The Enron muddle

THE CRISIS OVER power purchase from Enron's Dabhol plant was very much on the cards. Fortunately, it has come before the operational stage of Phase-II, so, there is time for both the Maharashtra Government and the promoters to try and sort out the mess. The first thing that the Congress-Nationalist Congress Party (NCP) coalition in Mumbai must do is to keep politics out of this and put the interests of the State above everything else. There is a clamour among some of the smaller allies in the coalition to scrap the second phase of the project, but the Maharashtra Government must reckon that going back on the commitments will entail a huge compensation - perhaps in the realm of Rs. 20,000 crores. This is clearly a Catch 22 situation - damned if you buy the power, damned if you do not. The pricing of power from the private projects has been worked out on two fronts - a capacity charge, which must be paid even if the Electricity Board does not buy the power, and a fuel charge, which is linked to the value of the rupee and the price of crude. If it does not purchase the power from Enron, it has to pay a capacity charge of about Rs. 95 crores a month; and if it draws the energy produced, it costs Rs. 6.81 per unit now.

Obviously, the choice is limited. Either the State Government must find the resources to enable the Electricity Board (MSEB) to continue to buy the power, or renegotiate with Enron about the second phase, which will take the generation up to 1,444 MW. It is a bad precedent to keep renegotiating agreements, but the State Government will have no option. Financial institutions such as the IDBI have already taken the initiative to lessen the interest burden of Enron, by lowering the interest rate from 17 to 14 per cent. Other institutions which have loaned to the promoters may follow suit, but they must ensure that the benefit is passed on to the consumer - the MSEB. Without insisting on that, it may be foolish to keep reducing the costs for the promoter. This is a clear way in which the cost of production and consequently of sale to the MSEB could be reduced. If the rates of the rupee and oil stabilised at current levels, the price of power from Dabhol could come down to the Rs. 5 per unit range, though even that may be too high. The other options for Maharashtra will be to permit Enron to sell power to some of the neighbouring States which may be in need, particularly during the summer months, or arrange to buy up the plant.

The Maharashtra Government should not rush into a hasty decision without weighing the pros and cons seriously. There may be a political background to the latest crisis. After all, the BJP- Shiv Sena Government blamed the previous regime for the Enron agreements and insisted on renegotiating the contract. In the process, it also committed the State to the second phase of the project. The Congress groups, now ruling Mumbai, may be eager to teach the Sena a lesson or two. But the Government must remember that a hasty or retrograde step at this stage could hurt the investment climate in Maharashtra - which still ranks first among the States in attracting investments. Such a decision will also affect the power sector badly. And if there is any move to default on payment, it will have a cascading effect because the Centre has given a sovereign counter-guarantee for this prestigious, fast-track, mega project. Maharashtra must not let things go so far. Now that the MSEB and the State Government have realised the problems and dangers lying ahead, they must quietly negotiate with Enron to find an amicable way out of this crisis. It is also time for initiating much-needed reforms in the power sector to make the MSEB a viable undertaking. There are several lessons in this for other private projects and Electricity Boards.

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