that Abhay Mehta's book needs to be widely disseminated, read, and its implications understood. What is at stake is not a 'utility' here or a PSU there. What is at stake is the future of some 80 per cent of the have-nots in this country. What is at stake is the 'pillory' of the assets of the nation for private aggrandisement. Arun Ghosh
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