have the capacity either to offtake or to pay for the capacity of the Dabhol project and that
problem is the result of political rather than economic factors. According to Joshi, since the
project was initiated in 1993 successive governments have reduced the MSEB from being one
of the best-run state electricity boards to being a debt-riddled entity having very low levels of
tariff collection and high levels of transmission losses (read as theft). The MSEB has had to
bear the burden of extensive subsidies granted to farmers, specific industries and other groups
of electricity consumers. Meanwhile, demand for electricity has not increased as forecast
because of the low growth in industries established by the state.^24
Necessary elements of restructuring
Joshi notes that the Dabhol project structure collapsed at a time when a huge amount of
resources had been invested and there were physical project assets to reflect the investments.
Given the growing power needs across the country, the Government of India cannot ignore
these assets. Now the lenders are in control and trying to minimise their losses, while the orig-
inal sponsors are looking for a way to exit because their original basis for participating in the
project has changed irreversibly. Enron, under bankruptcy proceedings, would not be in a
position to continue to develop the project even if it were interested in doing so. Joshi believes
that any feasible restructuring of the project must address at least the following basic issues:
- creating a feasible structure to enable regular offtake of electricity;
- allowing multiple uses of the LNG facility; and
- finding new owners.
Joshi believes that it is clear that the project cannot go forward with the MSEB as the sole
offtaker. The project needs state and federal government permission to sell electricity to con-
sumers other than the MSEB, and even to parties outside Maharastra. Selling to a wider mar-
ket would also require suitable wheeling arrangements between DPC and various
transmission entities. Wheeling is the movement of electricity from one system to another
over the transmission facilities of intervening systems. Wheeling is required to offer cus-
tomers a choice of electricity suppliers.
The Dabhol project has two distinct but interdependent facilities: the power plant, and the
LNG regasification and storage facilities. Joshi recommends separating the project into two
entities, so that the LNG facility could deal in LNG for commercial purposes, not just for the
project. He notes that the Government of India would have to approve the demerger, that an
arrangement would be required for the power plant and the LNG facility to share infrastruc-
ture facilities, and that a pipeline would be needed to transport the LNG to other customers.
Joshi sees a possibility that none of the potential buyers identified so far will want the
entire project. Different buyers may be appropriate for the power plant and the LNG facility.
Because of the project’s size, several large companies may want to form a consortium to buy
the project.
Lessons learned
The MSEB’s failure to honour its contract obligations indicates that contract parties may fail
to honour their contractual commitments when it is beyond their ability or not in their eco-
POWER PLANT