The Enron Saga
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The Power Factor
The MoU between Enron and MSEB was signed prior to the examination of the terms and conditions and implication of the project. Among the parameters that should have been examined were the capital cost of the plant (on which the price of electricity depends), the type of fuel to be used, the location of the plant etc. An autonomous organization, the Central Electricity Authority (CEA) was supposed to examine these aspects. |
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In July 1992, the CEA examined the MoU and pointed out that the price
agreed on was a departure from the existing norms and parameters
notified by the Government. It also pointed out that "denominating the
price in US dollars was also a departure from the existing norms."
According to the CEA, the price that had been agreed upon was
"considered high."
In July 1992, the Government of India asked Enron to submit a break-up
of the project costs and the return on equity that was assumed. Enron
wrote back stating, We advice you against auditing project costs and
predetermining return on equity." Having signed the MoU, Enron now
wanted to rush through the PPA . Since the project was to be examined as
per the provisions of law, Enron's lawyer, Adrian Montague carried out
an analysis of Indian laws. In September 1992, a note called "The
Problems Concerning the Application of the Indian Electricity Acts" was
sent to the Secretary of Power, GoI highlighting the problems that the
provisions in these Acts raised for the Dabhol power project.
The problems identified by Enron were, "Power of MSEB and CEA to
regulate DPC activities"; that the DPC would "have to follow all
directions of MSEB" and the tariff regulations published by the
government. The tariff regulations were found by Enron to be
"incompatible with the financial structure of a power station." The
Electricity (Supply) Act laid down certain duties of a generating
company. These included operating and maintaining the power station in
the most efficient and economical manner. Enron was concerned about the
consequences of a breach of this provision. It wanted to know who would
enforce these provisions.
The last problem identified by Enron was that the DPC like any other
limited company would be required to abide by the provisions of the
Companies Act. Enron had to furnish to the CEA, account, statistics,
returns of other information relating to the generation, supply and use
of electricity.
In September 1992, after joint discussions between Enron, the MSEB and
the GoM, the Chairman of MSEB wrote to the GoI stating that, "Public and
judicial scrutiny of business policy and decisions as per the Act will
not be acceptable by a company like DPC".
To facilitate the signing of the PPA, the law had mandated that the
price of power and technical aspects of the project be cleared by the
CEA. However, Enron made it clear that it did not want to have the price
it had set down examined by anyone. Enron was trying to sign the
agreement with the MSEB without the necessary "techno-economic"
clearance of the CEA . The MSEB also insisted that it be allowed to sign
the agreement with Enron first and seek clearance later. Meanwhile, in
March 1993, Enron informed the GoI that since it was in no position to
procure gas supplies, it would split the project into two phases .
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