No way but to negotiate

A FLURRY OF bad news is threatening to derail even the tenuous negotiations going on to salvage the Dabhol power project. The latest is the decision by the project's contractors to stop work. While the 740 MW phase I of the project will not be affected, the contractors' decision, conveyed by the Dabhol Power Company (DPC), brings into sharp focus the issue of non-payment by the Maharashtra State Electricity Board (MSEB) of the contractual dues. Though entirely anticipated, the contractors' decision raises the stakes in the negotiation game and gives the DPC another opportunity to blame the MSEB, the State and Central Governments. Not to be outdone, the MSEB, which had earlier served a legal notice of ``non-performance'' on the DPC, says it will not pay its April and May bills totalling Rs. 274 crores. Instead it will set them off against the Rs. 1200 crores it says is owed to it by the DPC for non- performance. Competitive brinkmanship, though inevitable, will hardly help in resolving the festering dispute.

Ultimately, for the project to be salvaged, its cost has to be reworked so that its unit cost of power is competitive as well as made transparent. Second, since capacity utilisation of the project has been a contentious issue including in determining the cost of power, the fixed and variable cost aspects of the original estimates need to be looked into and solutions acceptable to all the stakeholders arrived at. Specifically, whether the regasification project and the large terminal facilities can be reclassified as variable costs need to be addressed on a priority basis. Including them in the fixed cost component of the project has raised the break-even point to unacceptably high levels. Third, the success of the negotiations will also depend upon identifying other buyers of electricity besides the MSEB. Here, in a welcome change from its previous stance, the Central Government has come up with fresh initiatives. Looking beyond the Enron factor, the case for reforming the electricity boards has never looked stronger, though obviously that can only be a medium term solution.

Fortunately, there have been certain welcome developments which augur well for the outcome of the ongoing negotiations. The DPC itself seems open to accepting a lower tariff - a ten per cent reduction has been indicated - but at this stage it is not certain as to whether it is merely a bargaining ploy or whether the level of concession offered is sufficient to get the project back on the rails. Noteworthy too is the reported decision of the project's Indian lenders to accept lower returns but here again there are limits beyond which they cannot go. For these and other reasons, neither the tough public posturing of both sides nor the apparent progress made in certain previously intractable areas ought to be reckoned as the final word. A satisfactory resolution of this highly complex issue might have to start with finding a new promoter who will buy Enron's equity and thereafter renegotiate with all the stakeholders the terms so that the rate of return on the project becomes acceptable to the new promoter and the tariff is set at levels at which the power can be sold easily and without contractual obligations to which they are now tied to.

Whereas the Godbole Committee's report will be the basis for the negotiators representing the MSEB and the State Government, ways must be found to make the DPC accept its framework. Another issue clouding the horizon is the proposal to appoint a fresh judicial commission to review the project. Welcome in one sense - some Godbole Committee members had recommended it - it can stop the negotiations in their tracks. The only way is for both sides to climb down from their rigid stances and continue to negotiate.

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