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April 26, 2001
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Money > Reuters > Report April 26, 2001 |
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Enron moves towards ending Dabhol dealThe board of Enron Corporation's troubled Dabhol Power Company on Wednesday took what could be the first step toward ending a contentious power deal when it authorised its management to break off electricity sales to Maharashtra, a government official said. The directive did not immediately pull the plug on the deal, but could lead to that if the company -- 65 percent owned by US power giant Enron -- and the Maharashtra State Electricity Board cannot resolve their dispute over back bills. MSEB is Dabhol's primary customer and owes Rs 2.26 billion, but has complained that the $2.9-billion power project at Dabhol charges too much money. News reports have said that Enron, India's largest foreign investor through Dabhol, has threatened to pull out of the project, which is still only partially completed. Enron has not commented, except to say it expects to be paid. MSEB chairman Vinay Bansal said that Dabhol Power's board of directors made their decision at a meeting in London after discussing the ongoing payment problems with MSEB. "The board of Dabhol Power Company has authorised the managing director to issue a notice of termination on the contract to sell 740 megawatts of power in India," he said by telephone from London. "The MSEB presented their views to the board members and it was understood by Enron," Bansal said. A spokesman for Houston, Texas-based Enron was travelling and not immediately available for comment. The board's decision was the second recent move to ratchet up pressure on the MSEB. Earlier, the firm delivered notice of political force majeure to Maharashtra, a legal maneuver that allows a party to break a contract in case of wars or coups or events beyond its control. The current dispute is only the latest that has plagued the Dabhol project, which has been embroiled in controversy since the mid-1990s over allegations of corruption and high costs. Analysts have said the winding up of the project would be a blow to India's efforts to woo foreign investors after it opened its economy a decade ago. Bansal urged negotiations rather than a termination. "The Indian government's stand is that Enron should negotiate this issue. We have already formed a committee to discuss this problem and we would like Enron to discuss this issue with us," Bansal said. The natural gas-fired Dabhol project's first phase of 740 MW is in operation while the second phase of 1,444 MW is expected to be commissioned later this year. Govt working on resolving Enron crisis: Prabhu Union power minister Suresh Prabhu said on Wednesday the government wanted an amicable settlement of the bitter payment row between the Indian unit of US-based Enron Corp and a state power utility. At the same time, Suresh Prabhu said termination of the project would not hurt foreign investment. He dismissed warnings by analysts that winding up the $2.9 billion project would be a blow to India's efforts to woo foreign investors. "The government would react to the situation as it develops," he said. "We have no such worry that foreign direct investment will be adversely affected." Enron is the largest single foreign investor in India through Dabhol but the project has been embroiled in controversy since the mid-1990s over accusations of high costs and corruption. "The union government is actively looking at ways to resolve the issue and the Maharashtra government is setting up a panel, which will have a federal representative," Prabhu told reporters. Asked whether he was worried about the prospect of Enron terminating the project, Prabhu said: "There is life after death and there is power beyond Dabhol. It produces just 0.7 per cent of the total electricity generated." Power-hungry India to boost existing capacity India said on Wednesday it would shift its priorities in meeting the country's rising demand for electricity to improving the performance of state distributors from encouraging greenfield projects. India launched power reforms in early 1990s but little has been achieved as state electricity boards are nearly bankrupt with estimated combined losses of around 285 billion rupees for the current year, largely due to mismanagement and theft in power distribution. "In two years from now, SEBs have to break even on the current account at least," Union Power Minister Suresh Prabhu told reporters, adding that this could be achieved through privatisation and unbundling generation, transmission and distribution. Prabhu said the government had set up two expert panels to chart the way ahead which would report within three months. In March, the federal government set up a panel to work out ways for a one-off settlement of SEB dues to government-owned utilities in exchange for a reform programme with a deadline. "The first report is expected on April 30. The Union government along with multilateral agencies will look at restructuring of past dues on a case-to-case basis," Prabhu said. India's hunger for additional power is estimated at 100,000 megawatts in the next 12 years. The country's installed capacity was 96,950 MW on March 31, 2000. Greenfield projects and foreign direct investment in the power sector have been held hostage by bureaucratic delays, political bickering and the prospect of little or no commercial returns. Prabhu said the need now was to raise generation capacity through initiatives with existing capacity "on which the power ministry is working on a war footing". He said the national grid could increase its capacity if the grid of the north-eastern states of India were connected to the rest of the network allowing the transfer of excess capacity into the main grid. "Easily 20-30,000 MW can be evacuated over the next five years if the eastern grid is linked to the country," Prabhu said. Another 20,000 MW would come from additional capacity generated by the state-owned National Thermal Power Corporation after the one-off debt settlement "as it will leverage its higher revenues", Prabhu added. Lenders persuade DPC not to terminate PPA Business Standard adds: Global lenders have persuaded the Dabhol Power Company against terminating the power purchase agreement for its $3-billion power project in Maharashtra. "There is a consensus among the global lenders that the project must be completed and the proposal to terminate the PPA should be kept in abeyance for the time-being," an institutional source in London told Business Standard. The lenders had a two-day brain-storming session with the company on April 23-24. "Even though the sponsor was keen on pulling the plug, we told them that with close to 85 per cent of the project completed, it is not warranted at this stage. There should be discussions to avoid termination of the PPA. The primary objective at this point should be completion of the project," sources said. The lenders also explored ways for disbursement of funds for Phase II of the project. "Technically, in the event of a default, lenders can stop disbursements. However, we will try to ensure smooth completion of the project," the sources said. The global arrangers for DPC -ANZ Investment Bank, Credit Suisse First Boston, ABN-AMRO, Citibank and the State Bank of India-had separate meetings with the company. Meanwhile, Maharashtra Chief Minister Vilasrao Deshmukh had earlier said that the state government officials attending the DPC meeting in London would also advice the power major against terminating the PPA. "We will ask them to refrain from taking any harsh step as that would be bad for all of us, DPC included," Deshmukh had said. Deshmukh noted that "as far as we are concerned, the 1,444 mw of power that would become available after phase II of the DPC project is completed will not be affordable. Reopening of the PPA has become central to resolving the DPC imbroglio." YOU MAY ALSO WANT TO SEE:
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