Darkness in city, state

MUMBAI: The ghost of Enron is still spooking investors away from power generation in Maharashtra, even as the power shortage worsens each year, with more blackouts for consumers and losses for industries.

Power producers are reluctant to put money into projects where the returns are not assured. “Enron did have a counter-guarantee and yet they didn’t get paid for the supply they generated after the deal was called off and restarted,” said Harry Dhaul, president of the Independent Power Producers Association of India (IPPAI). “The sanctity of a contract is not maintained in Maharashtra.”

Investors are pressing for better deals from the government in order to make their power ventures profitable. “Even today we have politicians haggling over allowing us to generate power at Rs 3.50 a unit though they are purchasing power at over Rs 8 from other states,” said Harry Dhaul.

It currently costs more than Rs 5 to produce a unit of electricity at Dabhol because the plant runs on naphtha. This is expected to come down to Rs 3 per unit when it switches over to gas as fuel, but that can again escalate along with gas prices. The fuel price is lower for coal-based plants, but that is not the only complicating factor for a private producer to work out the profitability of a venture. There is the issue of one-third of the power in the state being lost in transmission and distribution, mostly due to theft.

But the biggest concern is red tape, especially the various clearances that delay projects and add to costs. “The problem put forward is always to do with environmental and pollution concerns. The reality is that it is all too time-consuming for someone who is investing and cannot wait for so long,” said MN Chaini, former power secretary.
Reliance Energy’s 1200 MW Dahanu project, for instance, has been delayed. “Dahanu is a world class project but has run into problems due to environmental concerns, as it falls in an ecologically fragile zone,” said Pankaj Pandya, an REL consultant. Experts say some delays are designed to extract pay-offs. “In any South Asian country, cuts are part of the system,” said Akbar Jung, former special secretary in the Union ministry of power.

Bureaucrats and politicians have finally been galvanised into action, faced with a 6800 MW power shortfall, which even the restarting of the 2100 MW Dabhol project, now run by Ratnagiri Power, can hardly dent. The state government has been signing numerous Memorandums of Understanding (MOUs) with private power generating companies. However, none of these appear to have been actualised till now. The problem lies with concerns over the investment bearing fruit. “In Maharashtra, people seem to have a problem with making money. The investor needs returns. No one’s here for charity,” said Suneet Maheshwari, MD of Feedback Ventures, an infrastructure consultancy firm.
Maharashtra’s minister for power Dilip Walse-Patil told DNA the state had learnt its lessons from Dabhol. “The pricing is now done on the basis of competitive bidding. We have signed PPAs and you will see the difference in the next two years.”

But investors remain sceptical. “There is now some semblance of order in tariffs. But for a private player the subsidy on agriculture is still an issue. Investors are not convinced that the various disparities in the current tariff rates will bring them returns,” said Sunil Bhandare, former CEO of Bombay First.

Experts say foreign investors are still waiting to see the fate of the Dabhol project, which is expected to run at full capacity early next year, before putting their dollars into power projects in Maharashtra. “Our investors need at least one success story,” said Suneet Maheshwari.