Fixing the fuse

RECENT REPORTS RELATING to the Dabhol Power Company's (DPC) power project in Maharashtra are both disquieting and even if predictable show the growing intractability of the problem. Controversial right from its inception in the early 1990s, the inability of Maharashtra State Electricity Board (MSEB) and the State Government to honour their contractual obligations under the power purchase agreements (PPAs) is the root cause of the first rate crisis. Attempts to defuse it, a crucial preliminary before any permanent resolution, have received a setback. Obviously the Central Government, which has a much large stake than what is apparent from the project-specific counter guarantees, cannot procrastinate further. Much more than being just a legal default - by itself an extremely serious matter considering the involvement of a State Government - the DPC imbroglio impacts adversely all round.

For instance, on the economic relationship with important trading partners such as the U.S. Key officials of the new administration have identified the DPC debacle as the principal stumbling block to normal Indo-U.S. trade. Senior officials of Enron, its chief promoter, have stated that they would prefer to sell their stake rather than stay on in India. It is too much to hope that foreign direct investment flows into the country, a high priority area, will be anywhere near what has been targeted in a situation where the legal dispute drags on. Ironically in the race to attract such investments, the superiority of our legal system in its entirety, over say that of China, has for long been touted as a strong positive. The DPC fiasco will render all those claims meaningless. It is bad enough to witness a reneging on legally enforceable contracts by a State Government and a statutory corporation owned by it. Resolution through legal means of such high profile issues, as is being increasingly favoured by the Indian side, is likely to be time consuming and will further cloud the issue.

Dispassionate observers, however, feel that it is never too late to arrive at a just and face-saving solution. The alternative or even merely prolonging the crisis by whatever means will be highly injurious to the country. The Godbole Committee which made a commendable effort in diagnosing the ills of the Dabhol project is also in its second incarnation trying its utmost to salvage it. There could not have been easy answers given that the Committee found a complete abdication of governance in the actions of the two successive State Governments in Maharashtra that locked them and the MSEB in unequal contracts with the DPC. Last week, serious attempts to sell the Dabhol power to other States met with failure. Only four State Governments - of Karnataka, Madhya Pradesh, Delhi and Punjab - responded to the invitation. None of them could afford the power on offer or have the financial muscle to buy it over the medium term. The other proposal to sell directly to bulk customers is also fraught with legal and procedural infirmities.

The crux of the problem relates to the high project cost, the addition of certain additional capital expenditures and the consequent need to price the power at sufficiently high levels to generate an attractive return for the stakeholders. Financial engineering on certain parameters acceptable to both sides should be part and parcel of a continuous dialogue between them. Finally, DPC is about early investment in an extremely vital but capital starved infrastructure. In its two phases it will generate almost 2200 MW of power, which the country badly needs along with the plant and machinery that will generate it. Keeping those priorities always in view, the only step forward is to negotiate further.

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