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The Dabhol controversy revisited

S. Venkitaramanan

THE Dabhol Power Project has been a subject of controversy ever since it started. This writer was among those who pointed out the rationality of the negotiations carried out with the Dabhol Power Company, which led to the Maharashtra Government accepting a very high financial liability.

In an article entitled ``Why do Governments twist and turn?'' in Business Line dated January 20, 1997, I had specifically referred to the various changes in the negotiating stance taken by the Government of Maharashtra. This was with particular reference to the judgment of the Bombay High Court on the Enron issue. Referring to the Committee under Mr Gopinath Munde, the former Deputy Chief Minister of Maharashtra, the judges of Bombay High Court had quoted the Committee as saying: ``The entire negotiatio n with Enron is an illustration of how not to negotiate, how not to take a weak position and how not to leave it to initiate to the other side.''

The Munde Committee had gone hammer and tongs at the lack of competitive bidding by the Pawar Government. It also hinted darkly at ``several unseen factors and forces, which seem to have worked to get Enron what it wanted...'' Presenting his Deputy's rep ort to the Assembly, the then Chief Minister, Mr Manohar Joshi had observed with a flourish: ``The speed with which this agreement (what Mr Pawar had got) must be categorised as `Enron came, Enron saw and Enron conquered'''.

The Maharashtra Government is now all ready for another bout of negotiations with the Dabhol Power Company (DPC). The circumstances are, of course, different now. As a result of an extremely painstaking analysis by the Madhav Godbole Committee, a detaile d report has been drawn up which, among other things, recommends a renegotiation to reduce the unconscionably high tariff levied by the DPC and agreed to by the Government of Maharashtra.

It is important to learn the lessons of the previous negotiations before any renegotiation is taken up. I am aware that Dr Godbole, with his tremendous experience in matters of this nature, would not leave any stone unturned to ensure that the maximum be nefit is obtained for the country and the State of Maharashtra.

I am, however, restating some of the conclusions which I have drawn, based on my perusal of the judgment of the Bombay High Court and other relevant papers in regard to the negotiations by the Kirit Parekh Committee. In particular, the Bombay High Court judgment points out that the speed with which the renegotiations were conducted by the Parekh Committee showed amazing alacrity. Let me quote the judgment in extenso:

``The speed with which the negotiating group studied the project, made a proposal for renegotiation, which was accepted by Dabhol, and submitted its report is unprecedented. The negotiating group was constituted by the Government of Maharashtra on Novemb er 8, 1995. It was asked to submit its report to the State Government by December 7, 1995.

The Committee, we are told, examined the project, collected data on various similar other projects as well as internal bids, including data on a similar project executed by Enron in the UK, held considerable negotiations, settled the terms for the projec t revival, got the consent of Enron and Dabhol to the same on November 15, 1995, just within a week of its constitution, and submitted its exhaustive report along with data and details to the Government of Maharashtra on November 19, 1995, just 11 days a fter its formation, much before the December 7 1995 deadline by which it was required to submit the same.

The speed at which the whole thing was done by the negotiating group is unprecedented. What would stop one to say, as was said by the Chief Minister in the context of the original PPA, Enron revisited, Enron saw and Enron conquered, much more than what i t did earlier.

I am confident that this story will not be repeated now. Surely, Dr Godbole will ensure that thoroughness will not be sacrificed at the altar of speed this time.

It is obvious that the Maharashtra Government stands to lose substantially if the tariffs are not renegotiated downwards. At the same time, we must concede that a negotiated contract is very difficult to go back upon. In its earlier negotiations, the DPC was assisted by a team of competent lawyers. It is to be hoped that the Godbole Committee will call on an equally competent set of lawyers from our side. Negotiations in respect of power projects are very much the domain of corporate lawyers, who have s pecialised on the subject. The Godbole Committee would do well to utilise the best legal talent available in the country and, if necessary, from abroad if it is to succeed in wresting some gains.

It is important to stress that Government and its representatives cannot and should not wash their hands off the DPC case. Their counter-guarantee to the payments of the Maharashtra Government and the MSEB is a perpetual reminder of the fact that, if the Maharashtra Government defaults, it will be ultimately the Union Government that has to carry the can. If the Centre has any reservation on the subject, the right time for raising doubts was at the stage of giving the counter-guarantee and not now.

The Government reneging on a guarantee can have serious repercussions on the credit rating of the country itself. It can also affect future FDI flows if it gets to be known that the word of the Government is not to be trusted. It is ultimately a test of economic maturity for a country to stand by its agreements, however mistakenly they may have been entered into -- unless they be entered into through misrepresentation of facts. It is difficult at this stage to allege misrepresentation of facts by DPC, when all the presentations by the DPC were fully in the public domain and the Government walked into the guarantee trap with its eyes open.

If the DPC terminates its contract, not only the Government but also the financial institutions and banks which have been major lenders to the DPC are liable to grievous losses. The sums involved run into thousands of crores of rupees. The Government has , therefore, to somehow find a way out of the Dabhol dilemma. No cost is too high to sustain the country's reputation as one which stands by its solemn agreement.

The Government, through such instrumentalities as the NTPC and Power Trading Corporation, can definitely arrange to buy power, which is surplus to Maharashtra State and wheel it to other States in need. There is admittedly shortage of power, particularly peaking power, in many States. What is lacking is the transmission capability to move power from Mumbai to regions, such as Karnataka, Tamil Nadu and so on.

One advantage of Dabhol is that it supplies peaking power, which the country is short of. It should not be beyond the ingenuity of the experts in the Power Ministry and the CEA to work out a mechanism by which the Power Trading Corporation can take power from Maharashtra and supply the same to other States in need of power, particularly peaking power. Once this is done, the plant load factor of Dabhol power can be improved, and the effective tariff charged to MSEB reduced. This involves an act of financ ial and electrical engineering, which cannot brook any further delay.

In my view, it is on the successful resolution to the problem of evacuation of power from Maharashtra to other States and payments, therefore, that the resolution of the Dabhol dilemma will finally rest. New Delhi should not be dismayed by the immediate problems involved in the arrangement for transmission of surplus power from Maharashtra to other States. The alternatives to this solution are too costly to contemplate. Let us hope that out of the Dabhol problem will emerge the unified energy market for India.

I am stating this possible solution not to oversimplify the challenge before the Godbole Committee, but rather to point out that the solutions are possible given the political will and tenacity to pursue them. The DPC will, of course, be up to all its us ual tricks to force the renegotiators to concede more than they should. But so much of the background of the dispute is in the public domain that the renegotiators will find it difficult to make any further concession to the private investor.

The renegotiators must stick to their brief to reduce the tariffs. In this, there is hope in tripartite solution, in which the Centre, the Maharashtra Government and the DPC become participants to buy the surplus power and wheel it to other States. Only such a solution will show a sustainable way out of the current imbroglio.

Pic.: The renegotiation panel Chairman, Mr Madhav Godbole, meeting Enron officials in Mumbai.... Solutions to the Dabhol dilemma are possible given the political will and tenacity to pursue them.