From: sandeep.kohli@enron.com
Date: 2001-01-15 01:22:00+00:00
Subject: Points for Singh Meet

Vince,

Please find below a note I had prepared for Wade Cline who is meeting with a 
representative of the Prime Minister's office tomorrow.

I think you may find these points useful.

Additionally, I am attaching a copy of a small presentation I made, Saturday 
in Mumbai on roadblocks in the power sector with special reference to wat 
needs to be done to start Trading (& its benefits).

I have been working with the Henwood team that arrived today, and I think a 
good part of the data is now in place.  I will be arranging meeting with some 
officicals from the transmission side and gather any additional data there 
too.

Krishan got in last night (I conveyed your best wishes to him).  We will 
hopefully have a useful day with Henwood folks tomorrow.  I look forward to 
being in Houston, possibly by the end of the coming week.

Hope you and the team are doing well!!

Regards,
Sandeep.

---------------------- Forwarded by Sandeep Kohli/ENRON_DEVELOPMENT on 
01/15/2001 01:17 AM ---------------------------


Sandeep Kohli
01/15/2001 01:17 AM
To: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  
Subject: Points for Singh Meet

Wade,

Please find below a brief note on what I feel your tack should be with 
N.K.Singh (who is supposed to be a hard negotiator).  I am assuming here that 
this will be more of an introductory meeting where both sides are feeling out 
the other.  The two meetings I had arranged over the weekend, would 
hopefully, have given you a better idea of the thinking of at least these two 
people o the issue.

Incidentally, in the Indian system, the Governor of any state is a Central 
government nominee.  He is the eyes and ears of the Central govt. in the 
state.  Please see Basak's meeting in that light.  The message he takes will 
likely go directly to the PMO in Delhi.  I will therefore be working closely 
to convey the right impression.

For N.K.Singh clearly there are three things you would try to convey:
A description of the problem, 
Some of the resultant consequences if it is not solved soon enough, and
Conveying the fact that there are win-win solutions well within the GoI's 
power to implement, that would in fact enhance his reputation and the 
country's as one that lives up to its reputation

I would be careful to make the point that we are NOT going to give up any 
value, but are willing to be accomodative to MSEB, GoM, and GoI needs, either 
through financial re-engineering, or through getting direct access to the 
market in some areas.  This will also fly well with Enron management that is 
more comfortable with market risks than political.

Describing the Problem

DPC has a PPA, backed by GoI & GoM guarantees for one of the most high 
profile projects in the world 
(World's largest gas fired power plant, India's first LNG terminal, gateway 
to providing clean reliable energy for all of western India, development of 
Konkan)
With coming of Phase II (due end-2001) cost of power from Dabhol will be more 
competitive than any other liquid fuel fired plant 
(low heat rates, larger turbines, spreading of infrastructure costs over a 
larger base, use of LNG as fuel)
(Our average tariff at 90% despatch is Rs. 4.02/kWh for Phase I.  This goes 
down to Rs. 3.30 - 3.70/kWh with coming in of Phase II.  Compare this with 
NTPC's own Kayamkulam plant having a tariff of Rs.3.32 - 4.01for same range 
of crude prices ($21-28/barrel).  Hence DPC power is competitive, our 
standards of performance are higher, penalties for non-performance are 
greater, and as a private player, our place in the waterfall seems to be 
lower (quote the fact that while we have been delayed in payment by 45-60 
days, MSEB has made all of its other payment commitments).
However, monthly outflows could be as much as Rs. 450 Cr./month; MSEB's 
monthy collections not improving - are in the range of Rs. 900 Cr./month 
 MSEB, and GoM clearly do not have the resources, in the short run (3-5 yrs.) 
to meet these obligations; hence Central intervention is needed.
In a grid of 13000 MW (Maharashtra grid size), absorbing an additional 1440 
MW (Phase II) at one go is difficult; however if we take Western Region, grid 
size is 42000 MW.  Clearly absorbing all the power in that framework is much 
easier.  
To this if we add Northern and Southern grids, we can probably evacuate out 
another 500-700 MW through the interconnects.  Hence, there is definitely 
value in looking at this issue at a national level.
Additionally, it is not just solvable at that level, but actually answers to 
the crying need for power in the country, and hence is a boon for the govt., 
and should be treated as such.

Consequences of Not Solving the Problem
We can call upon the sovereign guarantee, which will cover our partial 
payments.  However, this would almost definitely lead to a deterioration of 
the country's credit rating - put back incoming investments into the 
Petroleum sector (where private participation program is about to be unveiled 
in 25 O&G blocks), telecom sector (where a new policy has been announced 
months ago, and where foreign companies are looking favorably at investing).
It is likely to put India on the backlist of many international banks, 
including export credit agencies of US, Japan, and Belgium (an EEC member).
It would bring to the knees many prominent Indian banks (Indian lenders to 
the project include IDBI, ICICI, SBI, to metion just a few)
Would completely stop any new investment into the power sector, where there 
is urgent need for funding (especially te new initiatives in transmission)
There is a timeline for solving this, since our project is coming before 
year-end 2001, and hence we cannot wait for the slow pace of reform to take 
place at the SEB and state level. 

Win-Win Solutions Exist
Northern region is power starved, south needs power badly.  Hence it is a 
boon to have this power made available in the timeframe.  With Central govt. 
intevention, it is possible to solve th problem to everyone's mutual benefit.
1440 MW (incremental Phase II) is only 3.4% of the capacity existing in the 
Western Region, and can be easily absorbed.
Win-Win Solutions exist by:
Restructuring some of the guarantees
Adding some central govt entity (including those from the petroleum sector - 
IOC or GAIL, interested due to LNG trml.) to the equity mix at par
Back-ending tariff and other financial re-engineering solutions that could 
involve Indian banks taking a greater share of the debt. et. etc.

Bottom Line: 
Time is of essence; we need to get someone to negotiate with.  Please use 
your good offices to quickly form a representative group that includes 
Central, State govt., and SEB representatives so that we can work on the 
solution.
Without active participation from PM's office, we are likely to waste 
precious time bouncing between the SEB, GoM, and various Ministries of GoI.

Hope this helps.

Regards,
Sandeep.