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India May Resuscitate Disputed Enron Plant

Summer shortages give new life to India's biggest power project

4 min read

Nothing quite captures India's dilemmas like the sorry tale of the Dabhol power plant. Built by an Enron-led consortium near Mumbai (Bombay) in the 1990s, Dabhol briefly produced power for the grid, only to languish after local authorities and the multinational company came to an impasse over electricity pricing five years ago. Fast-growing but energy-poor, India desperately needed and still needs the power the plant would have provided. Yet local politicians, eager as ever to promise their constituents below-market electricity prices and, if possible, line their own pockets in the process, played on Indians' traditional deep hostility toward foreign investment.

That, anyway, is pretty much how international investors have seen the situation. But from India's perspective, to the contrary, it was a tale of how the country, yet again, had been victimized by a predatory globalizing corporation. From the outset, respected critics warned that the plant and its electricity would be too expensive, and circumstances strongly suggested that the project would not have proceeded without money's changing hands under the table [see sidebar, ]. Months after Dabhol was turned off in 2000 [see photo, ], Enron's corporate leadership in Houston stood exposed, if not as an outright criminal conspiracy, then at least as seriously short on scruples.

This summer, however, an unprecedented power crisis in India's western state of Maharashtra, home of the Dabhol facility, has prompted fresh talks to complete and turn on the 2184-megawatt power plant. The improved prospects for Dabhol, in turn, are awakening hopes that India's entire power industry may finally change for the better as it is reorganized to respect market principles and encourage new technology. As India's largest foreign investment, Dabhol was the icon for a more friendly attitude toward outside capital after the national government adopted market-oriented economic reforms in 1991.

Until recently, General Electric Co., in Fairfield, Conn., and the U.S. engineering firm Bechtel Corp., in San Francisco, owned just over 85 percent of the US $2.9 billion plant, having taken over Enron's 65 percent stake. But at the end of June, GE said it had agreed to sell its share to a group of financial institutions. GE is expected, however, to stay on the Dabhol project as a contractor--and Bechtel may as well [see photo, ].

With the Indian state-owned firms National Thermal Power Corp. and Bharat Heavy Electricals Ltd., GE has been devising a plan to start a smaller unit at Dabhol and then complete the rest of the project.

"GE is pleased with the course of discussions with the various stakeholders [in Dabhol] and looks forward to a complete resolution of the outstanding issues," said Scott Bayman, president and chief executive officer of GE India, in a written statement.

There are good reasons for GE's optimism about the state government's intentions. This spring and summer, power cuts of up to 4 hours in midsize towns and as much as 9 hours in rural areas provoked angry mobs to stone the offices of the Maharashtra state electricity board (SEB), as terrified officials locked themselves in. Even outlying suburbs of India's financial capital were hit by brownouts.

With popular pressure mounting to provide more reliable electricity, the state board's posture toward Dabhol has softened. Attitudes also are changing in New Delhi. Two years ago, the federal government enacted an electricity reform law designed to introduce more competition and flexibility into the system, and that change in philosophy is starting to make itself felt in the provinces as well. "There is a very clear understanding and recognition [among SEBs] of the fact that they need to move toward a market model," in which prices would be set by free markets rather than by board regulators, says Gaurav Bhatiani, who has worked as a consultant to the U.S. Agency for International Development on India's power distribution reforms. "Earlier, four to five years back, they would have laughed if you had said they [needed] competition."

Indian consumers, many of whom have to purchase backup power because the grid is so unreliable, may be getting more realistic, too, about what it will take to make the system work better. "Nobody expects that the prices will automatically fall" with electricity reform, says Kottilil Ramanathan, a senior fellow at the Energy and Resources Institute, in New Delhi. What's wanted most, he believes, is "better supply and service."

Still, there is a long way to go. Politicians consider SEBs their personal fiefdoms--vehicles for giving heavily subsidized or free electricity to farmers and other powerful groups. In large states such as Uttar Pradesh, Bihar, Punjab, Rajasthan, and Maharashtra, officials openly use the government-run distribution companies to win political support. The SEBs in such states routinely operate at a loss, not only because of the electricity they subsidize but also because of brazen theft. Often users simply attach a cable to overhead power lines, preferring to pay bribes rather than deal with the hassle of formally applying for a metered electricity connection.

Maharashtra's current power crisis has forced political parties to rally behind Dabhol. The plant could be producing 740 MW in its first phase by the middle of next year.

But state officials still maintain that the plant can and must supply power to the distribution companies at about 5 cents per kilowatthour, instead of at the much higher rates originally negotiated. If the perception takes hold that the SEB will not shake its habit of selling electricity at a loss, the impact on foreign investors will be unfortunate.

Just the same, consultant Bhatiani feels that India's moves to end the virtual monopoly of the SEBs are a good signal to potential investors. "The market is huge," he says, because per capita electricity consumption in India is nowhere near the level in other Asian countries. Average annual personal consumption is about 500 kWh, compared with more than 900 kWh in China and nearly 9000 kWh in the United States. With an installed capacity of 112 000 MW, India has set its sights on adding 100 000 MW by 2012.

Eyeing that market, GE's chairman and chief executive officer, Jeffrey R. Immelt, met with Prime Minister Manmohan Singh and other top Indian ministers during a visit in May. Referring to Dabhol, Immelt said, "We are very keen to put people on the ground very quickly."

--Vir Singh

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