Mischievous Allegation

The argument advanced by the Dabhol Power Company (DPC) and its proponents that MSEB rescinded the contract with DPC due to its inability to pay for power is mischievous and misleading. Under the contract, MSEB had to make “capacity payment” to DPC, on the basis of the rated base load capacity declared to be available by DPC for each availability period, irrespective of whether energy was actually delivered by it to MSEB or not. Accordingly, MSEB had made a huge payment of Rs 2,180 crore to DPC from May 1999 till May 2001, when the dispute between the parties arose on account of the material misrepresentation made and non-fulfillment of commitments given by DPC in the PPA, which had guaranteed that the power plant had the capacity to ramp up from cold start (i e, when the plant is completely shut down for over 12 hours) to 100 per cent load within a period of 180 minutes. The DPC repeatedly failed to fulfill this obligation when MSEB asked the DPC plant to be brought on line and as a result was liable to pay a rebate of Rs 401 crore to MSEB. The DPC refused to adjust this amount against the payment which was due to it from MSEB and instead insisted that MSEB should make full payment for the power purchased by it and the question of breach of the PPA obligation should be referred to an international arbitration. This was a totally indefensible position taken by the DPC and when MSEB declined to go along, the Enron company stopped the supply of power to the electricity board. In the settlement agreed to, MSEB appears to have been forced to give up the claim for this large amount altogether.

The details of the revival package worked out between the concerned parties such as Bechtel, General Electric, Indian and foreign financial institutions, MSEB and others in July 2005 are still not in the Economic and Political Weekly August 26, 2006 3641 public domain. Though phase I of the plant was partly restarted and power there from sold to MSEB, the details of the new PPA are not known. The tariff at which power from the rechristened (Ratnagiri) plant is to become available is not clear. Approval of the Maharashtra Electricity Regulatory Commission (MERC) has not been taken for the purchase of this power nor has it been established that it is according to the criterion of merit order dispatch, which requires that power must be purchased by a distribution agency based on its cost, with the cheapest power being drawn first. At the commencement of negotiations, the GoM had laid down a condition that it would take power from this project at a tariff not exceeding Rs 2.40 per unit. Later, GoM relented and agreed to a higher price of Rs 2.80. Now the figure being talked about is Rs 5.30 or even more. It is not clear if this is to be the cost at the bus-bar.

In that case, the cost to the consumer would be even higher taking into account the transmission and distribution losses. If the application of the Maharashtra power distribution company for purchase of power from this project had come before the MERC for approval, all details of the financial restructuring could have come into the public domain and it would have been possible to contest some of the terms of the settlement. It would have also enabled quantification of diverse subsidies which taxpayers all over the country have to bear to artificially bring down the power tariff for this project.

Under Duress

It is believed that the settlement was agreed to by the government under duress, mainly due to the apprehension that the arbitration proceedings launched by the multinational equity holders under bilateral agreements with some countries were likely to go against India. To what extent such fears were justified is debatable. Whether the legal firms selected to

represent India’s interests were sufficiently experienced, competent and qualified is also not clear. It is far from clear why MSEB and GoM did not offer to purchase the 65 per cent equity held by Enron during the bankruptcy proceedings in the court in New York when it was available for a mere $ 20 million. We had publicly raised this issue way back in June 2004. 1 The government has never clarified the position, even to date.

The negotiating position of the government would have been strengthened immensely if the judicial commission of enquiry, which the authors of this article had recommended, in spite of the opposition of the other three members of the expert committee, had been permitted to go ahead. The authors had forewarned that, “If the judicial enquiry also establishes that there is exercise of undue influence that had resulted in any decision that was against the public interest, the relevant provisions of the contract law may have to be invoked for legally reviewing the existing contractual commitments with DPC and taking all necessary steps that would subserve the public interest, without GoM/MSEB having to incur any contractual liability.”2 In spite of opposition from vested interests, it was due to the considerable public pressure that the GoM appointed a commission under the Commissions of Inquiry Act, 1952, under a retired judge of the Supreme Court on November 7, 2001. The commission was asked to submit its report in six months. The appointment of the commission was opposed not only by Sharad Pawar, who was the chief minister at the time the project was originally approved, but also by the NDA government at the centre by filing a petition in the Supreme Court under Article 131 of the Constitution. Unfortunately, the court gave an ex parte stay on April 9, 2003 restraining the commission from proceeding further with the enquiry. It was shocking to see that the state government neither took care to file a caveat in the court not to hear the matter without issuing a notice to it nor did it make any effort to get the stay vacated.

Even after the United Progressive Alliance (UPA) government came to power, it too was not interested in the enquiry by the commission and the stay continued indefinitely. Finally, when the much extended term of the enquiry commission came to an end in 2005, the state government quietly buried the commission by not extending its term. After thus deliberately weakening its own case by not permitting such a high level judicial commission of enquiry to function, the centre has entered into a settlement pack-age,

which according to the sketchy information available in the public domain so far, is as one-sided as was the original PPA of the project.