brian's friend Enron

From "Your Name" <>
Date Sat, 23 Jun 2001 08:41:04 -0400

Enron in Maharastra, India. and how a few dirty deals here and there 
plus unlimited greed has brought about a crisis in the government.


Dabhol dilemmas

The Vilasrao Deshmukh-led Democratic Front government in Maharashtra 
finds itself in a serious dilemma as alliance partners of the Congress
(I) come out with threats of withdrawing support to it over issues 
related to the Dabhol power project. 

in Mumbai 

MAHARSHTRA Chief Minister Vilasrao Deshmukh probably rues the day in 
1993 when he, along with other members of the Sharad Pawar Cabinet, 
approved Phase-I of the Enron-sponsored Dabhol power project. Now at 
the helm of the ruling Democratic Front coalition, he faces difficult 
times as his party's allies are up in arms over problems arising out of 
the $ 3 billion, 2,184 MW project. While some constitutents of the 
coalition are opposed to a judicial probe into the agreement between 
Enron and the Government of Maharashtra (GoM), some others have 
threatened to pull out of the D.F. if a probe is not conducted. Stuck 
between these two groups, Deshmukh knows that if the Enron problem is 
not settled tactfully, it can even result in the collapse of the 
government. Hence, besides sorting out problems between the Maharashtra 
State Electricity Board (MSEB) and the Dabhol Power Company (DPC), the 
Chief Minister has also been trying to avert a crisis in the alliance. 

The MSEB and the DPC continue to fight over the non-payment of dues by 
the former. With the Maharashtra Electricity Regulatory Commission 
(MERC) and the Bombay High Court entering the picture, there are more 
players in the drama. However, no end is in sight yet. 

Nationalist Congress Party (NCP) leader Sharad Pawar, who was 
instrumental in Enron's entry, announced in early June that his party 
would pull out of the coalition if a judicial probe was ordered into 
the controversial project. Later, the Janata Dal (Secular), at a 
meeting of its State Executive, passed a resolution that it would 
withdraw support to the D.F. if a judicial inquiry was not ordered. If 
the Janata Dal(S) withdraws support to the government, members of the 
Left parties are also likely to follow suit. The Janata Dal(S) has four 
members in the Assembly including two Ministers. Withdrawal by the 
Janata Dal(S) would mean trouble for the D.F. government as there are 
more than 20 MLAs including independents who would support the Janata 
Dal(S). On the other hand, the NCP's threat cannot be ignored as it is 
the second largest party in the coalition. 

However, an immediate crisis was averted when NCP vice-president Praful 
Patel announced that there was no question of the NCP withdrawing its 
support to the government. Patel amended Pawar's statement by saying 
that the party was not opposed to a probe if there was a general 
consensus on the matter. 

Communist Party of India(Marxist) State secretary Prabhakar Sanzgiri 
said that the NCP had realised that public opinion was against Enron 
and it did not want to take any chances. Sanzgiri added that Pawar knew 
that a judicial probe would expose him. He pointed out that this was 
not the first time Pawar had supported the Dabhol project. In May, 
Pawar criticised the "negative approach" of Madhav Godbole, the former 
Union Home Secretary who heads the DPC-MSEB renegotiating panel, and 
said that Godbole's attitude was hindering the project's progress. 
Godbole was critical of the Power Purchase Agreement (PPA) between 
Enron and the Maharashtra government. Close on the heels of Pawar's 
statement, Gopinath Munde, Bharatiya Janata Party leader and Deputy 
Chief Minister when the deal was renegotiated and cleared, said that he 
was against an inquiry. Sanzgiri told Frontline that although Munde had 
said that "a judicial inquiry will not serve any purpose, since the 
renegotiation process is in progress", it was clear that his 
involvement in the Enron deal would also come out. 

Deshmukh said that a D.F. coordination committee, with a representative 
of each alliance parties, would decide whether there should be an 
inquiry. In an interview to a newpaper, Deshmukh said that if Pawar 
withdrew support to the government, the Congress(I) was prepared to 
face the electorate. "We are not afraid of facing the people. Our stand 
on Enron has been widely appreciated," Deshmukh said. In the past, 
Deshmukh stuck his neck out for the MSEB but had also toed Pawar's 
line. Sanzgiri said that alliance parties' warning about withdrawing 
support to the government was not to be seen as an empty threat. "It is 
definitely a possibility. But it is unlikely to happen suddenly," he 

THE dispute between the DPC and the MSEB took a decisive turn when on 
May 19, the former issued a Preliminary Termination Notice (PTN) to the 
board. The MSEB refused to accept the notice and, in a belated move, 
filed a petition against the DPC with the MERC. The MERC, "after 
considering" the MSEB's petition, issued a stay order against the DPC 
decision. However, the DPC said that since the MERC was established in 
1998, after the DPC and the MSEB had entered an agreement, the quasi-
judicial body did not have the power to resolve the dispute. 

