The Enron short circuit
The Enron case is important as it was the first of the fast track projects and has been responsible for modifications to the government guidelines.
Enron, General Electric (GE) and Bechtel jointly own Dabhol Power Corporation-through shell companies located in Mauritius to reduce tax liabilities-with 80 per cent, 10 per cent and 10 per cent shares respectively. The capital cost will be about Rs 9,053 crore for the entire project. The cost per MW therefore is Rs 4.1 crore per MW for the first stage and Rs 4.4 crore for the second stage.
According to calculations (Professor Kirit Parikh, director of " the Indira Gandhi Institute for Development Research, Bombay, in his speech at the World Economic Forum, Davos), the Internal I" Rate of Return (IRR) for Enron was in the range of 30 per cent which is exceptionally high by international standards. The 2- part tariff calculations under government guidelines also envisage similar rates of return. The Internal Rate of Return for OECD countries is in the range of 11 to 14 per cent.
However, the "fixed" capacity fee is in 1997 terms and will have an escalation at the rate of 4 per cent every year. The energy fee is based on a fuel cost of $3.8 per British Thermal Unit (current prices). This cost was to be passed on to M5EB based on actual fuel prices.
The escalation in capital servicing costs is completely contrary to the standard practice of computing fixed costs that decline over time due to depreciation. In the case of foreign investments in power, the government has already revised the depreciation rate upwards from 3.5 per cent to 8.24 per cent. In spite of this, it is assumed that the fixed cost will rise for Enron power.
The Plant Load Factor guaranteed by MSEB on the average was to be 90 per cent. This means that Enron power would have had to be used by MSEB to maintain this plant load factor for Enron, even if cheaper MSEB power is available. There is a guaranteed off-take by MSEB to maintain this plant load factor.
MSEB has sharp daily variations in power demand. Considering '1992 figures, it can be seen that on the day of the highest demand, while the peak was about 6,650 MW, the lowest demand was about 4,400 MW. Similarly, the peak demand variation in the year was also considerable - the demand varying from 5,500 MW to 6,650 MW. It is because of this that while the plant availability of MSEB is above 80 per cent, the plant load factor is around 61 per cent. The MSEB's commitment of a guaranteed off-take of 90 per cent of Enron power wiil result in its reducing cheaper generation to accomodate Enron, thus adding to its losses.
The total transaction for the first year for the stage was about Rs 1,300 crore out of which losses to MSEB are more than Rs 600 crore. For the second stage, the corresponding figures were Rs 4,000 crore and with losses of Rs 2,200 crore.
And this is at today's fuel prices and the current foreign exchange rates. Since the lifetime of a power project is for a minimum period of 20 years. the total transaction would be a staggering Rs 90,000 crore at today's prices.