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More on MSEB-DPC imbroglio - Views on News from Equitymaster
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  • Mar 14, 2001

    More on MSEB-DPC imbroglio

    It is plain from newspaper reports being published in the recent months that Maharashtra canít afford Enronís (Dabhol Power Companyís) power. It is finding the costs too high for comfort. Already, the Maharashtra State Electricity Board (MSEB) is going bankrupt. MSEB not too long ago was one of the most profitable SEBís in India.

    The Maharashtra government seems unwilling to bail out the MSEB time and again. But the fact is, it was the state government and the central government, which signed the deal. MSEB had no alternative but to follow the state governmentís diktat. It was sitting pretty a few years earlier buying power from Tata Electric at less than Rs 2 per unit. Now it is forced by government diktat to buy power from DPC. Even if it doesnít, DPC gets a guaranteed amount from the MSEB as per the contract.

    What is amazing is that even the World Bank had refused to fund the Enron Project stating that the project was economically unviable. It went on to say that it would place a heavy financial burden on the MSEB because it was too large for base load operation in the MSEB system.

    But this is all past. The truth is that Enronís Phase I is already operational and somebody will have to buy power from it. The state government is looking for various alternatives to weasel out of the deal. Some are proposing that let Tata Electric and BSES buy power from Dabhol and supply. Now that is ludicrous. Both the companies are capable of generating power at a substantially low cost as compared to Enron.

    The Maharashtra Electricity Regulatory Commission on the other hand has slapped a fine on DPC for flouting pollution norms. The commission has also asked the MSEB to submit a legal opinion on the Power Purchase Agreement (PPA) with DPC. The timing of this seems suspect and is more likely a tactic to put DPC on the back foot. One must understand that both the state and the central government passed the project and stood as guarantors for the project.

    Whatever said and done DPC-MSEB imbroglio is a catch-22 situation and needs to be resolved soon. The Phase II is definitely on hold for a long long time. In these times when scams are being unearthed every hour, its time somebody looked at how Dabhol Project was passed in the first place.

    Please see the article Enron revisited for more details.



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