What Will Enron Power Really Cost?

More Enron, Less Electricity?

  Vivek Monteiro

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)

(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.

ENRON REVIVAL PLANS 

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.

REAL COST

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.

WHO WILL FOOT THE BILL?

With only 50 per cent of MSEB’s electric supply being metered, where will the additional Rs 5000 crore revenue be realised to pay for Enron power is a question that needs to be clearly answered. All official reports in recent years have clearly stated that high tension industrial consumers cannot pay more than the current tariffs. Raising HT tariffs would lead to an exodus of industry from the state, or a shift to captive power plant supply. With agricultural consumers unable to pay even the highly subsidised tariffs of today, whether domestic and commercial consumers can sustain the Enron financial load is a question that must be considered before committing several thousand crore rupees of further investments. 

MORE ENRON LESS ELECTRICITY

In 1993, the World Bank had twice reiterated that as a base load plant an LNG based plant of 2000 MW size was not viable. Thereafter the Rajadhyaksha Committee had raised similar doubts about the economic viability of the three IPP projects being planned for Maharashtra, including Dabhol. In 2001 the Godbole Committee stated unequivocally that  “LNG is not a cost effective solution to meet base load power”. With hydrocarbon costs rising steadily it would be prime folly to proceed  without a proper technoeconomic reappraisal of the viability and sustainability of a revived Enron project, which must be insisted upon before any further commitments are made.

If Enron power is indeed being made available to MSEB at Rs 2.30 per unit, then who is footing the Rs 1500 crore subsidy is another important question. If NTPC is bearing the subsidy, it must be noted that a financial burden of this size can bankrupt even a large healthy PSU like NTPC, to the detriment of the nation. Alternately, if the burden is distributed over the total electric supply from NTPC, so as to camouflage its origin, the resultant tariff increase  nationwide is likely to be challenged in the CERC and lead to a major  dispute between states.

If the high power committee which has been formed to revive the project is considering any of the above issues, there are no public indications of this. On the contrary, the public pronouncements of this committee show the same tendencies of disinformation and making of dubious claims, which have characterised the project over the past decade, with catastrophic consequences. Problems will not go away because they are not looked at. If Phase 1 collapsed because of payment default, the chances of something similar happening on a larger scale with Phase 2 are high and cannot be wished away. Should this situation arise in future, and payments committed to Enron pushed through, regardless, default on the other, less insulated, payments for power purchase would lead to the other supplies being shut off. With finite amounts being available for power purchase in the state, more Enron may actually mean less electricity for the state of Maharashtra.

EXPOSING THE ENRON MITRA MANDAL

The issues of electricity and load shedding, the fate of MSEB and Enron are set to dominate political scene in the coming months. The NCP has joined hands with the Shiv Sena and BJP in this ground alliance. Their nexus in electricity and Enron matters is a long standing one, so much so that the three parties are known in Maharashtra as the Enron Mitra Mandal. They joined hands to bring Enron, and equally unviable IPPs to Maharashtra. To this end they have ensured that the power ministry in the State has remained in their hands for more than a decade, which position they have used to systematically block growth of public sector generation, so as to create shortage conditions in which expensive private power can be hustled through. At the centre too, it was no accident that during the NDA government, Suresh Prabhu and Anant Gite of the Shiv Sena, and Jaywantibai Mehta of the BJP between them held the power ministry. The same nexus was seen in their successful attempts to stall the Kurdukar Commission which had started investigating the Enron debacle. An important political task of the democratic forces in Maharashtra, is to expose this unholy nexus before the masses, and build public awareness about their complete responsibility for the state’s current power shortage, which situation they now seek to exploit to revive their broader failed agenda.

OTHER IMPORTANT ISSUES

There are many important issues being thrown up by the power shortage in Maharashtra- the responsibility for this crisis, the fate of MSEB and public sector power, the sustainability of current power policy based on privatisation, and feasible alternatives available. It is not possible to discuss these issues within the scope of this article, and they will be taken up separately later. Even with regard to Enron there are a number of critical issues like jurisdiction of Indian and international law which have recently come to the forefront, huge claims made in arbitration against the country by GE-Bechtel, which we do not discuss at this point. There is no doubt that the Enron project is one of the world’s biggest and most expensive fiascos. Issues of misgovernance and undue influence at every stage have been squarely raised by a number of official reports. In the USA Enron Chairman Kenneth Lay was arrested and shown in handcuffs on BBC and CNN. Enron CEO Jeff Skillings and many other top officers have also been criminally indicted. In India, on the other hand, not a single person has been called to account till date.

RECONSTITUTE COMMITTEE

In the light of the events of May, it has become imperative to demand an immediate reconstitution of the high power committee which is considering Enron. When the committee was formed, the financer minister Shri P Chidambaram excused himself from the committee on the grounds that he had appeared for Enron as an advocate in legal proceedings. Given the objection to Kurdukar Commission by Shri Sharad Pawar, which is on the record, and his recent conduct vis-a-vis the Godbole Committee report, an official report accepted by his own government, it is wholly inappropriate that he be part of any Enron renegotiations. In fact it is wholly inappropriate and a conflict if interest that any person who was party to creating the Enron mess in the first place, including Shri Montek Singh Ahluwalia, should continue in such a committee. Such persons have been collectively indicted by the Godbole Committee, and there is material on record before the Kurdukar Commission to assign personal responsibility for various irregular acts. The events of May demand a reconstitution of the High Power Committee and also the re-appointment of Kurdukar Commission by the Central government to circumvent issues of centre-state jurisdiction which were used to stall the Commission. (June 4, 2005)