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Dabhol dilemmas

Published : Jun 23, 2001 00:00 IST

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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.

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 said.

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 stage.

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 angle.

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 arbitrators.

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.

(This story was published in the print edition of Frontline magazine dated Jun 23, 2001.)

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