Squandered Chance

What does the Dabhol Power Company (DPC) board's decision to empower its management to serve a termination notice for the project to the Maharashtra State Electricity Board (MSEB) mean? That the governments of India and Maharashtra have again managed to cede the upper hand in the dpc crisis.

The end of Enron's Dabhol project has been nigh for some time now but the scriptwriters can't seem to decide on how the climax should play out. After it was recognised as an unbearable burden on Maharashtra's rapidly weakening shoulders, there have been rising demands to rid the state of it in the most cost-effective way possible. So in the past two months, dpc and the state government, along with mseb, have had quite a few confrontations. The state was doing well. It had proved the project was highly overpriced. The Madhav Godbole committee it set up clearly stated that if the project had to stay, it had to be renegotiated on all fronts. The renegotiating committee was being set up. Last week, the state government had readied the final blow: a termination notice. The deal has a provision for either party to terminate the project in case of non-payment of dues. The state and mseb prepared its notice on the non-payment of the Rs 400 crore charge it had slapped on dpc for delay in power production. Had it been served, the state would have had a moral and legal upper hand.

Armed with the notice, the state government went to the Centre for its support before proceeding to the company's board meet in London on April 24 and 25. But in Delhi, Sharad Pawar, the original dealmaker, supported by power minister Suresh Prabhu and finance minister Yashwant Sinha, asked the government not to take such a harsh step. They promised to work out a more sustainable deal. On his return to Mumbai, CM Vilasrao Deshmukh said in a TV interview that he was under political pressure.

At the dpc's board meeting on April 25, the members wanted to wind up the project. Under advice, the Maharashtra government stalled it. But this move may prove fatal because the foreign lenders want out one way or the other. So the board has now gone ahead and proposed termination due to non-payment of monthly bills. The state government was not allowed to vote, being the "interested party", so idbi was the sole opposer. The board authorised dpc ceo Neil McGregor and Enron India MD K. Wade Cline to serve a preliminary termination notice. Which means that in an unmanageable condition, the company can pull its shutters down.

The difference in winding up and termination could be over Rs 2,500 crore. Further, winding up would have meant declaring bankruptcy, freezing all liabilities, and virtually declaring that Enron was ready for just any price for their equity. Termination puts the blame squarely on mseb, triggering off a compensation package under Schedule 11 of the ppa. The state will have to pay "liquidated damages" calculated by the quantum merit method. It'll entail lengthy litigation that may very well go in Enron's favour. The state has let an opportunity go. According to sources, Enron wants to get out of the project even if it gets little for its equity as it wants to get rid of its liabilities to its lenders. It has said that the dpc project is adversely affecting its image and hence its share prices in the US stockmarket.

The only way for the state and mseb to make something out of the matter now may be to push for a judicial enquiry. The Left Front in the state is, in fact, pushing in that direction. But the ncp is against it. After his outburst on TV, the CM changed his tune. Why is it that the government doesn't want a judicial probe? Is it scared of some important people being exposed? As in other countries, India's private power deal also seems mired in the controversy of its politicians being monetarily benefited. There was the Rs 200 crore "education fund" Enron had. The company has also, for instance, paid for a senior bjp leader's flying course in the US.

What could have been amputated almost painlessly will now go on dragging for probably a year or even two. The end seemed in sight till a week back but now may turn out to be a mirage. There are too many skeletons in the cupboard, it seems.