FACTS againest MYTHS V0L-IV-8-1997
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- Title
- FACTS againest MYTHS V0L-IV-8-1997
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Myths About Power - Part I
— by Abhay Mehta
COM ME NT
A study of the first private sector project in India
J- X after 1991 is set down below. It focuses on the
power project set up by the MNC Enron Corporation
in Maharashtra. The history of the project is one of the
most interesting episodes in post independence India..
The saga is still in progress and the last chapter is yet to
be written.
After 1991, the new policy as announced by the
Government of India, allowed for additional private
sector participation in the power sector. Thereafter in
1993 a contract was signed in Maharashtra between
the state-owned electricity board, the Maharashtra State
Electricity Board (MSEB) and the Indian subsidiary of
the Enron Corp., the Dabhol Power Company (DPC)
for the supply of 695 MW of electricity. One of the
conditionalities in the agreement was that the MSEB
could, if it so choose, increase the supply of electricity
Ip 2015 MW by an expansion in the capacity of the
Plant and a change in fuel.
The contract between the two parties was signed after
detailed examination of various aspects of the project
were supposedly conducted by both the Central and
State governments. It was also claimed that all necessary
clearances that the law required were obtained. In
particular, the ‘techno-economic’ clearance was
purportedly issued after an examination of the technical
and economic aspects of the project by the sole authority
under the law, the Central Electricity Authority (CEA).
While this was going on, there was a great deal of
opposition to the project on diverse ideological,
economic political and environmental grounds and
from the most diverse quarters. These included political
parties, a loose knit coalition of former chairmen of
the CEA, various State Electricity Boards,
environmentalists, consumer organisations, academics
like Dr. Parekh the head of a leading developmental
institute and the World Bank etc. The World bank, to
illustrate, was explicitly not in favour of the project.
Its comments were invited on atleast three different
occasions and on each occasion it took a very strong
stance against the project on purely economic grounds.
In State of Maharashtra, the contract proved to be
controversial. Most of the parties in the opposition
including the Shiv Sena and the BJP opposed the project
for a number of reasons. In the elections that followed,
an alliance of the Shiv Sena and the BJP came to power
in April 1995, almost solely on the issue of possible
malfeasance in the contract. The new government
undertook to reexamine the terms and conditions of
.the contract.
After a detailed examination by a special cabinet
committee, the Government of Maharashtra came to a
conclusion, inter alia, that the contract was not in public
interest It decided to cancel the contract in August 1995.
To legally substantiate that decision, the GOM filed a
suit in the Bombay High Court. This suit sought the
cancellation of the contract on various grounds. A
compendious number of documents from the records
of the GOM were attached to substantiate the various
allegations in the suit.
Within 3 months of that decision for reasons that are
not altogether too clear to date, the government
backtracked on its decision without assigning any
coherent reasons. It went on to ‘renegotiate’ the contract
without any changes in the old contract with a number
of false claims.
MYTH : The country is experiencing a severe power
crisis.
FACT : The installed capacity in India as of 1996 is
84,000 mw. The peak demand is at best of the order of
FACTS, against MYTHS
# 8 *97
FOR PRIVATE CIRCULATION ONLY
Page 1
60,000 MW, perhaps less. On the face of it there should
be a surplus of power. But obviously that is not the
case. The effective utilisation of installed capacity is
one of the lowest in the world. With an installed
capacity of 84,000 MW not only a peak demand of
60,000 MW is not met but the production is
considerably lower (of the order of 45,000 MW), leading
to massive shortages.
Electricity is one of the most ubiquitous commodities
that surround us. However, unlike other commodities,
it has to be consumed when produced. Electricity
cannot be stored except in another form which
necessarily involves a loss. The installed capacity has to
be more than the peak demand to be able to meet it.
The system must be ready at all times to be able to
meet the changing pattern of demand.
For various reasons set out here, the peak demand is
not fulfilled resulting in a serious shortage of power.
The prime factor is the availability of power stations.
The low availability of most power stations is further
exacerbated by the pattern of demand for electricity in
India. The demand for power varies very drastically
during various points during the day. In the morning,
as the middle class all switch on their geysers and other
appliances, there is sudden surge in demand. This surge
is repeated in the evening when more or less every one
turns their lights on at the same time. In the night, the
demand is considerably lower than in the day in fact
almost less than half the peak demand.