On June 11, the DPC sought the intervention of the Bombay High Court to 
decide whether the MERC had the power to intervene and resolve the 
dispute. The DPC also filed a petition seeking a stay on or for 
quashing a MERC order that directed the DPC to refrain from activating 
the escrow account and initiating international arbitration 
proceedings. However, the Bombay High Court suggested that the 
jurisdiction issue could be decided by the MERC. In fact, the court has 
asked the DPC whether it was necessary for it to intervene at this 

At a hearing on June 12, the High Court asked the DPC whether it would 
agree to an amicable settlement. Justice P. Shah said that the court 
wanted the matter to be resolved "in view of the heavy investments 
worth millions of dollars". The DPC's lawyers asked for an adjournment 
of the case until June 21, as the company could not take a decision 
without consulting its lenders. However, the court said that the orders 
passed by the MERC would hold until the next hearing. The MSEB told the 
court that it was aware of the substantial investments made by foreign 
and domestic lenders. "However, the Central government must play a 
bigger role in settling the issue," said Advocate-General Goolam 
Vahanvati. He said that the MSEB also wanted to find a solution and 
added that the board was not looking at the issue from a political 

The MSEB was paying the DPC a fixed amount of Rs.95 crores every month 
as per the PPA irrespective of whether it used the electricity. Owing 
to the burden of these payments, the once profitable MSEB became cash-
strapped company and began to default on payments. The DPC did not take 
this lightly. It invoked its counter-guarantee with the Central 
government. When the Centre told the MSEB and the DPC to settle the 
dispute, the DPC issued notices of arbitration to the MSEB. The notice 
was issued to the board for its failure to honour the December 2000 and 
January 2001 bills for Rs.102 crores and Rs.111.60 crores respectively. 
Later, the DPC also issued a notice of political force majeure. In 
response, the MSEB cancelled the PPA, stopped purchasing power from the 
DPC and took its case to the MERC. 

In a 120-page petition filed on May 25, 2001 with the MERC, the MSEB 
said: "The power plant constructed and operated in Phase-I of the 
project did not meet the requirement in relation to the supply of power 
based on certain Operating Characteristics and Dynamic Parameters 
mentioned in the Power Purchase Agreement." The MSEB alleged that "the 
DPC has created confusion to obfuscate the real issues involved" and 
has defaulted on supplying power. The petition said that going by 
commitments given in the PPA, the DPC should be able to attain 100 per 
cent of its generating capacity within three hours of a cold-start. On 
three occasions, January 28, February 13 and March 29, there were 
shortfalls after cold-starts. Moreover, on four occasions there were 
shortfalls after hot-starts. "These shortfalls amounted to a breach of 
the provisions of the PPA," the petition said. 

Moreover, the MSEB said in its petition the DPC issued a notice of 
political force majeure without a valid reasons. The board said that 
the DPC acted in haste and for the wrong reasons issued a preliminary 
termination notice. The board added that without any valid cause, "they 
are seeking to drag the MSEB before an arbitrary Tribunal in London." 
The petition said the DPC had also sought to terminate the suspension 
of the transfer of held monies or deposited monies into Phase-I and 
Phase-II escrow accounts. 

Regarding the tariff rates, the petition said that according to the 
Electricity Regulatory Commission (ERC) Act of 1998, the MERC had a 
clear mandate from Parliament to regulate the power purchase and 
procurement process of the MSEB. It would also include the price at 
which power should be bought from the DPC. Moreover, the MSEB was 
buying power from the DPC at about Rs.7 a unit, even as it paid Rs.2.80 
a unit to Central and State generating stations. However, the DPC 
stated that the ERC Act came into effect on December 8, 1993, after the 
PPA was signed. Hence, the DPC said that it would not recognise the 
powers of the MERC. The DPC said that it would also contest the MERC's 
right to decide whether the case should go to arbitration. The DPC 
argued that the PPA clearly provided for international arbitration if 
there was a dispute between it and the MSEB. However, the MSEB said 
that clause 20 of the PPA begins thus: "This agreement shall be 
construed in accordance with and governed by Indian law." The only 
Indian law for electricity utilities in existence, according to the 
MSEB, is the ERC Act. Incidentally, both parties have already appointed 

Jayant Deo, a member of the MERC, said that according to the ERC Act, 
the Commission could have more powers. However, it depends on how much 
power the State government deems fit to give it. In the MERC's case, 
its powers are limited to just one clause in the ERC Act - to regulate 
power purchase and to adjudicate disputes and differences. Deo told 
Frontline that it was yet to be decided how much jurisdiction the MERC 
has in the matter of the dispute between the DPC and the MSEB. A clear 
picture would emerge at a public hearing to be held at the end of June, 
he said. 

In another significant development, it has been decided to make 
available to the public all documents related to Enron. Ever since the 
first agreement was signed, the Enron deal has been shrouded in 
mystery. Both the government and the multinational company have been 
criticised for withholding information. 

Along with the court and commission hearings, renegotiation and 
conciliation discussion have been taking place involving the government 
and the DPC and the MSEB. Lenders to both companies have been engaged 
in talks about the future of the DPC. Indian lenders believe that there 
is still a future for the project. At a meeting of the DPC's foreign 
lenders held in Singapore on June 8, they said that although they were 
apprehensive about the DPC's future, they were willing to wait for a 
few important decisions to be made in June before taking a final 
decision. A report from the renegotiation panel headed by Madhav 
Godbole is expected by June-end. The Chief Minister's coordination 
committee will decide on June 21 whether or not to conduct a judicial 
inquiry into the deal. 

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