The Hindu Business Line : Power claims

EVER SINCE BECHTEL and GE won their claim against the Overseas Private Investment Corporation (OPIC) for political risk related loss, it was always on the cards that they would seek legal redress to recover the full value of their investment in the Enron-promoted Dabhol power project. Not surprisingly, then, comes the announcement on international arbitration covering a wider gamut of investment in the stalled project. The Centre has sought legal opinion from the Attorney-General on the merits of the claim. But this can at best buy time. Sooner or later it has to grapple with the nitty-gritty of settling the claim to the satisfaction of all parties to the dispute and also not overly burden the Indian consumer.

Short of establishing malfeasance by public officials involved in the deal — by no means an easy task — it is difficult to see how the Government can escape liability towards a claim by overseas investors of loss of investment and future profits. The question of simply settling the claim and not worrying about the future of the power project too is a not a viable option. Simply far too much investment has been made in the project for it to be allowed to go to seed. If there has to be any payment from the Centre that cannot be adjusted against the future cash flows from the project, it can only mean that it must necessarily be set off against the devolution of finances to the State from the Centre. That would bring the Maharashtra Government's finances into question. The consequent disruption in the provision of public services, such as it is, can become politically explosive as to rule it out as a viable option.

Rather than a compromise solution with sacrifice of some sort by all stakeholders, the, one that involves the restarting of the project and using the free cash flows from it to pay for the servicing of equity and debt seems the most sensible course of action. The problem with Dabhol is not so much an excess of supply over demand of power but one of electricity at an affordable cost. The choice of natural gas as the feedstock could mitigate the problem of high cost engendered by the use earlier of naphtha, as the fuel source could be one component of a possible solution. Natural gas linkages have to be established to secure a reliable source of feedstock for the project.

Another solution could be takeover of the project by a central power utility — NTPC is an obvious candidate — so that power can made available across neighbouring States and, thus, ensure optimal plant utilisation and defrayal of the fixed cost across the full 2,184 MW capacity. If debt and equity can be written down as part of the sacrifice by the stakeholders that too would bring the power cost if not quite comparable to other sources of generation but at least to more affordable levels. No doubt, such a solution would bail out the State Government, which did go in for this project with its eyes open and against best counsel. But the compulsions of federal democratic politics do not afford the Centre too many options.

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