MSEB: Digging its own grave - Views on News from Equitymaster

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MSEB: Digging its own grave

Nov 30, 2000

Why is the Maharashtra government rethinking on the Phase II of the Enron backed Dabhol power project? Quite simply, it has realised that it cannot go on paying Rs 4 per unit of power produced to Enron, and guarantee 90% off take (as it has done for the Phase I project). Look at the scenario in Maharashtra. The state has 3 main power producers, Tata Electric, BSES and Enron. Out of the three, the cost of Enron’s power is the highest, followed by BSES and then Tata Electric. But since Maharashtra State Electricity Board (MSEB) is obligated to buy 90% of Enron’s power production, it is forced to curtail buying power from TEC.

In effect, TEC is saddled with unutilised capacity as the MSEB keeps on constantly asking the former to back down its power units, even though its costs per unit are lowest in the grid. MSEB is not only digging its own grave, but also asking others to join in.

But if the state government backs out from the Enron Phase II project, as per the agreement the Maharashtra government may have to pay Enron a whopping Rs 355 bn as compensation. This will send the state’s finances in a tizzy. It will also mean that MSEB goes bankrupt. But if MSEB goes bankrupt, all other suppliers including TEC will rethink over supplying to MSEB.

This seems like a catch – 22 situation for the state government, the MSEB, and in effect for the all the other utilities involved. It is likely that both Enron and the state government will sit across the table, compromise and come to a workable solution, considering the stakes involved for both.

But one thing in this is certain. We the consumers will pay (as usual) for the government's bungling.

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Dec 7, 2021 12:20 PM