ENRON IS in the news again. The current mess that the Government of Maharashtra finds itself in with Enron is at once farcical and frightening. It is strange to see the same politicians who had brazenly defended and pushed the deal with Enron now
squirming, calling for its renegotiation, and saying that the state Government just cannot pay up.
The Dabhol Power Project, popularly known as the Enron project, with its Phase I of 728 MW, makes an interesting case of how globalisation in a developing country can be replete with dark ironies. This is one of the nine ‘fast track’ power projects which
were initiated in 1991 with the opening of the power sector to private companies. These nine, launched with much fanfare, were expected to herald the era of privatised power — cheap and plenty of it. Enron promised to build fast, and deliver power at
around Rs. 2.40 per unit.
The project faced stiff opposition on many counts but principally on the grounds that the power would be too expensive and the contract (the Power Purchase Agreement — PPA) was loaded in favour of the company. The BJP-Shiv Sena combine made this a major
issue in the 1995 Assembly elections with Gopinath Munde’s now famous proclamation: “We will throw the Enron project in the Arabian Sea.”
The BJP-Shiv Sena came to power in Maharashtra, a high level committee was set up to study the project and this recommended scrapping of the Enron project. A notice was given to Enron which moved for arbitration in London. There was talk of crippling fines
if the contract with Enron was breached. A picture was painted that India would become an outcast in the global market if it did not honour its commitments.
Against these ‘odds’, the BJP-Shiv Sena Government ‘forced’ Enron to renegotiate. And triumphantly announced that the loaded contract has been straightened out and the price of power would be Rs 1.86 per unit. Phase II of the project, till then optional,
was also agreed. The project came back on line, arbitration was withdrawn, Rebecca Mark became a corporate heroine. Critics were as usual brushed aside and branded as ‘anti-development’ and ‘anti-national’. The courts cleared all the cases against Enron.
Now the bubble has burst. As Enron presented its first bills, it has become clear that the power cost is amazingly exorbitant — Rs 7.80 per unit at the last count. The Maharashtra Government initially put up a brave face and pretended that there was no
problem, that it can easily buy power from Enron. But now, there have been a series of conflicting statements. Finally, the Chief Minister has conceded that Maharashtra just cannot afford the high cost power from Enron.
A few months back, the Maharashtra Electricity Regulatory Authority (MERC) made an order requiring the Maharashtra State Electricity Board (MSEB) to purchase the cheapest possible power. Since Enron’s power is the most expensive, Enron will have to be the
last supplier from whom MSEB can purchase power. The MSEB thus is not allowed to buy all the power Enron can produce. (It is lifting currently less than 45 per cent Plant Load Factor). But it is bound by the PPA to still pay Enron for all the fixed
charges. These are to the tune of a whopping Rs 95 crore per month — over Rs 1,000 crore a year.
The MSEB has to pay additional fuel charges for every unit of electricity purchased. When Phase II starts, MSEB’s payments in the first year itself will be about Rs 6,000 crore. Compare this to MSEB’s total turnover today — Rs 11,000 crore.
The Maharashtra Chief Minister and other politicians are now calling for a renegotiation of the contract. There is talk of how Maharashtra will have to pay Enron Rs 35,000 crore if it annuls the contract. In this din, a few things are forgotten.
The most important question is — how did this situation arise in the first place? The fact is that the PPA was highly skewed and it resulted in such a high price being paid for the power. It is difficult to believe that the Maharashtra Government was not
aware of this. So why was such a loaded PPA signed?
When the Enron deal was signed, those who opposed it pointed out that the PPA would result
in extremely expensive power. (One is not referring here to the BJP which raised the issue and changed track after coming in power). Everything that was being said by the protestors then is coming uncannily true.
Those who were also involved in the protests faced severe repression. In one particularly outrageous incident, Medha Patkar and others were brutally beaten up. Today, media commentators and even the Government are echoing the same figures and words which
Patkar had cited at that time.
A small Pune-based energy research group, ‘Prayas’, was the first to do an analysis of the PPA — a brilliant piece of work. (This was before the PPA was made public). If a group consisting of a couple of engineers, working with a desktop PC was able to
accurately predict how much the power from Enron would cost, it is difficult to believe that the Government with its hordes of engineers and infrastructure found itself clueless.
Why is the Government unable to do any thing about this issue? If the contract is so blatantly one- sided, why is the Government reduced to a hapless entity? If the country allows one MNC to hold it by the neck with a loaded PPA, if it cannot act to
correct what is clearly against the interests of the country, then where is the sovereignty of the nation? These are the issues being raised by those who are questioning the one-way blind drive towards globalisation and privatisation.
Enron is not the only power project with these implications. Since the privatisation process began, several hundred MOUs have been signed with private, mostly foreign companies, for building, owning and operating power plants. In most of these cases, the
PPAs are similarly skewed.
Take the example of the Maheshwar Hydel Power Project (MHEP). The first privatised hydel power project in the country, MHEP is a 400 MW plant being built on the Narmada river in Madhya Pradesh. The owners, a textile company, have been looking for foreign
equity partners; but in the last several years, three companies have come in and walked away — PacGen of the US, Bayernwerk of Germany and recently, Ogden of the US.
The project raises all the concerns that large dams raise, as also issues of privatisation. An intense mass struggle is going on here since several years. Apart from displacement and ecological issues, the key query raised by the Narmada Bachao Andolan has
been regarding the cost of power from the project.
The PPA of this project has been analysed by ‘Prayas’, the same group which analysed the Enron PPA. The PPA is heavily loaded. Their analysis shows that power will cost about Rs 7 per unit — without including the cost of transmission and distribution — and
even higher for peaking power. The NBA has asked the Madhya Pradesh Government and the project promoters to answer one question — how much will the power cost? They have been evading a reply.
Remembering Enron, a sense of déjà vu prevails. It will be really a tragedy after a farce, if five years hence (if the Maheshwar project is at all built), the MP Government is found to be squirming in a manner similar to that of the Maharashtra Government
today.
What is needed is a comprehensive and transparent review of all the Power Purchase Agreements. The ability and talent to do an accurate analysis of the PPAs is certainly there in the civil society (if not with the Government). But whether the Government
has the courage and honesty to do this seems doubtful.
