Smokescreen?

A deeper meaning in DPC’s strategy

In what seems to be a tactful preview (read leak) to the press, the Madhav Godbole committee has called for a review of the Dabhol project’s power purchase agreement (PPA). The decision and scope of the review is dependent on the state government, of course, but the conclusion that most clearly comes out is that things cannot go on the way they are. The Dabhol Power Company (DPC) could well be right that the problem of non-payment of dues is linked to the Maharashtra State Electricity Board’s (MSEB) inability to increase revenue streams, but the company is glossing over the fact that this project is only aggravating the MSEB’s problems. It is somewhat like pouring liquor down the throat of a patient whose kidneys have failed. The committee would have gone into the fine print of the PPA to explore the scope for changes in some clauses which would alleviate the problems of the board. But this is only like making the liquor somewhat less fatal for the patient! The DPC’s PPA has been termed a “model” for other promoters: the ultimate PPA which every promoter would aspire to. The other states worked on this model and toned down their own PPAs in accordance with this one.
The biggest advantage that the DPC has is its “water-tight” PPA. Reopening a PPA is not an easy task, especially after a company has financially closed its project and has running assets. It may not be sheer coincidence that Enron has deputed a legal expert to head its project. Certainly it is not a coincidence that the DPC, a day before the Godbole announcement, sought recourse to political force majeure under the PPA — a clause used in the most extreme cases. To get a measure of how extreme, consider that events like a military coup would have readily made a case for a political force majeure clause to be invoked. However DPC’s claim for an event of similar magnitude, if proven, could well create the conditions for project termination. Where the DPC gains is in putting the blame on political forces and, thereon, that the project is the MSEB and the centre’s headache. The promoters can make a neat exit — which has now been widely speculated about. Whatever the outcome of the Godbole report, the state government needs to play this game shrewdly as its opponent appears to be two steps ahead of the game.