Cogentrix Energy Inc. waited more than seven years, lobbied with government, fought litigation and saw three different governments in and out of office. And then, just four days before the Supreme Court was to deliver its judgement it lost its patience.
Suddenly its threat to abandon the power project was headlines. It may be a coincidence or brilliant strategy (I prefer to believe the second), but the timing could not have been better. Litigation against the Cogentrix project has been going on for several years. Yet, just five days before apex court was to give its ruling it lost patience. Did it headline grabbing act, influence a judiciary which was already under pressure for a long drawn litigation? Maybe. Maybe not.
In an ideal world, judges are not supposed to read or be influenced by media reports. But it is difficult to ignore television news which does not distinguish between reportage and comment.
The fact is Congentrix's sense of timing is remarkable. The company's exit would have caused merely a flutter under another government in Karnataka, but the state today has a different sort of Chief Minister in S.M.Krishna. He has declared his intention to revitalise industrial development and has so far impressed everybody with his sincerity and efforts.
The result is for everybody to see. The Supreme Court has ruled in favour of the multinational and brushed aside objections to the project. At the same time, Krishna is working hard to persuade it to reconsider its decision and the company has magnanimously consented to think about it. What a wonderful public relations coup for Cogentrix.
Almost overnight the mainline media is bashing NGOs for their obstructionist ways and has turned into aggressive defenders of the multinational. But let's not get carried away by the Supreme Court verdict and the NGO bashing. There are the usual quota of bad eggs among NGOs and allegations of environmental terrorism and blackmail are not entirely unfounded. But in a country such as ours it would be foolish and dangerous to dismiss all activism as motivated, extortionist or obstructionist. Look at the odds.
India rates among the most corrupt countries in the world in the Transparency International Index: deal making and bribes are the order of the day. Then there is the huge mass of illiterate and poor people who are completely unconcerned about the cost of utilities and infrastructure because they are too poor to be affected. The educated middle-class which ought to be concerned is too busy struggling to make two ends meet and is largely apathetic. It is only committed activists who analyse issues, and bring crucial facts to public attention.
Cogentrix a fairly small US company, bagged a huge mandate to set up a 1,000 MW coal-based power project at Mangalore -- the project is bigger than any that the company has previously handled. Like Enron, Cogentrix too was one of the original Independent Power Producers (IPPs) which negotiated a sweet deal involving guaranteed payments and committed off-take from the Karnataka State Electricity Board (KSEB).
It is estimated that the loss-making KSEB-despite being hardly in a position to pay-- would end up making guaranteed payments in the region of Rs 2,000 crore a year for 30 years to Cogentrix. Also, over the last seven years it is clear that the project cost is far too high. Other IPPs have already set up and commissioned projects at a far lower cost. An expert committee appointed to study the Cogentrix Power Purchase Agreement in 1994 has also made several adverse comments about the one-sided nature of its agreement and the high capital cost. The report has never been made public. Further an adverse judgement of the Karnataka High Court in 1998 has asked for a Central Bureau of Investigation inquiry into the deal. This order was inexplicably stayed by the Supreme Court.
In fact, if S.M.Krishna is really smart he will take a hard look at the Enron project which his Congress party colleagues are threatening to re-examine and only then decide whether he really wants Cogentrix at any cost, or if he can find a cheaper alternative.
Enron Corporation fought as many as 26 cases against the project, yet each one of these was thrown out by the courts without examining the computation of high power tariffs and project cost. Several Public Interest Litigations (PILs) were thrown out right at admission. The court did not look at the strange manner in which Enron had obtained various clearances; it did not go into the issue of whether MSEB was in a position to pay for the expensive power without huge losses. Or MSEB's anti-consumer commitment to lift 90 per cent of Enron's power or pay a capacity charge (Rs 80 crores) that forces it to ignore far cheaper suppliers such as the Tata Electric Companies.
In fact, both the Congress as well as the Bharatiya Janata Party governments fudged the demand-supply situation for power in Maharahstra to first justify the project and later to clear the much larger second phase. Immediately after commissioning the 685 MW Dabhol-I, Maharashtra has turned power surplus and is attempting to sell power to the neighbouring states. Yet, it continues to press ahead with Phase II of Dabhol and several other projects.
All through the litigation, Enron strongly projected tariff figures which were far lower and were clearly untrue -- this is even more glaring because the NGOs in fact had been bang on in their projections. Also, exactly as predicted by the NGOs the MSEB is backing down cheaper power that is supplied by the Tatas.
The controversy over Enron's tariffs has yet to begin in earnest. So far, a convenient maintenance problem during the general elections allowed the state government to avoid paying full capacity charge after the first bill. However, there is no doubt whatsoever that MSEB will soon have to announce a steep increase in power tariffs. This time it is not going to be able to dump the tariff increase on to industrial consumers because they have begun to set up captive consumption units
If Cogentrix wants to leave Karnataka, S.M.Krishna can find several other takers. All the more so, if he continues to send out positive signals to industry about his seriousness in welcoming industry and implementing infrastructure projects without the usual pay-off. The Tatas, for instance, who have already bid for several projects in the state would not even seek a guarantee; nor will NTPC or other government-owned companies.
The experiment with high cost IPPs has all but failed. Most of them continue to languish in the absence of a green signal from the lending institutions and many states are now turning to public sector companies to have projects set up.