Most power stations in India run on coal. Coal is not
delivered to them on time either because of a failure to
pay (as in the case of Delhi and other Boards) or due to
the unavailability of wagons.
The SEB’s owed the National Thermal Power
Corporation (NTPC) Rs. 6,500 crores in October 1997.
i.e. more than 60 % of its turnover. NTPC in turn is
unable to pay Coal India Ltd. (CIL) and other suppliers
cf fuel. The boards themselves do not have the money,
for a variety of reasons. However, the primary reason
is that of large scale theft.
Power stations are at some distance from the mines and
enormous quantities of coal have to be transported to
them. For the usual set of reasons, the number of
wagons available to the railways and their turnaround
time is relatively low. Therefore the coal does not reach
the stations on time. Depletion of stocks leads to a
shutdown. A thermal power station requires about a
fortnight to be turned on again.
A large fraction (a quarter or about 20,000 MW) of the
power stations in India are over 25 tears old. Besides
age, the problems of poor or indifferent maintenance
leads to regular breakdown in equipment. The resulting
shutdowns are euphemistically attributed to
‘unscheduled maintenance’ as opposed for planned
shutdowns for planned maintenance and repairs. All
FACTS against MYTHS
the above and other reasons, which if necessary can be
resolved easily, effectively reduce the average time
that a power station is actually capable of generating
power (availability). It ranges from a low of 40-50% in
Bihar, a middling 80% in Maharashtra to a high of 90%
and above in the case of NTPC. What the numbers mean, say at an average availability
of 75%, is that over the course of a year, the station is
incapable of producing power for 25 % of that time i.e.
91 days of the year.
The so called ‘Agricultural subsidies’ have very little to
do with the woes of the power sector. The real reasons
for this state of affairs are myriad. They include one of
the highest rate of ‘Transmission & Distribution losses’
(T&D losses) in the world: one of the world’s lowest
-utilisation of installed capacity and a host of other
problems.
The mass scale production of power took off after
independence with an annual rate of growth of about
7-8% p.a. Like most systems that we have inheriteJ^
there is a systematic devastation of the system forW^
variety of reasons. The power system, as are most
systems in India, are in a state of perpetual crisis lurching
from bad to worse. The symptoms are obvious to
anyone outside of Mumbai. Regular power cuts ranging
from an hour to most of the day, irregular supply,
voltage fluctuations etc. to those lucky enough to
receive power in the first place. Most of these T&D
losses are simply a euphemism for theft. Power is very
easy to steal.
Delhi which represent the worst and the future of India
in many respects, DESU is one of the most corrupt
and bankrupt organisations in the country. The middle
class and the industries account for anything between
60-80% of the theft. Contrary to popular myth,
relatively little of the theft is by the ‘juggi’ dwellers.
For example, consider the fact, that almost all buildings
in East Delhi do not have regular meters. Even affluent
upper middle class and elite housing societies that
over a decade old do not posses a ‘regular’ meter.
Instead most households receive a fixed (and absurdly
low) bill that is totally incommensurate with the actual
consumption of electricity. The rate of T&D losses in
Delhi is an alarming 60% representing a theft rate of
nearly 54% i.e. out of every 100 units received/
produced by DESU, over half of the simply disappear!
On the other hand, Mumbai is an example totally
contrary to Delhi. It has a unique mixture of a private
sector organisation (the BSES) serving the suburbs and
a public sector organisation (the BEST) serving the city
proper. The average rate of T&D losses for both
organisations is the lowest in the country. It is roughly
the same for both BEST and BSES (about 11%). Both
are extremely profitable entities with BEST's profits
gross subsiding its transport division and BSES a
favourite on the bourses.
# 8 *97
Page 2
MYTH : Electricity production is environmentally
benign,
FACT : Almost all electricity in the world is produced
by burning fossil fuels (coal, natural gas and fractions
of distillation of crude oil). The production of electricity
is quite simple technically. The fuel is burnt, the burning
fuel produces and/or heats gases which then drive
turbines. These rotate, producing electricity. The
efficiency of the process depends primarily on the fuel
used. It ranges from 30-40% in the case of coal and about
46-54% in the case of gas.
If a kilo of a good Indian coal could be completely
converted to electricity one would produce about 3.5
units of electricity. However only 1.25 units of
electricity are produced in a typical power station i.e.
an efficiency of about 35%. This electricity is then
transported across distance, so some of it is necessarily
lost. This loss (‘transmission loss’) ranges between 1%
to 6-7%. The electricity is then used by the consumer.
