What Sort Of Deal Is This?

HIGHLIGHTS of the observations made in the audit note on the PPA between MSEB and DPC-Enron from the Accountant General's office:

Updated on: 7 February 2024 7:38 pm

Published at: 6 May 1996 12:00 am

The PPA was entered into without calling for any global tender. There is no mention of the estimated cost of the project. DPC will recover every amount spent in the form of capacity and energy charges from MSEB, but the latter won't have any say on the cost of plant and machinery, or the fuel to be imported. The MSEB doesn't know the cost at which it'll buy power from DPC.

The MSEB can't question fund arrangements though funds will be recovered from it.

Capacity payment appears fixed, but actually isn't, as it is price-index-linked. So adjustment is needed depending on price escalation and exchange rate fluc-tuation. This payment will be on created capacity, not on actual generation.

How the unit cost has been arrived at is not clear.Taking into consideration all the costs and variables, the unit cost is bound to be higher.

Capital recovery will be made from MSEB through depreciation on plant and machinery. But the contract doesn't mention anything about the life of plant and machinery and the rate and method of charging depreciation. So if DPC decides to recover the cost faster, unit cost is bound to be higher than projected.

MSEB will have no say in the finalisa-tion of contracts for importing fuel.

MSEB will have to spend about Rs 323 crore on building infrastructure, to receive power from the plant. Though DPC will use this infrastructure it won't pay or adjust either fuel cost or capacity charge, nor bear any transmission loss.

The DPC is exempted from paying sales tax and electricity duty, a perpetual revenue loss to the state.

In case of delay from either side, DPC will pay fixed liquidated damages, but MSEB will pay a disproportionate amount of liquidated damages equal to capacity charges as would have been payable if commercial service had started.

Clauses in the PPA referring to the distillate and LNG fuel contracts make it obligatory for MSEB to pay for reasons not attributable to it.

DPC will be selling power without any risk on any single amount it will spend on this project.