Nobody's fooled Mr Patil

Nobody's fooled Mr Patil
VINU LAL

MUMBAI, JAN 1: Energy Minister Padamsinh Patil's announcement yesterday that Enron was going to lower tariff may sound like sweet tidings for the campaign against the project but energy experts are not biting the bait.

The minister told reporters that Dabhol Power Company (DPC), a subsidiary of Enron, had written to the Maharashtra State Electricity Board (MSEB) that it was considering scaling down the rate at which it sells power to the latter as a consequence of the steep fall in the international prices of naphta.

``This reduction in the naphta prices will be passed on to DPC's tariff and hence the total charges can be lesser than perceived earlier,'' PTI said quoting Enron sources.

Coming as it did in the middle of the controversy that the state government should renegotiate the tariff structure with Enron because of the killing impact its bills are having on MSEB, this would seem like a step in that direction -- that Enron was favourably reacting to public opinion and rolling back tariff.

Hardly. What Enron is doing is merely passing on the benefit of a fall in naphta prices worldwide to the MSEB which it is supposed to do anyway under the Power Purchase Agreement. ``Enron should bloody well pass on the benefit. If it can pass on the burden of rising prices and a falling rupee to MSEB, it will do no favour to MSEB by passing the benefit of the fall. The power purchase agreement maintains that Enron can pass through variations in fuel charges and exchange rates to MSEB,'' argued an expert.

In fact, the debate in the Enron power tariff structure rests more on the capacity charges of about Rs 94 crore that MSEB has to pay the former every month even if it does not buy a single unit of power. This fixed charge component of the tariff, rather than the variable charge (which depends on the naphta price and exchange rate), is what contributes heavily to the exorbitant tariff. So, when Enron passes on the benefit of the nearly 40 per cent fall in naptha prices to MSEB, it is unlikely to cut the tariff by too much.

``Patil's statement is just an eye-wash to divert the present controversy of renegotiating Enron tariffs. If the government is serious in bringing down the tariffs, then it should be negotiating for bringing down the fixed cost component in tariffs or guaranteed offtake norms. Instead, if naphtha prices take a beating in the global markets and prices come down, it is no credit to Enron. But more pertinently, almost simultaneously as the minister was making the announcement, several Arab nation heads had decided to cut supplies for a correction in crude pricing. This means that there are chances naphtha prices may crawl back,'' the expert pointed out.

``Isn't it ironic that it is the same company which said that input prices were beyond their control and which was why tariffs were high during the last months of 2000 should now take credit for a fall in fuel costs?'' he queried.