More than a red carpet
The incentives to attract foreign investment in India's power sector are iniquitous and make little commercial sense. Observers point out that if these projects go through, "India will soon have unaffordable, 'gold-plated' power, greatly increased dependence on imports and foreign-exchange outflow and a ruined power equipment-manufacturing sector, besides rendering many industries hopelessly uncompetitive". Here's what Enron received to build the Dabhol power plant:
Tariff:
Enron has fixed a tariff of Rs 2.40 per unit, which it will be paid at the rate of Rs 32 to the dollar (the prevailing rate is Rs 31.38). br>
Load guarantee:
MSEB, which will buy and distribute Enron's power, has guaranteed it an average plant load factor of 86 per cent,
High cost:
The cost per mw of power generated in the first stage will be Rs 4.1 crore and in the second stage, Rs 4.4 crore. Says Kirit Parikh, director of the Indira Gandhi Institute for Development Research, "The cost should not exceed Rs 2 crore per mw because there is a recession in the power-plant supply market ."
Escalation clauses:
The power purchase agreement signed between MSEB and Enron is not based on a fixed capacity fee for capital costs and an energy fee which is variable. Enron has a 4 per cent rate of escalation on the fixed cost, calculated at Rs 1.30 for the first stage and Rs 1.34 for the second stage. Energy costs, which will based on fuel prices in dollars, have an escalation clause based on foreign-exchange variation. Enron is under no obligation to source its fuel from the cheapest supplier. In terms of energy costs alone, Enron power will be more expensive than the current cost of power generation in India.