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Enron lenders meet in Singapore on Tuesday

Lenders to Enron Corp's troubled Dabhol Power Company begin a two-day meeting in Singapore on Tuesday to try and settle differences over continued support to a controversial $2.9-billion power project in India.

Representatives of some of the world's largest banks like Citibank, ABN Amro, and Bank of America, will be at the meeting. Indian lenders like the Industrial Development Bank of India, State Bank of India and ICICI will also participate.

Market analysts speculate that the meeting will attempt to forge a joint stand on supporting the project which now produces 740 MW of power and is slated to increase it to 2,184 MW shortly in its second phase.

But it comes against a backdrop of rising tension between Dabhol and the Indian state utility, the Maharashtra State Electricity Board, which is the sole buyer of Dabhol's electricity.

Indian lenders, who have lent the bulk of the funds to the plant, want to continue supporting the project.

But they are being opposed by offshore lenders who want to withdraw their loans. Loans of around $638 million of the offshore lenders are covered by guarantees provided by Indian institutions.

The Indian lenders, fearing for their profitability if the foreign banks pull the plug, plan to oppose any such move.

But they have been forced on the backfoot by MSEB's decision last week to stop buying power from Dabhol and terminate its 1995 contract with the company under which it agreed to lift the entire output.

The MSEB has complained that Dabhol produces costly power while Dabhol has blamed MSEB for defaulting on payments worth $48 million.

Last month, Dabhol issued a preliminary notice to terminate its contract to sell power. It has also filed for arbitration in London. This provoked MSEB to haul Dabhol before a local regulatory body, the Maharashtra State Electricity Regulatory Commission, which issued a temporary order staying the arbitration proceedings.

The dispute has already affected India's image among foreign investors.

Last week, global rating agency Moody's expressed concern over slippage in the Indian government's reform programme and cited the Enron's dispute as an example that the country may be losing credibility with foreign investors.

"The dispute indicates that India's government may not be willing to live up to its contractual obligations. As a consequence, this would further deter foreign direct investment from coming into the country," Moody's said.

Union Power Minister Suresh Prabhu tried to dispel those fears in an interview on Sunday.

"India is always in favour of making sure that international contracts are respected," he said. "There is no need for concern."

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