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The Enron Controversy:
Techno-Economic Analysis and Policy Implications

Girish Sant and Shantanu Dixit PRAYAS

Subodh Wagle CEEP, University of Delaware, USA

The Enron Controversy, Prayas, Sept. 1995

4 Ÿ The Enron Controversy

Contents

Summary 1. Power Purchase Agreement (PPA) Between Dabhol Power Company and Maharashtra State Electricity Board: Structure and Implications 2. The Enron Deal: Why the First Stage Should Be Cancelled 3. The Enron Controversy: Alternative Options For Electricity Generation In Maha rashtra

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14 36

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4. MNCs: New Development Messiahs and Old Justifications: Investigating Enron s Claims of Providing Development Assistance To India 49 5. Roots of Enron Controversy: Fundamental Ills of Power Sector 62

The Enron Controversy/Prayas/September 1995

GlossaryŸ 5

Glossary
BHEL: Bus-bar: CEA: Co-generation: GoI/GoM: GT: IPP: IRR: MSEB: NTPC: PLF: SEB: Lakh: Million: Crore: $: kWh: MW: Bharat Heavy Electricals Ltd. Point at which power is fed to the grid by a power plant Central Electricity Authority Efficient generation of power and steam simultaneously (usually in industry) Government of India / Maharashtra Gas Turbine (used for power generation) Independent Power Producer Internal Rate of Return (a measure of profitability) Maharashtra State Electricity Board National Thermal Power Corporation Plant Load Factor (capacity utilisation) State Electricity Board 100 thousand 1000 thousand 10 Million U.S. $ = 32 Rs (in 1995) one Unit of electricity Million Watts (power)

The Enron Controversy/Prayas/September 1995

Preface
PRAYAS is a voluntary initiative in the fields of energy, health, and learning and parenthood. Members of the Development & Energy Group of PRAYAS have been working on various issues in the power sector for last four years. The major effort was a two and half year study on alternative planning for the power sector of the state of Maharashtra in India. A report based on this study entitled: ” Least Cost Power Planning: Case Study of Maharashtra State„ provided an opportunity to enter into dialogue with officials, researchers, and activists on problems and prospects of power sector in Maharashtra. When the Enron controversy erupted, it was quite logical for us to initiate a study of the deal from techno-economic and policy perspectives. The Power Purchase Agreement (PPA) between Dabhol Power Company (DPC) and Maharashtra State Electricity Board (MSEB) was made public in March 1995. This served as an impetus for intensifying our efforts. Power sector policies are especially marked by their techno economic esoterica and their mystification. In this context, the Enron controversy, on one hand, posed a challenge as it created an urg ent need to take issues related to the power policy to people in the form and language that would not alienate them. On the other hand, the controversy brought about an excellent opportunity as a wide section of people and a broad range of organisation sta rted taking keen interest in the affairs of power sector. While remaining true to our brief, we tried to continually expand and refine our analysis as it has been very difficult to gather relevant information. Simultaneously, we also tried to vigorously interact with various researchers, government officials and various people—s organisations working on this controversy in order to understand their anxieties, priorities, and inter ests and also to provide analytical inputs and disseminate the results of our analysis. We had planned to write a single comprehensive and coherent paper covering all techno-economic aspects in detail and publish it in a booklet form. However, with the appointment of the Cabinet Sub Committee to review the Enron deal and with intensification of struggle by local people, we felt that we should immediately present the work we have already done to a larger audience so that a wide variety of people could participate in the ongoing debate more...
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