Search the Internet          Tips  Sites: Finance, Investment

Spurred by Enron, Karnataka reopens power deals

India's technology state of Karnataka, spurred by a payments row involving US power developer Enron Corp in a neighbouring province, has re-opened sealed power purchase deals with 11 private firms.

The state's government has told independent power producers, which are yet to start generation, that they need to make their tariffs more competitive, officials said.

"Now it (electricity) cannot be at any cost," V P Baligar, chairman and managing director of the Karnataka State Power Transmission Corp Ltd, the state's monopoly power distributor, said in an interview.

Private companies could not be immediately reached for their comments.

The move comes on the heels of the bitter wrangle in Maharashtra state involving Dabhol Power Co, 65-per cent owned by Houston-based Enron.

Dahbol issued a preliminary notice on Saturday to end a contract to sell power to the Maharashtra State Electricity Board. The step came after Maharashtra ceased payments saying Dahbol's tariffs were too high.

The $2.9 billion project, which is 90-per cent complete, was first billed as a showcase of India's decade-old reform programme but now is regarded by critics as a symbol of policy bungling.

"Enron is a lesson for all of us," Baligar said.

Karnataka also said it would not provide financial assurances in the form of escrow cover and government loan guarantees which the firms wanted to help sweeten lending rates.

"We're trying to tell them your tariff has to be competitive," Baligar said, but added that the state was open to negotiations. "You have to have the final capability so you can implement the project without any guarantee or escrow."

Signed deals

Five years ago, the state signed power purchase deals with 14 private firms. Three of them are already generating power at rates higher than the state would now like to pay. They will continue to get these rates but the 11 unbuilt units face an uncertain future.

The 11 plants involve 2,000 megawatts of capacity, half of which would be supplied by the Mangalore Power Co from which US-based Cogentrix exited in 1999, citing litigation and delays in government approval. China Light & Power now is a key investor in the company.

"Policies do change based on our experience. Our intention is to weed out those who are not serious," Baligar said.

"Those who are serious can sit with us and sort out their problems.

Power tariffs vary, depending upon foreign exchange rates and the type and prices of fuels. Three projects which are already generating power get about Rs 3-4 per unit. The 11 uninstalled plants had comparable rates.

One generating firm, Jindal Tractabel, which uses coal and gas, gets about Rs 2.60. Its purchase agreement was not among the 14 and is awaiting regulatory approval. The state wants the Jindal rate to be the benchmark for reopened agreements.

If private firms cut capital costs and work out long-term fuel supplies, they will be able to cut rates, Baligar said.

The state says it needs 4,000 MW of new capacity over 10 years and 2,500 MW over five years. State-run utilities are in a position to meet five-year needs at low rates, Baligar said.

Asked if Karnataka could face litigation over the reopening of the contracts, Baligar had legally strong arguments.

Tell us what you think of this report