What Enron8217;s power will do to tariffs

As Enron gets ready to commission Dabhol Phase-I, it8217;s time to take a look at its implications for the state and its power consumers. The first will be the big hike in power tariff. Maharashtra has begun to prepare for the tariff hike with two intermediate increases.It hiked power tariff by 17.16 per cent in July 1996 and the more recent one which ranges between seven per cent to 14 per cent. Already a 100-odd organisations representing 200,000 small and medium industrial units in the state have come together to protest against the tariff hike.

Another price rise is clearly inevitable. Power industry sources say that industrial users cannot pay anymore, they would instead prefer to relocate their units rather than turn uncompetitive. If the larger industrial units in the state are up in arms, it is because most of them are setting up captive consumption units and are availing of the government8217;s permission to sell 40 per cent of their power to other units. These industrialists are confident that captive power will soon be much cheaper than that supplied by the MSEB, but the state may have a surprise for them. Cheaper captive power will draw immediate attention to MSEB8217;s higher tariff. Also MSEB needs more consumers. The government is thus planning some sort of levy oncaptive units to ensure that it costs the same as MSEB power.

In the meanwhile the state plans to sell power to Tamil Nadu, but the rate is not clear. How did the predictions of acute power shortage suddenly turn into surplus situation? To begin with, various governments have been delightfully vague about the exact demand-supply situation depending on the state of Enron8217;s negotiations. Next, Maharashtra under the BJP-Sena government has ceased to be the most attractive industrial destination. In fact, the Naidu-effect has systematically drawn industry to the neighbouring Andhra Pradesh where two fast-track projects are already supplying power without any fuss.

MSEB has also been lucky with regard to fuel prices which are at an incredible low. However the dollar is already at Rs 42.47 as against Dabhol8217;s negotiation rate of Rs 26. Inflation too is no longer at the artificial under-five per cent and actual tariff will depend on these factors as well. In fact, in just a few days we may finally know exactlywhat Dabhol is going to cost.

Not surprisingly, the company is in a big hurry to tie-up the funding for Phase-II before Phase-I is commissioned and a new set of protests begin. The question is, are all power contracts completely iron-clad? The Indonesian situation should provide some answers. On December 24, the Asian Wall Street Journal front-paged an exhaustive report titled 8212; U.S Power Deals in Indonesia draw flak. It describes how links with President Suharto saw an amazing 40 billion worth of obscenely-expensive power deals signed up on a single day 8212; November 16, 1994. Thanks to such deals, the Indonesian state-owned power utility PLN is effectively broke, says the Journal in India too, MSEB has gone into the red and is crying out for restructuring.

Interestingly, the Indonesia power utility is paying these high-cost power projects only 30 per cent of the contracted rates and in the most controversial project belonging to Mission Energy and General Electric has been told thatPLN does not plan to buy any electricity from its 1230 MW plant at all. Most power producers in Indonesia have dragged the government into arbitration, but the details of the Journal report indicate that huge amounts of dirt regarding the manner in which the deals were brokered and signed are raising such a stink that the arbitration award may not depend entirely on the terms of the contract. The simple issue is to watch the Indonesian situation to see if power tariffs can be re-negotiated because consumers simply cannot pay.

In India, Enron is talking vaguely of tariff cuts. DPC8217;s Chief Executive, Sanjay Bhatnagar has been quoted by one paper as saying that it will sell power at Rs 2.54 a unit in 2001 after phase-II goes on stream as opposed to Rs three today. But that would depend, not on Enron8217;s good intentions but on fuel, inflation and the rupee-dollar exchange rate. The unfortunate part is that before the Indonesian situation gives us some answers, Indian financial institutions and bankswould have tied themselves up to phase-II through a bunch of irrevocable guarantees and loans and that alone will turn them into big lobbyists for Enron.

The author8217;s e-mail address is: suchetadalalyahoo.com