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Maharashtra rejects Rs 2.86/unit offer for DPC power

Hopes of an early restart of Enron's idle Dabhol power plant have been dashed with the Maharashtra government rejecting an offer by IDBI-led lenders to resume the purchase of power at a new rate.

The offer of IDBI-led lenders to Dabhol Power Company for power purchase at Rs 2.86 per unit of the project's phase-I was 'unacceptable' and the rate should be reduced to an acceptable level, Chief Minister Vilasrao Deshmukh said.

Deshmukh said the government will have further talks with term lender Industrial Development Bank of India to decide on the rate at which the state will buy power from the unit which has been shut for over a year.

"We discussed IDBI's proposal and the committee felt that the terms were not acceptable," he told reporters after a meeting of the state government committee.

About 30 financial institutions led by IDBI lent $1.9 billion to the project.

Under IDBI's formula, state utility Maharashtra State Electricity Board, should pay Rs 2.86 per unit for the power produced by Dabhol Power Company, Deshmukh said.

DPC, in which Enron holds 65 percent equity, shut down its plant in May 2001 because MSEB, its nearly bankrupt sole customer, stopped buying power, saying it was too costly.

GE, which made the plant's turbines, and San Francisco-based contractor Bechtel Corp, which built the plant, each own 10 per cent. The remaining 15 per cent is held by MSEB.

Officials say the $2.9 billion power plant has deteriorated during the long shutdown.

The plant, once showcased as an Indian success story in attracting foreign investment, is now controlled by DPC's lenders.

State offer rejected

In July, Maharashtra, one of India's most industrialised states, allowed MSEB to pay Rs 2.25 a unit for Dabhol's power after it faced a shortfall of more than 1,000 MW of power.

But the offer was turned down by Indian lenders who said it was too low.

They said they needed Rs 2.86 per unit to make the plant viable, comprising Rs 2.22 per unit charge for naphtha, a key input, and another Rs 0.64 a unit for fixed costs.

The 740 MW first stage of the plant began operating in 1999. The 1,444 MW second phase was nearly complete when construction halted after the MSEB fell $240 million behind in payments.

MSEB, which posted losses of more than Rs 3 billion ($61.9 million) in the year to March, is reluctant to pay more.

"We have already said that we will incur losses at a rate of Rs 2.25. Now the losses would widen at the 2.86 rate," a senior MSEB official said.

"It's up to the state government whether it wants us to buy at this rate," he said. "If the government goes ahead with a new pricing formula, it will have to find ways to compensate our losses."

India's new Power Minister Anant Geete said last week the government was keen to restart the Dabhol unit quickly.

"We are discussing the matter with the state government and hope to see some solution in the next two months," he told reporters in New Delhi.

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