Further losses are incurred in this process, of the order
kF as much as 70%. For example, as much as 80% of the
Electricity that reaches a typical incandescent bulb is
lost in the form of heat.
AH this means that the overall conversion efficiency from
coal to the bnlb in the house is of the order of 15°/o to 20°/o.
A typical urban middle-class household consuming 250
units a month uses about 8 kgs. of coal a day or 2.4 tonnes
of coal a year!
About 80% of the electricity produced in India today is
produced from coal. Coal is quite cheap and available
in large quantities. Consider the case of Singraulli in
Bihar, which produces enough coal to light up a large
part of India but leaves most of its town’s inhabitants
without electricity. The living and working conditions
of the towns residents are among the worst in the
country, even after accounting for Bihar.
Another of these choices is illustrated by the problem
of ash. After the coal is burnt, there is a considerable
^mount of ash that is left over. The quantity of ash
generated in India amounts to about seventy million
tonnes a year. This ash can be used in a number of ways
ranging from a base for building materials like bricks,
road foundations, etc. However, for most parts, there
is no further use made of the ash and it is simply dumped
in a huge hole and (called the ash pond) left there. For
an average power station the ash pond itself amounts
to a few hundred acres. To date there has been no
conscious decision to use these mountains of ash
constructively or to enforce any such action.
Air pollution and its abatement is yet another example.
Burning coal spews a large number of gases, chiefly
oxides of nitrogen (Nox :NO2 and NO), sulphur dioxide
(SO2) and carbon dioxide (CO^. The amount of SO2
and Nox can be reduced very considerably, as much as
85 to 90%, by a variety of standard techniques. The
investment required is an additional 20% or so over the
cost of the generating equipment. This would amount
to less than 5 paisa a unit of electricity over the life of a
generating station. However, most power generating
stations in India are equipped with only rudimentary
pollution control equipment The new ones coming up,
save a few, are no better. (See also box on page 8).
MYTH : Enron is the World’s Leading Power
Company.
FACT : Enron has very little to do with electricity. It
is primarily a gas distribution company. It has been
claimed on numerous occasions that Enron is among
the “World’s Leading Power Company”. This was
claimed on affidavit to the courts and in innumerable
press reports and all official governmental
correspondence.
In 1993, Enron’s total sales were $7.1 billion (22,000
crores). Of this, only 1% [$73 million or Rs. 220 crores
then] of their total revenues was derived from electricity.
In contrast, almost all Indian power companies, private
or state had sales that were higher. When the company
first came to India, their experience in building and
running power stations was limited to a few stations in
the USA and the Philippines of capacities ranging from
28, 105 and 110 MW stations in the Philippines, a 110
MW station in Puerto Rico, and 149 MW to 450 MW
plants in the USA.
MYTH : The size of the Dabhol project and the fuel
that the project will use is related to Maharashtra's
needfor power.
FACT : Enron’s project will use Liquefied'Natural
Gas and not natural gas. The difference is appreciable.
Natural gas in most parts of the world is simply
transported through a pipeline. Gas that comes out of
a field has three primary fractions. A fraction of the gas
that cannot be liquefied, a fraction can be liquefied very
easily by merely applying pressure to it and a fraction
is liquefiable only under extraordinary conditions of
extremely cold temperatures of 165° C. This gas when
so liquefied can be transported across distances since
the degree of compression is of the order of over a 1000
fold. The capital investment is of the order of 4 billion
dollars at the liquefaction end. The transportation
requires specially constructed refrigerated ships capable
of maintaining the gas at the low temperatures.
Each ship requires a investment of $ 150 -200 million.
A fleet of four to six ships is required. The overall capital
requirement is of the order of 5 billion dollars. Given
the extraordinary capital investment, the only way a
producer would invest the enormous capital if there is
a long term contract for enormous quantities signed. A
typical contract for the supply of LNG is of the order
of 15 billion dollars. The amounts are so enormous,
given the capital recovery of $ 5 billion and the base
price of gas. Each such deal is unique. LNG is not a
tradable commodity and there is no market in LNG.
FACTS against MYTHS
Page 3
Japan, given its geographical location and near total lack
of petroleum resources is the main importer of LNG.
