The Enron Saga
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The Power Factor Contd...
In April 1993, Enron submitted a document, which it claimed was a project report to the CEA. The report, however, did not reveal any of the critical parameters required for evaluation of the project. The CEA was being pressurized by bureaucrats and politicians to clear the project, despite the lacunae. In August 1993, Sharad Pawar, the then Chief Minister (CM) of Maharashtra took a decision that the CEA would be bypassed completely and that the "misgivings" raised by it would be ignored. The CM put forth a proposition that issues like the import of fuel, total foreign exchange outgo and tariff were "minor issues to be clarified". |
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On November 11, 1993, a day before the CEA was to meet, to consider
whether it should give clearance to the project or not, it received a
letter from the Ministry of Power (MoP), GoI which stated, "The Finance
Secretary observed that the question of cost of power had been looked
into and it had been found that it was more or less in line with other
projects being put up in Maharashtra." On November 12, 1993, the CEA met
to consider the project's techno-economic clearance. Faced with pressure
to clear the project, the CEA examined only the technical aspects and
decided to accord only technical clearance. On November 23, 1993, the
MoP told DPC that it would "expedite consideration of all clearances
which fall within the ministry's "competence." On November 26, 1993, the
CEA gave technical clearance to the project.
On December 8, 1993, the PPA was signed between the MSEB and the DPC.
The agreement specified that the company would build, operate and sell
electricity in the form of available capacity. The total payments would
be fixed, and these would be almost independent of the amount of
electricity drawn by the MSEB. The MSEB seemed to have virtually
surrendered all rights including that of inspecting the power station
and fuel tank and even the right to enter the station.
As per the PPA, only "duly authorized" MSEB personnel, who had been
approved by the DPC in advance, could enter the station. The PPA made it
a precondition for the MSEB to build at its own cost the 400 kV lines
for the transmission of electricity from the plant site to the load
centers. Under the agreement, if there was a delay in plant
construction, the DPC would pay nothing from its pocket. The DPC was
liable to penalties only in case of non-performance such as time
over-run, capacity short fall etc.
The purchase of electricity by the MSEB was governed by various
agreements. These included the guarantee by the State of Maharashtra,
the counter guarantee by the GoI and the tripartite agreement between
the GoM, the GoI and the Reserve Bank of India (RBI). In the event of
the MSEB failing to make the payments, the DPC's first recourse would be
the irrevocable Letter of Credit (LC) that the MSEB was supposed to open
in the DPC's favor. In the event of the MSEB failing to make the
payments, the Guarantee signed by the GoM promised, irrevocably and
unconditionally, to pay to the DPC any and every sum of money which the
MSEB was liable to pay under the PPA. Under the terms of the counter
guarantee, the GoI counter guaranteed the payments due to the DPC in the
event of default by the GoM.
Analysts have expressed serious concern at the magnitude of the proposed
liability that the governments had undertaken in guaranteeing the
payments. The total exposure in the case of the GoM alone amounted to
well over Rs. 2,00,000 crore. Said one, "The risk of these guarantees
being invoked is not too farfetchedâ?#8218;?¦" The Department of Economic
Affairs had also expressed a fear that the "â?#8218;?¦ risk of the counter
guarantee being invoked was not unreal given that SEBs had been
defaulting in payments."
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