No clarity yet on emerging power scenario (Dec 1 2003)
In the United States, the Enron fraud investigation continues to unravel with Credit Suisse First Boston (CSFB) being the latest bank to be declared an ‘enabler of the fraud’. Enron’s famous corporate headquarters is also on sale. In Maharashtra, where Enron had a big impact, efforts to revive the Dabhol Power Company (DPC) have gained considerable momentum. The Naresh Chandra Committee is asked to resolve a problem that found no acceptable solution for several years. And the Reserve Bank of India has suddenly stepped up pressure on Indian financial institutions (FIs) to classify their exposure to DPC as Non-Performing Assets (NPA). It stands to logic that once the FIs take a big hit on their books by classifying the loans as NPAs, they would be far more amenable to accept a settlement that salvages and writes back at least a part of their lending. The action is not limited to DPC. Changes resulting from the new Electricity Act 2003 will also impact our electricity tariffs in a big way. But so far, the domestic consumer is untouched by any of these developments. Let us aggregate different news reports about DPC and the distribution scenario to find some answers.
Firstly, we learn that the Naresh Chandra committee wants to de-dollarise the offshore lenders’ debt of $1,044 million and have Indian FIs (whose exposure is Rs 6,200 crore, or 85 per cent of the project cost) take it over through a Special Purpose Vehicle (SPV)—barring the OPIC loan. The reports make no mention about whether foreign lenders would take any hair-cut or if Indian lenders alone will carry the can for their foolish exposure to an outrageously gold-plated project. Reports say that the SPV will float bonds, probably carrying a sovereign guarantee, at a low interest rate of 4.9 per cent. This means that the foreign loans to DPC will be re-distributed widely among many more lending institutions in India.
While Indian lenders have financed most of the project, they still don’t get control over DPC. Media report say that it is OPIC and not the Indian lenders who will find a buyer for Enron’s 65 per cent as well as the stakes of GE, Bechtel and MSEB (Maharashtra State Electricity Board). Although equity is risk investment, GE and Bechtel wont take a hit on that either. The news reports say that DPC’s new sponsor would settle $120 million each of GE and Bechtel’s equity as well as their contractual claims of Rs 650 crore and also involve it in the re-commissioning of the 2,184 MW, two-phase project. The Industrial Development Bank of India (IDBI) will be badly hit if its DPC exposure is classified as a NPA, just when it is working on a merger with a nationalised bank; but it has yet to react to press reports about the DPC revival plan.
Lets now move to other developments that will have a bearing on our electricity bills. The potential bidders for DPC are Reliance Energy (formerly BSES) and Tata Power, with or without other participants forming a consortium. Both these bidders are engaged in a major tussle to open up electricity distribution in the State and have filed several charges and counter charges against each other.
If either of these companies hope to bag the DPC project, buy out Enron, GE, Bechtel and MSEB and also settle their contractual claims, they would make money only if they have an assured market of paying customers. Media reports about the Naresh Chandra committee’s proposals say nothing about how DPC’s new buyer can run a profitable enterprise and also supply power at acceptable tariffs.
Towards this end, the two companies are using the provisions of The Electricity Act 2003, which allows competitive sale of electricity and abolition of electricity boards. The Act allows electricity generation stations to be established anywhere and the freedom to sell it to anyone. All this was highlighted at a press conference called by anti-Enron activists P. B.Samant, Pradyumna Kaul, Medha Patkar and political activists Mrinal Gore and Vidya Chavan, at a press conference held last week. Apart from their opposition to the dismantling of electricity boards and handing over the power sector to ‘capitalists’—they have drawn attention to Reliance’s application under the Electricity Act to start supplying power to six most prosperous regions of the State, namely Thane, New Mumbai, Pune, Nashik, Nagpur and Aurangabad.
The Tatas are also likely to seek similar distribution rights if they plan to expand their operations and neither company can be barred from doing so. Both Reliance Energy and Tata Power are publicly listed companies, which have to earn profits for their shareholders. Their application under the new Act is both legal and unexceptional. But like the private telephone companies, they can be expected to woo only paying commercial customers. What is not however clear is what this means for Maharashtra’s electricity consumers.
So far, public sector utilities such as MSEB, despite their sloth and inefficiencies have managed to control tariffs by making commercial consumers pay more, shielding retail consumers and subsidising agriculturists and power loom operators. MSEB also neutralised regional inequity through tariff rationalisation. All this seems set to change in a hurry. The consumer has no clue about the emerging power scenario and we aren’t sure if the State does either. Will the MSEB be stuck with distributing power to large, unprofitable regions such as Vidarbha? Won’t it sink ever deeper into the red? What is its future under the new Act? We don’t know.
What we can logically expect is that when private companies muscle into electricity distribution, they will put an end to subsidies. Corporate customers who have been fleeced in the equalisation process can start negotiating better rates. And the middle layer, which is the domestic consumer, will see a huge increase in their electricity bills. But will domestic consumers have any choice over their supplier? Will the Electricity Act prevent private monopolies and usurious tariffs? What will happen to subsidised power for farmers? Will there be political repercussions if their subsidies are eliminated? Again, there are no answers. Patkar, Kaul, Gore and Samant focussed on the fate of BEST at their recent press conference, but the picture for the rest of Maharashtra is equally hazy. What is however clear is that if we fail to question the government right away we do so at our own peril. -- Sucheta Dalal