Is Dabhol to blame for Maharashtra's woes?

Lights on billboards have started going out in Mumbai -- even as Shanghai lights up ever more brightly and garishly.

In the rest of Maharashtra, the power situation is much worse: industrial cities like Pune, Nasik, and Aurangabad are suffering power cuts of up to eight hours a day.

If much of large industry has installed captive power plants, their ancillaries and most medium and small units are still dependent on the state electricity board for power.

And they are suffering badly. The aggregate cost in terms of lost output is anybody's guess but is huge in any case. Riots have erupted in several cities protesting against the power cuts.

Is Maharashtra paralleling West Bengal's one-time downward slide?

Today's power crisis has had its origins in the controversial Dabhol Power Co, Enron's project on the west coast of the state.

To recapitulate, it was the first major foreign investment in the power sector and attracted the wrath of everybody:

• The Swadeshi brigade, which is suspicious of anything foreign;
• The opposition parties, who smelt bribes and corruption as the driving forces behind the project, alleging that Maharashtra did not need the power;
• The environmental lobbies, which have great faith in the benignity of the status quo and see any change as malign.

Before the project work started, those who were in the opposition at the time of signing were in power and promptly cancelled the contract in 1995.

At that time I had commented as follows: "It really is a cynical political ploy to damage the credibility of the previous chief minister in particular, and the Congress in general, whatever the cost to the people of Maharashtra and the country … It is also contended that Maharashtra does not need so much power … A lot of innuendoes about corruption in the award of the contract have been bandied about, … the speed with which the decision was taken being cited as the 'proof'".

In a "mother" of political somersaults, to my surprise, after not too much time, the project was reinstated with a much larger capacity by combining two phases!

Within a year of the power production starting, the MSEB found it was too costly and defaulted on payments.

Enron invoked guarantees (it went bankrupt for other reasons soon afterwards), and for the last four years a series of costly litigations/arbitration proceedings and negotiations are going on between the promoter investors, the foreign and Indian lenders, credit insurers like the OPIC and ECGD, the guarantors, etc.

It seems some agreement has been reached between the foreign lenders/insurers and the Indian lenders to take over the former's debt.

The ICC arbitrators have awarded $125 million to Bechtel, a 10 per cent investor. Meanwhile, Bechtel and GE have taken over Enron's holding and filed international proceedings claiming Rs 26,000 crore (Rs 260 billion)!

An interesting sideshow is the slanging match between Sharad Pawar and Madhav Godbole, a retired civil servant who chaired the Committee that investigated the case in 2001.

Pawar blames Godbole for underestimating the demand for power, which has led to the present shortfall. Godbole has naturally refuted the charges, but even as recently as June 2004, he argued in an article (Economic and Political Weekly, June 5): "MSEB has made highly unrealistic projections of demand … MSEB's own capacity to meet demand for power has gone up considerably … As a result, in the near future, the demand on MSEB for traction is likely to go down considerably."

Would Godbole change his view about the power demand now?

And, in any case, is the current mess evidence of the technical competence of the MSEB and/or the civil servants, who are of course considered experts in every field, in forecasting power needs?

(More generally, even as infrastructure remains the Achilles' heel of the economy, we still do not seem to appreciate that for most services, supply itself creates demand -- witness the explosive growth of air travel and telephony).

On another issue, which perhaps goes to the heart of the overpricing of Dabhol power, the discounting of the fixed charge, which was effectively expressed in dollars, at 17 per cent a year, to arrive at the present value, seems to have passed muster with them! Yet, our faith in the gifted amateur's ability to handle the most specialised fields remains undiminished.

To be sure, post facto, in a Court case, while defending the decision to negotiate bilaterally with Enron, the MSEB has argued why the competitive bidding process was not followed: "The competitive bid requires expert knowledge and experience for evaluating the competitive bids, which at present is still not sufficiently up to the mark. For evaluation of such specialised projects, it is also necessary to have knowledge of risk identification and allocation, which is not sufficiently developed".

As if this "expert knowledge" is not needed in bilateral negotiations!

But perhaps in the most pernicious effect of the controversy -- the allegations -- the innuendo has been that no new power project has been initiated in the state for a long time, even when the seriousness of the situation became clear.

The revival of the Dabhol project was allowed to drift for years. It is far safer for one's political future to shuffle papers, to claim loftily that the "law should take its own course", etc.

Has anybody, politician or civil servant, ever suffered for not taking timely decisions? On the other hand, taking one's responsibility seriously can lead to charges of taking "undue" interest in one's work! The recent riots and international awards may now force some action.

But with each passing month the cost of the Dabhol revival goes up.

In fact, no pillar of governance comes out with credit in the whole affair:

• The politicians who cancelled and then reinstated an even bigger project; who have allowed the situation to drift for four years; who have promised free power to agriculturists (to be sure Pawar had opposed the idea even during the election campaign).
  They have now reversed that decision after wasting Rs 1,200 crore (Rs 12 billion), and at last noticing that free power is only leading to huge wastages of both power and pumped water;
• The administrators/technicians who could not forecast the demand properly; did not see the unsuitability of the project to meet the base load; did not have the expertise to understand the implications of the cost calculations;
• The environmentalists who are silent as Maharashtra suffers in darkness;
• And we, the people, who get carried away by promises of free power!

The Maharashtra government has now signed MoUs with private power producers for projects of 12,500 MW! With the best will in the world, these will not make an iota of difference to the power situation in the state for at least five years!

Meanwhile, the slide of Maharashtra into the West Bengal of the 1970s and 1980s continues.