Dabhol project crisis may force Maharashtra to declare Plan holiday

Our Corporate Bureau

Mumbai, April 11: THE Maharashtra government, which is facing severe financial crunch, will have to declare a plan holiday in view of an annual burden of around Rs 6,000 crore due to the Dabhol project.

According to the Madhav Godbole energy review committee, the burden of Rs 6,000 crore of the Dabhol Power Company (DPC) would rise over time due to depreciation of the exchange rate.

“This could lead to a drastic cut in the budget allocation for the state plan expenditures and can lead to a declaration of a plan holiday,” the committee said.

The Rs 6,000-crore burden would be larger than the entire budgetable plan expenditure of Rs 5,818 crore, which is over 10 times the revenue expenditure on rural development (Rs 527 crore) and more than the entire debt raised by the state government last year (Rs 5,541 crore).

The increase in the subsidy claim by Rs 1,729 crore, from Rs 355 crore to Rs 2,084 crore is substantial due to increase in the gap, which was mainly due to the rise in power purchase costs.

The expenditure on power purchased from DPC - 3,871 million units (MUs) was Rs 1,617 crore. If this had been purchased at the average cost of non-DPC supply of Rs 1.90 per unit, the expenditure would have been Rs 736 crore only. In addition, apart from the increase in power purchase cost due to purchase of DPC power, a portion of the increase in interest cost is also on account of DPC, “as a result of debt incurred by Maharashtra State Electricity Board (MSEB) in order to invest Rs 863 crore through Maharashtra Power Development Corporation Limited in 1998-99 and 1999-00.”

The Godbole committee has admitted that DPC power is not the least cost option, “whether looked at from the point of view of a consumer in Maharashtra or elsewhere in the country.”

“If DPC power is expensive for Maharashtra consumers, so will it be for consumers in all other parts of the country. The main question to be asked is whether MSEB should have purchased DPC power even if it was in the best of financial health and the reply will have to be a categorical No.”

Furthermore, the committee said that the impact of the DPC tariff structure is that the company has almost no variable change until the plant load factor (PLF) reaches 73 per cent - 14,000 million units. “Even if MSEB were to buy no power from DPC, it would have to pay around Rs 5,360 crore ($1,140 million) per annum.

“Under the current tariff structure it is financially sensible to draw as much power as possible from DPC, since even if one does not draw the power, one would have to pay anyway,” the committee said.

It further added that this would imply replacing 73 per cent of the MSEB’s entire power purchase of around 18,000 MUs in 2001-02 and replacing it with the power from DPC, “which would avoid increase in the cost of power purchase substantially.”

The committee has stressed the need for a financial re-engineering and restructuring of DPC so as “to reduce the cost of its powers substantially.”

According to the committee, only such a package of measures would open up possibilities for greater offtake of DPC power not only in Maharashtra but also elsewhere in the country.

“While the development of DPC has been fraught with infirmities, its existence cannot be wished away,” the committee observed.

Essentially, the committee said that the renegotations would have to be held to alter the terms of the power purchase agreement (PPA).

“Since as structured on paper, DPC is eminently profitable and carries relatively high interest debt, there is substantial scope for altering the terms and still retaining a reasonably profitable project,” the committee added.

According to the committee, such a renegotiation is not “anathema” to DPC. Indeed, according to them, they made concessions in 1995 and expect to make them again in the near future.