Put Reliance, Ispat projects on hold, MSEB tells Govt.

By Mahesh Vijapurkar

MUMBAI, DEC. 12. Adversely hit by the high cost of power from the Enron-sponsored Dabhol Power Company, thanks to the depreciating rupee and higher international prices of petroleum products, the Maharashtra State Electricity Board is asking the State Government to reconsider continuing with two other projects to be put up by Reliance and the Ispat Group. The MSEB favours putting these two on hold. Hard put to it to pay the DPCs bills, the board would like to delay the escrow cover to these two independent power producers (IPPs), sources told The Hindu. That in turn would lead to a further setback to their financial closures during which time a real rethink on the advisability of going ahead with them can be done. The MSEB has already signed power purchase agreements with these IPPs, one to be located in Patalganga and the other in Bhadravati.

Reliance, which like Enron's Dabhol project, has a dollar- denominated price for the energy it would produce for purchase by the MSEB, has a nameplate capacity of 437 MW and the Bhadravati plant, using coal, has a total rating of 1,082 MW. The latter too has a forex component in the deal. These two have not been as nimble-footed as Enron and its partners were in getting the project through. And the MSEB heaved a sigh of relief.

The MSEB's view is that having to bite the Enron bullet, as it were, in Phase I itself in which not the entire generated power could be bought and resources were limited to such an extent that paying bills ``is like bleeding an emaciated person,'' it should go slow on these two projects. The Reliance unit too would depend on internationally-acquired liquid fuel and its price as well as rupee-dollar parity would dictate the price the MSEB needs to pay.

Earlier this year, the CRISIL studied the MSEB finances and stated unambiguously that given the existing tariff and levels of revenue collection, the power utility would not be in a position to provide the escrow cover to both the Reliance and Ispat- sponsored IPPs. Reliance's escrow would have been over Rs. 1,200 crores and Ispat's, higher by about 25 per cent. Dabhol has revenues from 14 circles of the MSEB on escrow for Phase I itself. Phase II of 1,444 MW is anon.

The MSEB, if its revenues improve - an impossibility given the Government's predilection for not allowing it to function commercially - can cope with t Enron's Phase I with some difficulty and even perhaps contain the fiscal implication for itself if the Government pitches in. But taking on the burden of two new projects in succession is clearly, in the current circumstances, beyond its ability. Hence this suggestion to put these two on hold.

It would be rather odd, the sources explained, for the Government to re-examine the entire gamut of issues connected with Enron's project and not take into account the looming implications of the other two projects, fraught with similar consequences. Reliance in the beginning asked for earmarked areas for supply directly, plus designated consumers in the event of the MSEB defaulting on payments. The Government then stepped in with the escrow option.

Apart from its enfeebled financial muscle, further allowed to atrophy over the years, the MSEB would find servicing the escrow for these two projects much more than it would otherwise have been, because of the Enron experience - it has to pay not only close to Rs. 7 per unit but a capacity charge of Rs. 95 crores per month for unbought power despite capacity availability. ``All these together would kill the MSEB,'' the sources said.

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