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Dhabhol Power Plant - India
"Many energy companies have invested in closed or repressive countries -- arguing that their investment would help develop the local economy and thereby improve the human rights situation. But in this case, Enron has invested in a democratic country -- and human rights abuses there have increased. Enron hasn't made things better for human rights; it has made things worse." Appendix C: Selected Recommendations and Conclusions from the Parliamentary Standing Committee on Energy, May 29, 1995
Table of Contents

Key Individuals Named in this Report

I. Summary and Recommendations

II. Background: New Delhi and Bombay

III. Background to the Protests: Ratnagiri District

IV. Legal Restrictions Used to Suppress Opposition to the Dabhol Power Project

V. Ratnagiri: Violations of Human Rights 1997

VI. The Applicable Laws

VII. Complicity: The Dabhol Power Corporation

VIII. Responsibility: Financing Institutions and the Government of the United States

IX. Conclusion

Appendix A: Correspondence Between Human Rights Watch and the Export-Import Bank of the United States

Appendix B: Report of the Cabinet Sub-Committee to Review the Dabhol Power Project

Appendix C: Selected Recommendations and Conclusions from the Parliamentary Standing Committee on Energy, May 29, 1995

>Appendix D: Correspondence Between the Government of India and the World Bank

Appendix C: Selected Recommendations and Conclusions from the Parliamentary Standing Committee on Energy, May 29, 1995

Selected Recommendations and Conclusions from the Parliamentary Standing Committee on Energy, May 29, 1995

2. Establishment of a transparent bidding procedure and a set of criteria against which bids could be evaluated is essential for selecting appropriate power companies for Power Projects. Sadly, this was not done until recently. Instead of taking advantage of international experience in promoter selection, the Government preferred to go in for the bilateral route on the plea that in view of non-crystallisation methodologies and lack of investors’ confidence the negotiated route was the only option. It was only after the matter was taken up by the Committee that the Centre issued guidelines to State Governments on 18.1.1995 making the competitive bidding route mandatory. Hopefully, the change over to the system of competitive bidding would bring transparency to the business of private sector participation and result in competitive tariff proposals.

5. The tariff structure based on “cost-plus” approach is stated to have advantages in the initial phase because of compatibility with CEA procedure for project approval and SEB’s own experience with this form of pricing. Surprisingly, the Ministry of Power has argued that there is nothing wrong with the present cost-plus approach. The Committee does not agree with this view. The Committee feels that private investors appear to have a tendency to inflate costs which would finally translate into higher tariff. Besides, the cost-plus approach has given rise to avoidable controversies. The Committee, therefore, recommends that the Government should examine the desirability of adopting a standard practice of specifying a single rate at which private investors are asked to sell power. Incidentally, the adoption of a simple tariff system will also eliminate the need of offering guaranteed PLF linked return on equity.

6. There are four gas-based and three coal-based power projects in the private sector cleared by the CEA so far. Out of the four gas-based projects, the per megawatt (MW) cost in respect of these projects (Jagrupadu, Godavari, and Puguthan) was between Rs. 3.52 crores and Rs. 3.74 crores, while for Dabhol, the cost per MW was Rs. 4.19 crores. Of the three coal-based projects, the cost per MW of Vishakhpatnam project at Rs. 5.82 crores is considerably higher than the Ib Valley at Rs. 4.82 crores and Mangalore project at Rs. 5.08 crores. BHEL in this connection has pointed out that turnkey costs in respect of projects with BHEL equipment could cost only around Rs. 3.6 crores to 4.3 crores per MW after making suitable adjustments for development cost, inflation and interest during construction. The cost per MW of private projects in general and Dabhol andVishakhpatnam in particular appear to be much higher than that indicated by BHEL. The Committee feels that the guaranteed rate of return are tempting the investors to inflate their costs to ensure better returns. According to experts, lack of competitive bidding has led to significant padding in the investment costs. The Committee desires that the Government should ensure that cost of private power projects should be so determined as it conforms to the simple tariff structure recommended in the preceding paragraph. Efforts should also be made to dispel doubts with regard to reasonableness of the cost of private power projects.

10. Power Purchase Agreement (PPA) is basically a commercial contractual agreement between the SEB [State Electricity Board] and the generating company. The PPA allocates the risks associated with a power project, including fuel prices and other operating costs, financing costs, construction costs and various performance parameters. The Committee feels that it will be useful if a measure of uniformity could be achieved on the factors common to PPAs. The scrutiny of PPAs should be made a part of techno-economic appraisal by the Central Electricity Authority. The Committee desires that instructions in this regard should be issued early.

11. The confidentiality of Power Purchase Agreement and Fuel Purchase Agreements (FPAs) have sparked intense debate in the media and in various other forums and there is widespread perception of biased contracts. It is observed that a confidentiality clause has been inserted in the PPAs for Dabhol Power Company and some others. Such lack of transparency is regrettable, as it precludes public scrutiny and gives rise to avoidable misgivings. The Committee, therefore, desires that the Government should issue guidelines requiring SEBs/State Governments to make all the PPAs and FPAs public documents with the exception of any confidential data contained therein.