Conversely, given the economics of LNG, a power station
of about 2400 MW is needed to consume the gas from one
such supply train.
In India, the DPC proposed to set up a mega power
generating station to be run on gas. This gas was to be
imported and brought to India in the form of liquefied
natural gas (LNG). The size of the station was about
2500 mw so as to be able to consume an entire train of
LNG. i.e nothing to do with the pattern and demand
for electricity in Maharashtra.
A team of officials from Enron Corporation and
General Electric Co. (GE) arrived in New Delhi on 15th
June, 1992. They held discussions with the chairman
ONGC and Secretary Petroleum. The team arrived in
Bombay on the 17th evening. On 18.6.92 and 19.6.92,
the team visited over half dozen potential sites in
Maharashtra. On the morning of the 20th, the MSEB was
“banded a term sheet” by the team. Thereafter, on the same
day, the MSEB signed a Memorandum of Understanding
('MOU’) with Enron and GE.
This MOU specified that the MSEB would buy
electricity and/or capacity from Enron which would
build, own, and operate (but not transfer) a plant of
about 2400- 2400 MW (nominal) capacity. The power
station was to be built near Dabhol in Ratnagiri district,
about 300 km south of Bombay. The MOU was signed
within three days of Enron’s arrival in Bombay. It
specified that a plant “with a minimum capacity of 2000
MW” would be set up, that the MSEB “agreed” to the
“need to set up a 2000 MW plant” to be “run on
Liquefied Natural Gas (LNG)”, that the “Electrical
Power Purchase Contract” would be a “Contract for
20 years term between Power Venture and MSEB” and
that the “Contract (was) to be structured to achieve an
all in price of US $ 0.073/kWh.”
A plant for generating electricity is usually set up after
an initial examination of the context in which the plant
is to be used as well as the need and pattern of demand
of electricity is determined. Maharashtra, as most of
India, suffers from a peaking shortage.
Secondly, there are enormous reserves of one of the
world’s best qualities of coal at Chandrapur in
Maharashtra.
In the light of this background, the MOU between
Enron and MSEB posed a problem. MSEB had gone
ahead and signed the MOU with the MSEB. The MOU
had already specified the size of the plant, the fact that
imported fuel (about 4 times as expensive as the best
quality of coal) was to be used and the final price for
the electricity that was to be paid to Enron for the
electricity. Effectively the nation was presented with a
fait accompli.
FACTS against MYTHS
There is no explanation on the record or otherwise as to
why the decision involving the largest series of payments
in India’s history was taken in such an absurd hurry. The
MOU forecloses among other issues, the question ofpricing
questions and analyses of Maharashtra’s needs (peaking
versus baseload), impact ofpricing the relative economics
of coal versus imported natural gas, the forex considerations,
the meta economics, pricing inviting other parties to quote
a price etc., etc. None of these issues for a really strange set
of reasons appear to have been considered at all. The decision
to set up a huge power generation project in the private
sector with a foreclosed obligation on a statutory
corporation, the MSEB, to buy power at a predetermined
unprecedentedly high rate was taken in great haste without
there being any detailed consideration of the matter or any
application of mind whatsoever or any public debate.
MYTH : The objection to the project is primarily on
environmental grounds.
FACT : Not so! The opposition to the project was/is
on diverse ideological, economic political and
environmental grounds. The opposition also came fron^ x
the most diverse quarters including political parties, V/
loose knit coalition of former chairmen of the CEA
and various SEB's, environmentalists, consumer
organisations, academics like Dr. Parekh the head of a
leading developmental institute, the World Bank, etc.
The World bank, to illustrate, was explicitly not in
favour of the project. Its comments were invited on
atleast three different occasions and on each occasion it
took a very strong stance against the project on purely
economic grounds.
MYTH: The entry ofEnron into India was mandated
by the World Bank itself.
FACT : Most conventional critiques put the blame for
almost all problems affecting this country to a
combination of the World Bank, the IMF and GATT.
Atleast in this particular instance, a strong case can be
made in favour of the World Bank.
The World Bank’s analysis of the Dabhol Power Projew)
reads like a strong critique. It was the most up-to-date
and the most coherent critique of the project and its
consequences. It was and is the World Bank’s
institutional and operating mandate to support, expand
and if necessary, force the entry of foreign private capital
into countriesthat were averse to such an entry. This
was particularly true in the eighties. The dramatic
change in India’s path was imposed upon by the World
Bank’s conditionalities to the loan agreements.
