Just a few months ago, Maharashtra was reeling under a power crisis. The State government had declared that Maharashtra had a power shortage of 2,000 MW and had resorted to long power cuts and load shedding for several hours each day across the State.
Opposition leaders took out protest processions, blackened the face of an Maharashtra State Electricity Board (MSEB) official and accused the Congress-NCP government of not planning ahead and sanctioning new power generating capacities in the State.
Coincidentally or otherwise, the power cuts coincided with the exact period when efforts to revive Enron’s defunct Dabhol Power Company were at their peak. Now that Dabhol’s foreign investors have blocked a quick revival, the power cuts seem to have vanished too.
Here are some facts. Maharashtra has a power availability of 10,750 MW (9,000 MW from MSEB, Tatas, BSES and 1,750 MW from NTPC). Its morning peak demand is 11,500 MW and evening peak is 12,300 MW. This means that it has a shortage of 750 MW in the morning and 1,150 MW in the evening and implies a deficit of around 1,000 MW. This is just half that was projected by the State at the peak of the crisis.
Now analyse this. On January 4 this year, Tata Power shut down its 150 MW Unit 4 at Chembur in Mumbai that can easily produce 130 MW of power. The unit went into an economy shut down, because MSEB, the monopoly distribution utility, was not buying enough power from the Tatas.
Moreover, even after shutting down Unit 4, Tata Power still has a surplus of 150 MW. That is not all. The State government says that another 400 MW of power will be made available this week through the revival of MSEB’s Uran plant which had been lying idle for want of gas.
Another 200 MW will become available when some defunct capacitors are replaced and NTPC is willing to supply 500 MW more. Add it up and it is clear that there is absolutely no power shortage in Maharashtra, much less a crisis.
Yet, just a few weeks ago, Maharashtra announced its intention to renegotiate the large Reliance and Bhadravati power projects; it also continues to work at reviving the Enron’s Dabhol project. The question is, do we need more power in Maharashtra? More importantly, do we need to revive DPC or are we doing it just to bail out lending institutions who funded the project without proper appraisal of costs or the market place (Indian banks and institutions have Rs 6,300 crore stuck in DPC of which nearly Rs 4,000 crore is in the form of guarantees to foreign lending institutions).
While the State wants to revive Dabhol, foreign lenders have realised that they would probably recover more money by invoking the sovereign guarantee instead. That would protect their lending and dodge the need to take a sharp haircut on their loans.
Those in favour of reviving DPC argue that by keeping it shut we are losing Rs 3 crore a day in interest costs alone on the $ 3-billion project. But activists such as Pradyumna Kaul of the Enron Virodhi Andolan say that if we restarted DPC, then the MSEB would lose Rs 18 crore a day.
Clearly, it is a no win situation. Reviving DPC, which uses expensive LNG as fuel would lead to bigger losses to Maharashtra and permanently bankrupt the MSEB. It would be cheaper by far to keep DPC shut. But the question is, how do we get rid of an almost complete white elephant that is capable of generating over 2,100 MW of power with minimal losses to lenders, investors and the State?
Although not reviving DPC is indeed the ideal solution, because it will produce expensive power; shutting it down will also require extremely adroit handling of the situation by the State government to force lenders and activists to take the consequences of their bad decision to support DPC.
Lets hear what Pradyumna Kaul, an activist who has been close to discussion within government and among the political parties has to say. Kaul agrees that a Naphtha/LNG based plant will always be far too expensive. Switching to natural gas may be slightly cheaper, but that would require expensive transportation of gas to site. He points out that with natural gas as a raw material, the power tariff will be directly proportional to the distance over which the gas is transported.
Since natural gas reserves are available mainly in Andhra Pradesh and Gujarat, DPC’s location on the Maharashtra coast will remain an expensive proposition. The alternative, says Kaul, is to break up the project into two or three smaller plants and to sell them to buyers willing to relocate them near the gas reserves.
A second option is to retain the 785 MW Phase I, to meet future power needs of Maharashtra (albeit expensively) but shift it near the Gujarat border, or into Gujarat with an arrangement to wheel the power to MSEB. All these proposals would involve a fairly hefty loss or haircut.
But instead of worrying about finding buyers and maximising sale proceeds, all parties to the deal have other concerns. The lenders would like to protect their investment and avoid a haircut—so they too continue to press for a revival, no matter that the State simply cannot afford the inevitable eventual tariff that is expected to be in excess of Rs 3.25 crore.
As for the State government, it is more worried about its pride. Maharashtra politicians are ruling out any solution that would involve breaking or shifting the project out of the state, says Kaul. And that explains why bad situations never have solutions in India.
Setting up the DPC on the sort of conditions and guarantees that were offered by India was a disastrous move, but everybody has to share the blame—the State and central governments, politicians from across the political spectrum as well as Indian and foreign lenders. They all have to share the cost and the losses too. The obvious imperative is for government to stop fudging facts, take quick decisions and minimise the damage. Unfortunately, the obvious is never on any government agenda.