February 19, 2020
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Indian Odyssey 2001

Enron’s $10-billion proposal to tackle India’s future power needs raises more doubts than hope

Indian Odyssey 2001

ENRON’ S latest $10-billion proposal to generate 10,000 MW of liquefied natural gas (L N G)-based power in different  Indian states by 2001 issure to open another Pandora’s box. But says Rajendra K. Pachauri, director, Tata Energy Research Institute: "It’s a serious proposal that India should consider without prejudice. Being a big international player, the $13-billion Enron is capable of mobilising finances for power plants they are planning in the western, northern and southern regions of the country. "

Adds Rebecca Mark, chairman and C E O, Enron International: "Our experience and knowledge of international financing can go a long way in raising the investment that is needed to generate the vast energy needs (in India). The idea for the proposal formed because we have been approached by various foreign investors." (See interview)

Addressing the press in New Delhi on February 9, Mark said she had personally submitted the proposal to the Prime Minister who responded positively. She added: "We are not interested in having a majority or controlling stake in the new project but will partner Indian as well as foreign firms picking up a 50-per cent equity in each of the ventures. The project would utilise about 10,000 tonnes of oil equivalent of gas from Qatar." Enron’s role would thus be that of a catalyst or developer.

Then, what’s the hitch? Shouldn’t all power- hungry Indians welcome Enron since it promises to generate almost one-fifth of the country ’s power needs in the next four- five years? It would have been easy to say yes, but, as some observers point out, giving the green signal to one player to o rganise such a big chunk of the country ’s power needs is fraught with a lot of danger and uncertainties; it makes neither sound economic/business sense nor political.

The proposal envisages erecting five to seven L N G-based power plants ranging from 1,000 MW to 2,000 MW. Electricity produced from L N G is definitely costlier than coal or hydro power, says S.K.N. Nair, former member, Central Electricity Authority (C E A). "The fuel inputs will have to be paid for in foreign exchange. The Centre should examine other fuel options and proposals f rom other players to determine whether the Enron deal is the best for India."

Agrees Prabir Purkayastha, member, National Working Group on Power: "It does not make sense to allow a large outflow of foreign exchange (and  disturb our balance of payments) to pay for L N G when India has coal supplies. With regard to Dabhol, even the World Bank had questioned the economics of using L N G when India had coal." The two-phase Dabhol project is indeed an expensive one, he points out. The Maharashtra government will have to cough up Rs 3,500 crore annually, which is about half its revenue and that too to add only 20 per cent to the state’s power, according to him. "Can we also afford similar costs in other parts of the country?" he asks.

Unlike oil, there is no spot trading for L N G whose supply is controlled by two or three international players, Enron being the biggest, Purkayastha notes. Thus, it is "highly dangerous" to depend on Enron for supply of fuel, which is in turn dependent on US fuel policies, he feels. Says he: "In other words, for all of 10,000 MW of power, we would have to depend on US policies. No country should take such a big risk." That Enron will have a ready, captive market for L N G, courtesy India, is hardly a secret.

Pachauri disagrees: "Enron will have to bear the risk of a fuel price hike. An escalation clause built into contracts usually takes care of price fluctuations." Countering the contention that LNG will be costlier, Pachauri says in states like Maharashtra where there is a coal shortage, LNG is a better substitute. It’s difficult to make out the true picture at this stage when there are many uncertainties about the proposal, says Nair. It would be best not to view Enron’s proposal as a single one, but examine it on a project-to-project basis, he adds.

Now, why is the Enron proposal not politically sound? Can the United Front Government, which always has its Left partners breathing down its neck, allow a US-based corporate giant to have so much control over our power generation? While Enron talks about involving major Indian companies and public sector undertakings, this could be mere noises to placate nationalist sentiments, some analysts feel. Cash-strapped firms and P S Us may not have the resources to join the Enron bandwagon.

The other allegation is that Enron has never been known to be sensitive to the country in which it operates. Enron was guilty of this lack of sensitivity in the Dabhol case and the corporation has made the same mistake in the latest proposal, says an observer. "How many international players would go to the Prime Minister and unveil a grand proposal, blissfully ignorant of the fact that in India’s quasi-federal structure the states are as important?"

Under the new decentralised system of power generation, the regulatory authority in each state will decide on private projects, with the Centre in overall charge. Can the Centre then make a commitment for expensive L N G fuel - based power plants that Enron proposes, leaving the states without an option to examine cheaper alternatives?

More important, however, is that, as Pachauri says, Enron’s latest proposal is a very powerful signal to the rest of the world that India is a good country to invest in— it’s like a vote of confidence in the Indian economy. Adds Harry Dhaul, director general, Independent Power Producers’ Association of India: " We are happy that Enron has not lost faith and is going to quadruple its investment in India. It would help spur other foreign companies to make investments in private power projects in the country." So that’s the good news.


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