In this context, the analysis of the World Bank is
particularly important. Its detailed, rational and one
would think irrefutable critique should have sounded
the death knell for the Project. It had claimed that the
MSEB would incur severe financial losses because
(Enron’s) “LNG generation (of electricity) at a variable
cost of about paise 150/kWh would displace coal-based
# 8 '97
Page 4
power costing paise 30/kWh.”
Further, on the issue of the “Cost and value of LNG
Power”, the World Bank concluded that consumers
would not be willing or able to pay such a price for
LNG power from Enron and therefore the “Bank’s
standard project economic analysis” concluded “that the
project is not viable”. Additionally, there would have
to be “substantial tariff adjustments” for MSEB. “Prices
for industrial consumers would at the minimum have
to be doubled in nominal terms to recover the cost of
LNG power”. An “across the board adjustment” of
tariffs to all categories of customers and not just
industrial ones, with “annual increases” of about “1520% against the Bank’s 5-6% inflation estimates” and
that the “project is not a least-cost choice for base load
power generation...compared to Indian coal and local
gas.”
Interestingly enough, a part of the World Bank note
was leaked to the press. Snippets from the Bank’s
analysis were carried in most newspapers. The resulting
controversy nearly threatened to derail the project.
response to the World Bank’ analysis and increasing
press criticism , Joseph Sutton Vice President of Enron wrote
to the Chairman, MSEB that ,fI feel that the World Bank
opinion can be changed. We will engage a PR firm during
the next trip and hopefully manage the media from here
on”
The Bank did not change its "opinion”. It reiterated its
earlier stand and severely criticised the MSEB’s attempts
to justify the project on grounds that its own system would
decline in efficiency and reconfirmed their conclusion that
the Dabbol project ”... is not economically justified and thus
could not be financed by the Bank.”
MYTH : The Government exchequer and the people
will not be burdened with the payments
FACT : A simple question that is posed: How are we
going to pay for it? t
^Knron’s project alone will produce much more
^electricity than is being used by all of industry in
Maharashtra in 1996-97. Further, the nature of the
contract obliges full payments by the MSEB, failing
which, by the GOM. This is so, even if all of the output
of electricity is not utilised.
MSEB’s finances are already troubled. The GOM was
forced to advance a sum of Rs. 600- 800 crores to the
MSEB on an “emergency basis”.
We have to pay. There is no trivial solution of simply
negating the contract. The GOM has committed itself
before the High Court and arbitration tribunal - it did
not leave any ground of escape at all, for a future cause
of action.
These contractually binding payments, with the GOM’s
liability are unlimited for all practical purposes and
FACTS against MYTHS
GOI’s to the order of Rs. 35,000 Crores +. In addition,
both GOI and GOM have committed all their assets
past, present and future against the claims of the
Company.
The guarantees given by the Union of India, on the
security of its consolidated fund, start at Rs. 1500 crores
a year, increasing annually at a minimum of 9% a year,
and indexed to the rate of inflation, etc. totally amount
to over Rs. 35, 000 crores. This is for the First Phase of
the project (740 MW), towards guaranteeing a debt
component of Rs 2, 000 crores at best. Maharashtra’s
share of its central allocations and share of revenues
will be deducted directly by the RBI in order to pay
MSEB’s contractual obligations to Enron. Whether, in
fact this is allowed under the Constitution is a good
question.
The consequences necessarily arising from the
contractual obligations of any magnitude, hitherto
unprecedented, are of‘particular interest and are
probably unimaginable. Simply the economic
consequences, as a result of the contractual obligations,
are substantial enough to “adversely effect our economic
growth for years to come” in the words of a once
concerned academic. To put these numbers in some
perspective, these amounts nearly approach
Maharashtra’s entire budgetary expenditure.
Maharashtra’s rate of industrial tariff are already among
the highest in the world. In the World bank’s opinion
there would be “substantial adjustments” (i.e. very
substantial increases) in industrial tariff to accommodate
the high cost of Enron’s power. This was reiterated by
the GOM. Any further increase would affect industry
very severely. Industry is already reeling under a tariff
regime that is one of the highest in the world. It should
have prepared a doubling of tariffs at the least (as per
the World Bank) and then followed by increases to the
tune of an additional 15-20% annually.
