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Domestic lenders decide to help resolve DPC tangle

Domestic lenders of the Dabhol power project have decided to play an active role to try to resolve the legal battle over the power purchase agreement between the Maharashtra State Electricity Board and US energy major Enron-promoted Dabhol Power Company.

After the meeting held in Bombay to chalk out a strategy for resolving the dispute on Wednesday, Industrial Development Bank of India executive director R S Agarwal, who headed the meeting, said that the lenders' committee will discuss the issue with top state government and MSEB officials to understand their view points before leaving for Singapore to attend the domestic and foreign lenders meeting scheduled to be held on July 5 and July 6.

Agarwal added that MERC's ad interim order against the multinational, stopping it from activating the escrow account "had complicated matters."

The lenders' committee, comprising Industrial Development Bank of India, Industrial Financial Corporation of India, ICICI, and the State Bank of India, unanimously decided to take initiatives to stop the 'legal battle' between MSEB and DPC. They said that the legal battle is not a solution to the PPA dispute.

They said DPC was keen on finding a buyer for its 1,444 phase II, who could be a central or state power utility or a combination of both, as MSEB has declined to buy power from the same.

Meanwhile, DPC officials are open for discussion, if they get a firm commitment from MSEB for purchasing offtake of 90 per cent of the power from both phases, Agarwal said.

The DPC has already given an offer to the electricity board that they were ready to reduce the tariff by 10 per cent after the commencement of Phase-II generation, he said.

When asked what would be the lenders' strategy after meeting government and MSEB officials, he declined to comment on the subject and said that future course of action will be decided after the domestic and foreign lenders' meeting in Singapore.

The domestic lenders have an exposure to the tune of Rs 60 billion to the Dabhol project, with IDBI alone having an exposure of Rs 21.58 billion in the project and a guarantee for Rs 15.28 billion to the offshore lenders.

The project, which is around 90 per cent complete, has been funded with a debt of $2 billion. Of this, offshore lenders have contributed around $600 million and the remaining $1.4 billion by local institutions and banks.

Most of the foreign loans are guaranteed by the Indian lenders, who fear their books would take a hit if their offshore counterparts call in their loans. FI sources said "MSEB's decision not to take power could perhaps force the off-shore lenders to pressurise DPC management to issue the termination notice."

Foreign lenders of the project are meeting next week in Singapore to discuss the fate of their loans.

The main lenders to the project are IDBI, ICICI, State Bank of India, Industrial Finance Corporation of India and Canara Bank.

The lenders are also discussing Tuesday's decision by the Maharashtra State Electricity Board to stop power purchases from the Dabhol unit.

"This has complicated matters. We will have to discuss it in detail," said a senior banker who is attending the meeting.

Bumpy ride

The project, which was slated to supply electricity to the western state of Maharashtra, is threatened by the rift over power tariffs between Dabhol Power Company and the local utility.

Dabhol is angry that MSEB has defaulted on payments of $48 million while the state utility has charged the company with producing power at a high cost.

Dabhol, owned 65 per cent by Houston-based energy giant Enron Corp, has issued a notice to cancel the contract to sell power. It also filed for arbitration in London and has demanded that the government find a buyer for the project's second phase.

High tariffs will drop some time this year once the entire project shifts to using cheaper natural gas, Dabhol said.

The first phase of the project is operational and produces 740 MW of power. A second phase was scheduled to add 1,444 MW later this year.

Talks between Dabhol and a state government panel to resolve the dispute over high tariffs ended without progress on Tuesday. The two sides agreed to meet again but no date has been fixed.

The chairman of the state utility later told reporters it had stopped buying power from Dabhol effective noon on Tuesday.

The decision by MSEB, the sole buyer of Dabhol's power, casts uncertainty over the construction of the power plant.

UNI, PTI and Reuters

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