The Same Difference

Now let's consider the main reasons for the Joshi Government scrapping the earlier project:?

No competitive bidding: The Joshi Government did not call for any competitive proposals and negotiated only with Enron.

Environment: The project fuel has been changed from distillate oil to the more polluting naphtha.

High project costs: The Maharashtra Government boasts that overall project costs have been slashed from Rs 9,060 crore to Rs 6,424 crore. But about Rs 1,580 crore of the Rs 2,636-crore cost reduction has been achieved by delinking the re-gassification plant from the original project. The only genuine reduction is Rs 900 crore, voluntarily offered by Enron, following reduction in global prices of power equipment. "This fall in equipment prices is for all power projects and not just Enron," says a Maharashtra State Electricity Board (MSEB) official. These reasons account for over 90 per cent of the cost reduction.

The hiving off of the re-gassification project, which was never part of Phase I earlier, is likely to rake up fresh problems, say observers. New financiers will have to be found for the plant, an important part of the infrastructure for the Dabhol project. The delink-ing exercise may delay completion of infrastructural work, which will keep financial institutions from sponsoring the second phase. And what Joshi isn't talking about is that the cost of the re-gassification plant will ultimately go back into the tariff charges for the Dabhol project.

High tariffs: Joshi claims that the tariff for the Dabhol power project has now been reduced from Rs 2.40 to Rs 1.86 per unit. The calculations are based on an exchange rate of Rs 32 per dollar. The rupee exchange rate now hovering around Rs 36 to a dollar, the tariff in effect works out to Rs 2.02 per unit. Says Rahul Bajaj, chairman of Bajaj Auto: "By the third quarter of 1996, I expect the rupee to go about Rs 38 to a dollar." The cost per unit of power will work out very close to the original Rs 2.40 per unit.

Taking Joshi's 51-paise reduction at face value, the point is that the Rs 2.40 per unit was for power generated using distillate oil as fuel; and Rs 1.86 is for power from naphtha. But naphtha to naphtha, the negotiated reduction works out to 34 paise (13 per cent). And global prices of naphtha are decreasing, having slid from US $175 per tonne last year to US $160 per tonne now. When Dabhol starts using naphtha, the prices may be below $150 per tonne. "So the 13 per cent difference may be offset by the 14 per cent reduction in cost of production due to the naphtha prices coming down," say experts.

The MSEB charges consumers Rs 2.74 per unit, almost 75 per cent more than the price it buys power at. Though the exact price is not known yet, MSEB may charge a 100-per cent margin on Enron power. Says an MSEB source: "Consumers may have to pay between Rs 3.25 and Rs 3.75 per unit if our purchase price remains Rs 1.86. But if this price goes up due to the rupee falling against the dollar or other technical causes, the MSEB may have to charge more."

Joshi's claim of an overall gain of Rs 25,000 crore in the next 20 years through his new proposals may be a fantasy. Asks Bombay's former municipal commissioner S.S. Tinaikar: "Why did the government not have a committee of secretaries for cancelling the contract, why only for reviving it? Because it wanted the first action to be seen as a fulfillment of its election promise. And it did not want to be held responsible for the second."

And the lessons drawn? Says Harry Dhaul, director general, Independent Power Producers Association of India: "It is time to bring a sense of balance and proportion in evaluation of mega projects by the private sector. What we definitely must refrain from is politicising infrastructure project investments by the private sector, both Indian and foreign."