In 1995-96, MSEB increased its tariff rates. The current
HT rate is the highest in the country with the dubious
distinction of probably having the 2nd HT tariff rates
in the world.
We believe that about 92 Induction Furnaces with a
total production valued at hundreds of crores a year are
shut down currently, on account of the recent tariff
hike. Other industries like retooling mills, ferroalloy
units etc. are also believed to be severely affected. Small
scale industries in the Thane Industrial belt (a few
thousand units) propose not to pay the new rates and
have apparently obtained court orders to this effect.
With such a high tariff, there is no scope for any further
increases! The much spoken about agricultural subsidies
do not amount to much: they simply hide the T/D
losses, which are much higher than the officially
admitted figure of 15.9 % in 94-95: in all probability
almost double than that. The real component of subsidy
#8 ’97'
Page 5
military) in world history, and the single
largest contract in this country’s history.
Payments amount to about $1300 million
in the first year with total payments around
US $ 35,000 million (Rs. 1,25,000 crores.)
over the life of the contract. The payments
are linked to various indices including the
oil price index etc. so an exact estimation
is completely contingent on assumption of
the rate of change in various indices. In any
case, a conservative low end estimate of
the NPV of this stream of payments is
about $17 billion to about $23-25 billion
at the middle end.
(Coartesy:BLJTZ, 12.8.95)
to the order much lower, perhaps none in reality. In
any case it begs the question of amounts of the order of
Rs. 10,000 crores a year.
MYTH : The terms granted to the Enron project were
provided to all other investors as well.
FACT : The terms for the purchase of electricity by a
utility seem to be unprecedented. The purchase of
electricity by MSEB and the payments due therein are
governed by various agreements signed. These include
the Power Purchase Agreement (PPA), the Guarantee
by the state of Maharashtra, the State Support
Agreement, the Counter Guarantee by the Union of
India and the Tripartite Agreement between the GOM,
the GOI and the RBI.
The terms include the 'de-facto' import of nearly
everything including the equipment and the fuel, no
transfer of technology and payments more or less totally
in foreign exchange. Additionally, they include a
guarantee from the GOM that in the case of default in
payments by the MSEB, the State of Maharashtra would
be liable for all and any payments due to DPC by the
MSEB under the terms of the contract. The state
government has put a lien on all its assets; past, present
and future in this respect. The interpretation of the state
guarantee is through the application of English in
exclusion to Indian law, though all the contracting
parties are Indian entities, constituted under Indian law.
The Republic of India, in turn has counter-guaranteed
the payments due to DPC. In the case that the
government of Maharashtra defaulted in its guarantee,
the government of India would be liable for some of
the payments due. The GOI would directly deduct from
the constitutionally sanctioned share of revenues due
to the state of Maharashtra in case of the GOI having
to make any payments. The Republic of India too has
staked all its assets (including those abroad, save
diplomatic and military) in surety of the payments due
to DPC by MSEB. The payments due to Enron
constitute one of the largest contracts (civilian or
FACTS against MYTHS
These payments keep increasing because of
the*'indices built into the payments, that include the $
to Re. rate, the rate of inflation in India as well as the
US labour inflation!, shipping and oil indices, etc. For
example, a conservative rise of 8% annually thereabouts
can, [be safely assumed simply on the basis of the Re. to
$ depreciation and the historical oil price index without
any ‘shocks’; i.e. of the order of 500 crores a year. M
No upper bound can be placed on the payments. A
conservative estimate of the NPV of this stream of
payments is of the order of U$ 20,000 million or more.
Abbreviations used
CEA: The Central Electricity Authority, a statutory
body created under the Electricity (Supply)
Act, 1948.
DPC: The Dabhol Power Company, Unlimited. A
subsidiary registered in India, held by MNCs
Enron Corp. (80%), Bechtel (10%) and GE
(10%). MSEB may be a 30% partner if it
manages to raise the resources.
MSEB: The Maharashtra State Electricity Board, a
statutory corporation under the Electrici
(Supply) Act 1948. Sales of about Rs.7,600
crores; no profits, installed capacity base of
about 12,000 MV in 1996-1997.
PPA:
The Power Purchase Agreement; the contract
signed between the MSEB and DPC for the
supply of about 2000 MW of power and/or
capacity from DPC's plant near Dabhol in
Maharashtra
GOM: Government of Maharashtra
# 8 ”97
Page 6
CALENDAR OF EVENTS
17.6.92
Enron's team arrives in Bombay for the first time.
