THE month of May 2005 has witnessed a series of significant events taking place in the electricity sector of the state of Maharashtra. Throughout April, sweltering heat coinciding with widespread loadshedding and a peak load deficit of 3000 MW. Growing public discontent about power cuts, set the backdrop for what appears to be well-coordinated actions by the Shiv Sena- BJP along with the NCP, which is a constituent of the ruling alliance, and also holds the state’s power ministry.

On the eve of May Day, which is also celebrated as Maharashtra Day in the state, NCP chief and Union cabinet minister Shri Sharad Pawar, triggered the process with his statement that it was a major mistake for the government to have accepted the report of the Godbole committee on Maharashtra’s power sector and the Dabhol project, and that the state’s present power shortage was due to that incorrect decision. The very next day, Maharashtra Day, saw mobs led by the Shiv Sena attacking offices of the Maharashtra State Electricity Board at Pune, with BJP taking the lead at Akola, assaulting the employees and destroying public property.

For the next few days newspapers known for their closeness to Pawar, Shiv Sena BJP, and big business dailies carried front page stories about the power crisis in the state and the problems being caused by loadshedding. Statements by NCP, Shiv Sena and BJP state leaders were projected prominently. This media campaign had a common theme: that it was a big mistake to stop the Enron project, that the present power shortage was the result of that incorrect decision by the Congress government taken under pressure from the Left, and that reviving Enron was now necessary to rescue Maharashtra from its power crisis.

Towards the end of May, the BJP took to the streets throughout the state, on the issue of power cuts, attacking MSEB offices and holding rasta rokos, damaging state transport buses with stone throwing. The Maharashtra chief minister came out with the admission that of the 1210 MW of extra power promised to Maharashtra by the prime minister from the national grid, 600 MW was practically unavailable because, being naphta based, it was too expensive and the MSEB could not afford to purchase it.

UNAFFORDABLE NAPHTA TARIFF

Four years earlier, the unaffordability of expensive naphta based power had led to a financial crisis in the state, disputes between MSEB and the Dabhol Power Company, and the shutdown of the Dabhol project, which has remained shut ever since.

It may be recalled that when the project had been earlier cancelled and then renegotiated by the Shiv Sena- BJP government in 1995, power from Phase 1 was promised to be made available at a renegotiated levellised tariff of Rs 1.89 per unit. The actual tariff during each month of the 25 months supply of Phase 1 Enron power is shown in the following chart:

DABHOL POWER COMPANY MONTHWISE TARIFF

(May 1999-May 2001)

	April	May	June	July	Aug	Sept	Oct	Nov	Dec	Jan	Feb	Mar
1999-2000		3.79	4.85	4.49	3.02	3.46	5.71	3.83	4.35	5.12	4.44	5.23
2000-01	4.36	3.48	25.50	7.80	6.80	5.10	6.90	8.00	8.53	20.90	14.46	8.55
2001-02	10.22	8.75

(Source: Affidavit filed by MSEB before Kurdukar Commission)

Far from the promised Rs 1.89 per unit, during the last one year of supply the average tariff was more than four times that figure.

In the light of the above events, it came as no surprise when, on May 9, an announcement was made of the imminent revival of the Enron project, with power being made available at Rs 2.30 per unit to Maharashtra, at 80 per cent plant load factor. This announcement, from the high powered committee set up for this purpose, of which Shri Sharad Pawar is a member, also mentioned that further investments of several thousands crore rupees would be necessary to restart the project, including a settlement payout of between Rs 1276 crore and Rs 1452 crore to GE-Bechtel. Additional Payouts to OPIC and foreign lenders would be of the same order. Completion costs of the project would add another Rs 880 crore on a preliminary estimate. Additionally there would be the costs of completing and commissioning the regassification LNG terminal, which would be undertaken separately by GAIL.

Given the track record of unrealistic tariff claims made in the context of the Dabhol project, and the extremely serious consequences of such fraudulent claims, it would be prudent, to say the least, to subject the above claim of a Rs 2.30 per unit tariff to a reality check.

Electricity tariff consist of two parts: A fixed cost (capacity charge) which is based on the recovery of the capital invested of the project, and an energy variable cost based on the costs of fuel. Since the capacity charge depends on the ultimate costs of the project, a precise calculation will have to await more transparency on the various heads mentioned above. However, based on available figures and reasonable estimates of what is still unclear, a calculation of the actual cost of power from a revived Enron project has been made by power engineer and retired director of Indira Gandhi Centre for Atomic Research, Kalpakkam, which arrives at an estimate that at today’s costs, Enron power would cost at least Rs 3.29 per unit, a rupee more than the announced price of Rs 2.30 per unit.

According to the detailed calculation made by Shri Paranjpe, fixed costs would amount to Rs 1.27 per unit at 80 per cent PLF. Energy costs would depend on the price of LNG imports. In 2001 the Godbole Committee cited a cost of 2.8 per million dollar BTU, when crude oil was at 24 dollar a barrel. Assuming a cost of 5 per million dollar BTU with oil at 50 dollar a barrel currently, translating into a cost of 6 dollar per MBTU after regassification, the variable energy cost works out to Rs 2.02 per unit. The electricity tariff of a revived Enron project thus works out to Rs 3.29 per unit, even assuming no further increase in the price of imported hydrocarbons, in the intervening period.

POWER MARKET FAILURE

The additional rupee per unit translates to an additional payout of Rs 1530 crores per year at 80 per cent PLF for the 2184 MW Dabhol plant. At Rs 3.29 per unit, Enron power at 80 per cent PLF would cost over Rs 5000 crore per year. Can Maharashtra’s power sector cope with this financial load?

Electricity and financial flows have many things in common. If supply does not match demand, both electric and financial circuits can trip and shutdown. If power grids can collapse, so too can power markets fail, leading to power cuts. Because electricity is such an essential service, it was assumed by the proponents of liberalisation and privatisation in the power sector, that there would always be demand for power, no matter what the cost. The reigning catchword of the nineties was “No power is more expensive than no power”, and hence that cost did not matter.

It has not take long for reality to trip these illusions. It was power market failure that led to the collapse of Dabhol Phase 1. Power markets have systematically failed and continue to fail in Orissa and other states, a fact which is sought to be concealed by pumping huge subsidies in the form of loans to stave off bankruptcy of the privatised power companies, so that the larger World Bank power privatisation project does not get scuttled nationally.