The high Cost of Mr Munde

Dear Mr Gopinath Munde, As head of the committee that suggested scrapping the Dabhol project of Enron, you must be a happy man today. We all agree with you on the need for transparency. But surely transparency demands that your Munde Committee report should be made public for scrutiny.

Luckily, I have been able to get a copy of your report. I cannot cover all the issues in this column, but will focus on a few key ones.

What I find hilarious is that you do not even know what Enron’s project cost is. You say the cost is Rs4.49 crore per MW. In fact this was simply the initial estimate in 1992, and for the last two years Enron has been quoting a lower price of Rs 4.2 crore per MW. So your report first exaggerates the total cost by Rs 600 crore, and then complains that it is too high! Really, Mr Munde, if a committee does not even know the cost of the project it is reviewing, should it be taken very seriously?

One’s misgivings increase on seeing that your entire basis for assessing the fair cost is a study for the Advanced Light Water Reactor (ALWR) nuclear programme in the USA. On the basis of this study, you calculate that Enron is overpriced by $ 700 million.

You say that, according to ALWR norms, a gas-based plant like Enron’s should cost only 44 percent as much as a coal-based plant. Now, a coal-based plant in India like Cogentrix costs Rs 4.3 crore per MW, so your 44 per cent rule means that no gas-based plant should cost more than Rs 1.89 crore per MW. Anything significantly higher will be a scam.

Some power experts will say this is ridiculous. But let us accept your 44 percent norm. As an honourable man, you will surely insists that gas-based plants costing much more than Rs 1.89 crore are a scam and should be scrapped in all states, especially those ruled by the BJP.

This will cause some discomfort to your colleagues, but as an honourable man you must press your case .The BJP government in Gujarat has just okayed the Gujarat Torrent power plant at a cost of Rs 3.51 crore per MW, Almost double what your Committee regards as reasonable. So I hope you will immediately denounce the Gujarat chief minister as a scamster and demand police action.

You must send a telegram to the BJP chief Minister in Rajas than.

The Ramgarh gas-based project in the state has been cleared at a cost of Rs 3.4 crore per MW. According to the logic of the Munde Committee report, this chief minister too is a dirty crook, and I trust you will expose him thoroughly.

The BJP chief minister of Delhi, Mr Madan Lal Khurana, is keen on expeditiong th Bawana gas-based project, which is vital for meetion the capital’s future needs. Competitive bidding has taken place for this project, and the lowest bid is around Rs 3.5 crore per MW from Reliance. By the norms of your committee this too is a scam, and I hope you will instruct Mr Khurana to immediately abandon the project.

Oh yes, Maharastra has held competitive bidding for the Nagothane project, and here again Reliance is the lowest bidder at Rs 3.6 crore per MW. A scam at your very doorstep! I trust you will cancel the project at once. I trust you will also demand a police inquiry into all Maharastra ministers who are supporting the project. This will include the chief minister, Mr Manohar Joshi. I will also include members of the Munde Committee, including yourself. But as an honourable man, I am sure you will happily go to jail in order to vindicate the high moral principles enshrined in your report.

While you mullover that moral dilemma, ordinary readers will doubtless ask me why your calculations look so zany. I myself don’t know. Maybe the comparisons will look less ridiculous if you add transjport and storage costs, but even so your norms look wonky. I seems that in your attempt to select only those figures most unfavourable to Enron, you have made an ass of yourself.

Many people will be impressed by passages in your report quoting the World Bank as saying the project is unviable, that liquefied natural gas (LNG) is too expensive a fuel, and that a base-load station of 2,015 MW by 1992 and 1993. Why do you say nothing about the Bank’s views today?

Perhaps because the Bank’s remarks would be totally different today. In 1992 the Bank objected to an LNG-based project of 2,015 MW due in 1998. After hearing these objections, the MSEB set aside the second and main phase of the project, and sanctioned only the first phase of 695 MW, based not on LNG but distillate oil. So the 1992-93 criticisms of the Bank on plant size and fuel simply do not apply.

Alas, Mr Munde, you have missed a golden opportunity for a far assessment of Enron, which is badly needed. Less biased but pertinent questions can be asked about Enron’s cost; about loading the port cost on the power project about the backloading of its tariff. I personally believe Enron’s price is on the high side. India was in a weak negotiating position first came, but can drive a much harder bargain today.

So the project should be renegotiated to bring down the power price, reverse the backloading, and give a 30 percent equity stake to the MSEB. This will give the state power it badly needs at a reasonable price. I will avoid cancellation charges of Rs 1,500 crore and perhaps more in damages. I will avoid India being declared a credit risk by bankers, a development that will increase our borrowing costs by hundreds of crores.

You say, Mr Munde, that you wish to send the message that India cannot be taken for a ride. That is an admirable message . But it can equally well be sent by tough renegotiation, without suffering the high costs of cancellation. However, renegotiation will be less macho and vote-catching than cancellation.

If your report were really transparent, the last para would run as follows. ‘We must cancel the project rather than renegotiate to maximnise our political advantage. True, cancellation charges could be Rs 1,500 crore and damages even more. But this will come not out of our pockets but those of Maharashtra taxpayers. This is an excellent payers’ money to finance out next election campaign. And please don’t’ give us any moral lectures on this score; the Congress has milked the exchequer for ages, and we are just catching up.’

What do you think?