20.6.92 Within three days, MOU between Enron and MSEB for the largest contract in Indian history
at an unprecedently high price and total breach of the law.
8.7.92 The World Bank's Opinion (solicited by the GOM) that the project is likely to have an adverse
financial impact on MSEB.
7.92 The CEA commented on the MOU that the price agreed by the MSEB was considered to be high
and in breach of prevailing norms.
13.7.92 Enron "advised" the Govternment of Maharashtra against "auditing" project costs and
predetermining return on equity both of which are required by law.
4.9.92 The Chairman of MSEB, stated that "public and judicial scrutiny of business policy and
decisions as per the Act will not be acceptable" by Enron.
30.9.92 The Chairman of MSEB, stated that "public and judicial scrutiny of business policy and
decisions as per the Act will not be acceptable" by Enron.
30.4.93 The World Bank evaluation of the project found it unviable and placing a "Heavy financial
burden on the MSEB" and refused to fund the project.
28.6.93 Enron felt that the World Bank opinion "could be changed" and that they would "manage the
Indian media".
8.93 The CEA found the reasonable capital cost of plants, like Enron's to be Rs. 1.81 and Rs. 1.91
crores per MW in 1996 and 1997. This is against Enron's cost of more than Rs. 4 Crore/MW.
8.95 The official Committee of the Government of Maharshtra recommends the scrapping of the
project on several grounds including "high cost of power, high capital cost, that the PPA was
against public policy and public interest" as well as on grounds of corruption and the government
institutes a suit to this effect in the Bombay High Court.
8.11.95 GOM announces renegotiations after repeatedly taking the stand that there would be no
negotiations after Ms. Rebecca Mark, of Enron meets Shri. Bal Thackeray and it mandates the
revival both phases, I & II, of the project.
26.1.96
The revival of both phases of the Project was formally announced by the GOM.
7.3.96 DPC writes to the CEA that there was no change in the tariff of the First Phase of the
renegotiated project.
22.6.96 The IDBI notes that even after Renegotiation, Phase I of the project had not undergone any
change.
8.96 The largest contract in the history of India, with contractually binding payments by MSEB to
DPC exceeding U$ 30 billion, (Rs. 1,00,000 Crores currently) in the form of a binding PPA is signed.
4.97
The Supreme Court refuses to entertain an appeal against Enron.
The petition is pending since than in the Supreme Court of date (8.98) without any hearing at all.
Work on the project continues as usual.; It is expected to come on line in December 1998.
FACTS against MYTHS
# 8 *97
Page 7
The Radioactive Fallout of Enron Power Project
A Study of Radon Concentration Released into the Atmosphere due to
Burning of Natural Gas was title of a paper by M.C. Subha Ramu, T. S.
Muralidharan and K.G. Vohra of the Division ofRadiological Protection
of Bhabha Atomic Research Centre. In this paper they observed and
estimated the dose received by a by-stander due to burning ofnatural gas by
the Tata Thermal Power Station and theRashtriya Chemicals and Fertilisers
(RCF) at Trombay. Theyfound the does variesfrom season to season between
0.04 to 2.6 rems per year depending on various factors like wind,
precipitation, geographical features, etc. They also state in this paper that
the release of radon due to the burning of natural gas reduces considerably
when the gas is processed to remove impurities and fractionated to recover
the heavier hydrocarbons. In this process about 30 to 70 percent radon gets
removed from natural gas.
Shri Ashok Kumar from Mumbai had sometime back raised this issue in
connection with the Enron power plant at Dabhol. Again depending on
various factors like wind, precipitation and geographicalfeatures, previous
processing ofgas to remove radon, etc. people in the vicinity of the plant
might be in for a radiation does of0.4 rem to 25 rems per year in addition to
otherpollution burdens. 25 rems per year is 2,500 times the dose recommended
by the International Commission on Radiological Protection for the general
public.
In the circumstances, it might be prudentfor it to take this hitherto ‘unknown’
fact into consideration.' Over the long term, this would be of greater
consequence then the back-breakingfinancial burden imposed by the project.
Contact:
R. Ashok Kumar
Type III/36 E Tata Colony,
Mahul Road, Chembur,
Mumbai 400 074
Source: Anumukti,#5,1995
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