January 04, 2020
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The Real Story Of Dabhol

If a judicial probe, suggested by the committee, is ordered into the Enron deal, it could embarrass three governments

The Real Story Of Dabhol
The Real Story Of Dabhol
"The Committee has prima facie found infirmities in several decisions taken in respect of the Enron project at different points of time by successive governments and agencies in the Centre and state."
--Energy Review Committee headed by former home secretary Madhav Godbole

This could well be the real Enron story. A five-member high-powered committee headed by Madhav Godbole—and including former Union economic affairs secretary E.A.S. Sarma, hdfc chairman Deepak Parekh, teri chairman Rajendra Pachauri and Maharashtra government official Vinay Mohan Lal—has recommended a judicial probe into the entire Enron power project deal saying it signified "the utter failure of governance that seems to have characterised almost every step of the decision-making process relating to the Dabhol project".

The report, which was submitted to the Maharashtra government last fortnight and has been acquired by Outlook, is severely critical of former chief minister Sharad Pawar (with the Congress then), the 13-day bjp-led Union government which reworked the deal in 1996, Shiv Sena supremo Balasaheb Thackeray and his government in Maharashtra headed by Manohar Joshi. An investigation, if ordered, could embarrass at least these three governments.

The report clearly upholds the allegations of money being paid by Enron to politicians and bureaucrats for clinching the deal. According to the committee, the deal reveals failure of governance, both at the Centre and state, and across different agencies. "It strains belief to accept that such widespread and consistent failure to execute responsibilities is purely coincidental," the report said, proposing a set of measures to be implemented if something of the project was to be retrieved.

Godbole and Sarma also felt that the panel should categorically recommend the government of India to order a judicial inquiry. This was finally adopted by it. Says a Congress leader: "Enron could well become the biggest political issue in Maharashtra and put to question liberalisation, particularly in the power sector."

The proposal has already struck panic. Says ncp's Praful Patel: "If the Enron decision has at all been detrimental, it is because of the haste with which phase 2 was cleared by the Shiv Sena-bjp government. Now with the state having already entered into an agreement with Enron, the important thing is to resolve it amicably. A judicial inquiry will be an eyewash because it's not an issue of corruption but that of perception."

Pro-market Congressmen privately admit that it was their governments at the Centre and the state which invited Enron, even though the second phase was cleared by the bjp-Shiv Sena combine. Says Congress spokesperson Jaipal Reddy: "Right now we're too involved with the Parliament deadlock over Tehelka." Pro-liberalisation Congress MPs also fear that such witch-hunting could send wrong signals to foreign investors. Non-Congress MPs from Maharashtra, meanwhile, claim that the Godbole Committee was instituted with the express purpose of politicising the Enron issue. "I think I know Vilasrao Deshmukh's gameplan," says an MP from the state. But some MPs like Congress' Prithviraj Chavan question the cloak of secrecy that's surrounded the deal: "I've maintained for long that there should be a judicial committee to examine this."

The committee report also says that had the Enron project been subjected to a techno-economic appraisal, as envisaged under provisions of the Electricity supply Act of 1948 and related legislations, the infirmities could have been avoided.Since this wasn't done, questions about a concerted effort towards exercising undue influence at every stage of the project are bound to arise, the exhaustive 93-page report points out.

The Enron project had been held out as an exemplar of the impending liberalisation in the early '90s and, despite several controversies, is now an established power project at Dabhol, 150 km south of Mumbai. In July 1992, Enron signed an MoU with the Maharashtra State Electricity Board (mseb) to set up a 2,550 MW station as part of the government's 'fast track' projects.

Subsequently, when the Shiv-Sena-bjp came to power in Maharashtra it filed a writ against the project. This curiously led to renegotiations with Enron. The committee has quoted a Bombay High Court order on the renegotiated deal. "Once it (GoM) decided to revive the project, it acted in the very same manner its predecessors in office had done. It forgot all about competitive bidding and transparency. The speed with which the negotiating group studied the project and made its proposal for renegotiatons, which was accepted by Dabhol, is unprecedented." Says Chavan: "I would particularly like to highlight the speed with which the 13-day Vajpayee government at Centre endorsed the renegotiated project minutes before it resigned."

Since the commissioning of the plant in May 1999, the mseb has paid Rs 1,607 crore for the power it has bought from Dabhol. If the same watttage of power had been bought from Indian-built power plants fired by indigenous coal, the payment would have been approximately Rs 736 crore. In the first year-and-a-half of its operation itself, the dpc had drained the Maharashtra exchequer of nearly Rs 1,000 crore.

