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Government may have to take Rs 56.63-billion hit: Godbole panel

Surajeet Das Gupta

The Godbole Negotiating Committee, set up by the Maharashtra government, has recommended that the Indian government should take a hit of Rs 56.63 billion as a step towards reducing the tariff rate for the power produced by the Dabhol Power Company significantly.

The Committee has proposed in its report that various stakeholders including the Government of India, the state government and the main promoters will have to absorb major losses for reducing the tariff to Rs 2.25/kwh-Rs 2.4/kwh range.

This will ensure that the base load plant would operate at a high plant load factor. At the current tariff rates, which are in the range of Rs 3.65 to Rs 3.91/kwh at 90 per cent PLF, it will be hard to find any buyers in the country, the committee stated in its report.

Explaining how it had arrived at the Central government's liability of Rs 56.63 billion, the committee observed that the amount consisted of Rs 25 billion cash infusion, waiver of custom duties on import of LNG amounting to Rs 12.94 billion, reduction in customs duty on capital goods aggregating Rs 4 billion and around Rs 14.69 billion on interest servicing on bonds.

The committee has suggested that the "Government of India should raise bonds aggregating Rs 25 billion which would be lent to the Maharashtra government.

This debt would be extended by GoI as an interest-free loan to the Maharashtra government and repaid (by the Maharashtra government) in four annual installments after a moratorium of 15 years."

In addition, the GoI would also have to pay for the interest on servicing these bonds in addition to waiver of customs duty on LNG imports and capital goods. In addition, it would have to make a $300 million provision for the termination payment in case the power purchase agreement is rescinded.

The negotiating committee has drawn parallels between the rescue package worked out by the central government for UTI in 1998 for its US-64 scheme whose reserves had turned negative and the DPC tariff imbroglio.

"The sort of bailout package should be considered favourably by the government keeping in view the large quantum of financial assistance provided by domestic financial institutions /banks by way of loans /guarantees to the project. ……The GOI had worked out a restructuring package to restore the financial health of US-64 scheme of the UTI and as such a similar package should be worked out for DPC and thereby its lenders," the report noted.

The Godbole committee has also suggested that the sponsors to the project, Enron, GE and Bechtel, should forgo 75 per cent of their investments in the project involving a loss of Rs 28.35 billion.

Besides, the committee has recommended that the MSEB and the Maharashtra government should take a hit of Rs 16.64 billion. In the case of MSEB, it will comprise equity write off to the tune of 75 per cent of its investment of $142 million or $106 million (Rs 5.05 billion).

The total burden on MSEB would go up to Rs 10.62 billion if cash was infused to complete the project. The state government will have to forgo close to Rs 6 billion.

The Godbole committee also warns of the possible impact of the non-completion of the project. "The non-completion of the project as well as un-economical and unviable operations of DPC would weaken the FIs and banks considerably," the committee noted.

The state government should use the cash proceeds of Rs 25 billion for repaying the foreign currency loans which were guaranteed by GoI.

The committee also suggests that irrespective of who owns DPC, the Maharashtra government should not recover the amount from DPC at a later date.

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