Scrap the PPA with Dabhol?

It is unfortunate that the Dabhol project is in such a terrible mess. This is clearly the result of serious lapses and mistakes on the part of all the stakeholders. But I would not agree with those who are clamouring for the termination of the PPA by the Maharashtra government. It could very well happen that we are left with no choice in the end but to cancel the contract, but this if at all should be a legal decision and not a business decision. The fact of the matter is that we have a large facility established on Indian soil, which we must find ways to use for the benefit of the country. I have not seen the plant at all, but from all accounts that I have heard even from those who regard the whole project as a big mistake, this is a very well engineered plant. To harp on the termination of the contract would be like cutting your nose to spite your face. At no time must the action of the MSEB, the Maharashtra government or the government of India be?or even appear to be? arbitrary or spiteful. The Dabhol officials have signaled their willingness to renegotiate the contract, and we must therefore go through the process with an open mind but with our position clearly specified, namely that of getting a fair deal for the consumer of Dabhol power. I believe the contract can be renegotiated and a reasonable tariff hammered out between the parties to the contract, and I also believe that the re-negotiations should be conducted directly between the parties themselves, unencumbered by any group or committee that may have analysed the project. The road map for renegotiating the deal has been provided by the Committee set up to review the project in the report it has submitted to the Maharashtra government. The rest is a matter of give and take based on how much each stakeholder is willing to concede. The various measures outlined in the report clearly indicate the impact that these would have on the tariff. If all these are followed and the sales to other customers facilitated such that the plant runs at full capacity, the tariff would come down substantially. Maharashtra cannot at this stage absorb the power produced from the two phases of the project, and therefore other parts of the country would need to be supplied the bulk of the output from this plant. The central and the state governments must facilitate this as part of renegotiated deal, which of course would involve a major shift in the position of the promoters of the project in several ways detailed in the report. For all practical purposes, sales of power by IPPs are unrestricted, and can involve more than one state. In the case of Dabhol, however, it was believed at the stage of project design that all the power would be absorbed by one state. There are today the so called mega power projects where power from a particular project will be sold to more than one state. But I believe there is a case for greater flexibility in the policy in this regard and getting the Power Trading Corporation divested of its monopoly power as the only trader for interstate supplies of power from IPPs. One important feature of the Dabhol project is the large LNG facility and related infrastructure that has been established. The answer to the question whether this should be treated as part of the power project depends on the fact whether these facilities are fully dedicated to the production of power or have a large surplus capacity. In the case of Dabhol the latter happens to be the case. Hence it makes both business sense and sound legal logic to separate the two. There is no reason why the entire LNG infrastructure, which has capacity far beyond the needs of the power project, should not be separated as a distinctly different profit centre. This would bring down the cost of power generated significantly, and make the whole deal neat and transparent.This would be in the nation?s and the consumer?s interest.