Enron power and the world IPP scenario

But let us look at what is happening to independent power producers around the world (IPP). Two researchers (Kate Bayliss and David Hall) from the University of Greenwich in a November 2000 study of IPPs have pointed out that "more and more governments are running into difficulties with IPPs. In the countries where they have been established for some time, such as Pakistan and Indonesia, IPPs have been the subject of protracted legal, political and economic battles. Other countries have seen electricity utilities crippled by payments due to IPPs, for example, the Philippines and Dominican Republic. Others have questioned the generous terms offered to power producers by previous governments and have attempted to limit the damage such arrangements might cause for example, Croatia and Hungary. Despite these difficulties, more IPPs are still being planned in various countries." Kenya, Costa Rica and Uganda are other countries named in the report for signing faulty agreements and creating excessive escrowcover.

But here is what the study has to say about Enron’s project in Croatia: "In Croatia the terms of the PPA negotiated with Enron were secretly recorded. The late president is recorded as saying he hoped that the agreement – which tied the government to buying electricity at a fixed price for 20 years – would get him a trip to the White House. He also thought that it would persuade the US to push for Croatia’s membership of the World Trade Organisation and to ask The Hague war crimes tribunal to take pressure off Croatia. Enron executives carefully give non-committal answers to his questions in the transcript." The study has concluded that the "benefits of IPPs have been greatly exaggerated. IPPs are just one means of financing expansion of power generation but we (the researchers) have shown this is fraught with difficulties".

They say that the "financial burden imposed by IPPs is now being recognised" but there is a reluctance to learn from the experience. Privatisation of the rest of the electricity sector is commonly proposed as the solution to the problem, but this, "simply extends the dangers of a financially unsustainable solution".

Clearly, power sector MNCs and their dangerous "education" process have to carry much of the blame, any legal process to cancel the Enron project is bound to take into account international experience with IPPs. While fixing responsibility for the Dabhol mess, entirely on to the hapless and bankrupt MSEB, it may be a good idea to compare it with the bigger regulatory mess in the State of California, which comes from the same developed world as Enron. Those who are advocating power trading by supplying Enron’s expensive power into the national grid, or deregulation of power distribution may like to study the crisis in California because dereguation of the electricity market in 1996 failed to live up to the many promises that were made then.

Californians have seen their electricity bills zoom up and are reeling under the constant threat of power cuts as the State struggles to maintain supply. Prices have increased, in spite of regulation which prevent the State Utility from passing on the rise in the wholesale market prices directly to consumers. In fact, the Federal Energy Regulatory Commission of the US has found that summer time power rates in that State were not `just and reasonable’ and that California consumers were robbed of billions of dollars. They are now demanding re-regulation of power suppliers in order to keep tariffs reasonable. If that can happen in the USA, how much more difficult it is to justify high tariffs in India simply because of a bad and one-sided contract.

Finally, the issue is not merely about Enron. It is about a paradigm shift in the approach to large power project. There is hardly any discussion in India about the implications of the technology revolution in the power sector which the Economist newspaper wrote about in August 2000. It said that the introduction of "micropower generation" by small-scale fuel cells and gas turbines, could be "every bit as dramatic as the revolution that hit the world’s telecommunications industry in the 1980’s. Technology leaps are cutting costs everyday and once the reduction in transmission and distribution losses are factored in, this power may spell the end of large power projects, especially in poor countries like ours with creaking and inefficient distribution set-ups. A debate about future technology trends is particularly important in Maharashtra because the State government is under intense pressure from Reliance and the Mittals to sign escrow covers for their large IPPs.

Author’s email: suchetadalal@yahoo.com