The Solution to Dabhol

I am extremely glad that such a row has been kicked up about the power tariff of the Dabhol Power Company, in which Enron has a 50 per cent stake. Not because the company is making extortionate profits: that is not the case. I welcome the controversy as an opportunity to expose the widespread misgovernance that is at the root of many of Maharashtra’s problems, of which Dabhol is only a small part.

Dabhol Power Company (DBC) is accused of selling power at as high a rate as Rs 7.80 per unit to the Maharashtra State Electricity Board (MSEB), thrice as high as estimates when the revised contract was signed in 1995. Critics say this represents extortionist profit. Really? MSEB has a 30 per cent stake in DBC.

If the company were making extortionate profits, MSEB should be getting 30 per cent of the extortion, and be flush with money. Instead it is bust. Indeed, the MSEB now says it cannot afford to take up its 30 per cent equity share in the second phase of the project. Would it really say so if the investment yielded a sinful profit?

The Dabhol contract is not like one to supply cement, where the rate is fixed at so many rupees per tonne. The Dabhol contract lays down a fixed charge for the machinery installed, and a variable charge depending on how much the plant runs. This is very much like hiring a DLY taxi. Unlike a metered taxi, a DLY taxi is hired for the day. A typical rate will be Rs 600 per day, with no extra charge for the first 50 km. and Rs 2.50 per km for additional distance travelled. So, the taxi tariff has a fixed part and a variable part. Now suppose you hire a DLY taxi on such terms, but travel just 2 km. during the day. You still have to pay the daily rate of Rs 600. Can you claim that you are paying Rs 300 per km, that this is an extortionate rate, and that it must be renegotiated? If you do so, the taxi-driver (and most normal people) will think you mad. Yet this exactly is the madness exhibited by the most critics. Dabhol’s rate looks high in some months only because the MSEB has utilised just 30 per cent of its capacity in those months, against 90 per cent envisaged in the original contract.

According to Kirit Parikh, a fierce critic of Dabhol’s original contract who later helped renegotiate a reduced tariff, the company’s power at 90 per cent utilisation will cost just Rs 2.80 per unit. Utilisation of DBC power is low not because Maharashtra has a surplus: MSEB imposes widespread power cuts on consumers. The problem is that that the MSEB loses so much money on every unit of power it sells that it seeks to limit its losses by forcing power cuts on consumers.

In other countries with reasonable laws and governance, a power utility that reneged on its contractual obligation to supply power would be sued for damages. But in India our politicians have enacted laws protecting the MSEB from suits. In the name of promoting the public interest, a public sector monopoly has been created which has power without responsibility, a monopoly without obligations.

So, MSEB has become a habitual contract breaker. Indeed most politicians have come to believe that power supply is a favour offered by the government, not a right of consumers who have paid for a power connection; that the favour can be withdrawn at any time without penalty; that bribes can be demanded for fulfillment of the contract to supply. Governance and efficiency in the state is so poor that MSEB allows massive theft of electricity, allows consumers to run up huge arrears without cutting off their connections, and subsidises power to farmers and some urban consumers. The net result is that for every one unit of power the MSEB buys, it receives reasonable payment for only one-half to one-third of a unit. Obviously such an entity will go bust sooner or later. But the blame lies not on costly power but on pathetic misgovernance which permits theft and arrears on a massive scale.

Misgovernance is the underlying problem of the state. May be ways can be found to renegotiate the Dabhol tariff down by a few paise per unit, but the underlying problem will remain. If the MSEB allows its output to be stolen freely, if linesmen routinely take bribes to manipulate down electric meter readings, if many consumers are supplied power without metering at all, if little effort is made to collect dues, then no renegotiation with DBC will save it.

The rot extends beyond MSEB to all arms of governance. A state that cannot apprehend corrupt linesmen obviously cannot apprehend high-powered mafia leaders either. So, nobody is surprised that when the state government tried to auction the seized properties of Dawood Ibrahim, not a single person dared bid for his very attractive properties. People were convinced that anybody who dared bid would be killed by Dawood, and that the state government could offer no protection. In few countries is the governance of the state so weak and of the mafia so strong.

What is the solution? Well, in the long run we have to reform our administrative, police and judicial systems to improve the quality of governance. In the short run, I can only offer one other solution. Kindly sell MSEB to Dawood Ibrahim for one rupee. If you do so, MSEB staff will suddenly become super efficient, thieves will shake with terror at the thought of stealing electricity, defaulters will queue up to pay their arrears, and power supply in the state will become plentiful and financially viable. It will work like pure magic. Vilasrao Deshmukh, what are you waiting for?

What do you think?