The Central Electricity Authority (cea), in fact, pointed out that the Dabhol plant was not the least costly option. The mseb had other inexpensive alternatives like the four units of Kaparkheda, but they were in a preliminary stage. The report notes: "...if the mseb had made efforts to seriously pursue these projects, they might not have remained in their preliminary stages". It adds that the members were of the opinion that "the mseb and the Maharashtra government erred seriously, based on information available at that time, in proceeding with the dpc as a base-load factor even when its capacity was reduced."

The failure seems to have been compounded by the laxity of the Union power ministry, finance ministry and the cea. It quotes the cea as saying that since the Union finance ministry found the tariff reasonable, no further examination was required.

After the new Shiv Sena-bjp government took over, its CM, Manohar Joshi, appointed a renegotiating committee in 1996 which made the right noises, actually managing to reduce the tariff. But certain things remained inexplicable. No fresh clearances were required from the cea, which also said that "since no cost increase was involved...fresh formal clearance wasn't necessary." Says the committee: "This only adds strength to the suspicion that the cea didn't consider the economic aspects of the project at all. Indeed, given the non-availability of any official record of the meeting on June 24, 1994, with the Committee and the nature of this letter dated December 23, 1994, the Committee is doubtful whether the economic aspects of dpc were discussed at all.''

The credibility of the Shiv Sena-bjp government has been seriously questioned. "The Committee finds it unexplicable (sic) why there was no mention of any reduction in capital cost of the project from $2,828 million to $2,501 million as agreed by dpc in the summary report of the renegotiating committee," the panel observes.Says lawyer Prashant Bhushan: "It is strange that the Shiv Sena-bjp government first filed a writ in the court and then coolly renegotiated the deal."

The committee further spells out the losses incurred through the deal. "Subsequent to the commissioning of the dpc, the financial deterioration of mseb has been rapid. While the mseb was in profit in 1998-99, it plunged into huge losses of Rs 1681 crore in 1999-2000."

Significantly, the World Bank in 1993 had predicted the system's inherent weaknesses. In a letter written to the then power secretary, R. Vasudevan, a top bank official had said that "after a detailed review of the analytical framework and costing assumptions, we reconfirm our earlier conclusion that the Dabhol project, as presently formulated, is not economically justified" and that in "our assessment the project is too large to enter the mseb system in 1998. The proposed base-load operation could result in uneconomic plant dispatch, as already existing lower variable cost coal power would be replaced by the higher cost lng power."

Enron's persistence and the 'gullibility' of the Indian side can be gauged from high-ranking Enron official Joe Sutton's letter to a key Indian official, Ajit Nimbalkar: "I recently met with the World Bank and have been following the articles in the India papers. I feel that the World Bank opinion can be changed. We'll engage a PR firm and hopefully manage the media from here on. The project has solid support from all other agencies in Washington."

The key question in the Enron deal is whether a developed state like Maharashtra needs outside intervention in the power sector at all? For the first time the Godbole committee has raised objections about the viability of such a project. According to the report, the mseb has been one of the better performing boards in the country and has, despite a faulty transmission and distribution (T and D) system, managed to consistently earn net revenue surpluses on an accrual basis.

Maharashtra accounts for nearly one-fourth of the gross value of India's industrial sector. It's one of the few states to achieve 100 per cent electrification. Since '95, the mseb has been adding to its generation. "This improvement, which has been largely due to renovation and modernisation undertaken by the mseb, exceeded its own expectations at a time when the dpc was being considered," the report points out. Following a policy of cross-subsidy, roughly nine out of its ten users are subsidised.

But the gap between the average cost of supply and average realisation hasn't been much. In fact, the subsidy claim decreased from Rs 630 crore in 1995-96 to Rs 355 crore in 1998-99, until in 1999-2000 it increased nearly five-fold to Rs 2,084 crore due to the sudden increase in the gap by 26 paise per unit—from 15 to 41 paise—an increase of 173 per cent. "The increase in the subsidy claim by Rs 1,729 crore is due to the increase in the gap principally because of the increase in power purchase costs," says the committee, adding: "Without the dpc and without problems of T and D loss, the mseb could be financially healthy."

But can that happen now since Enron is here to stay? The committee has come up with some far-reaching recommendations: make public all Dabhol-related documents and agreements, restructure the Dabhol project itself to bring down the cost of power, restructure dpc financially, allow sale of dpc power outside Maharashtra, re-examine ppas in accordance with least-cost plans, and thoroughly reform the mseb.The committee know this can become reality only with political consensus and through forming of public opinion. The question is, can that be achieved in an unstable political environment?

With Priya Sahgal
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