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Enron's lenders to discuss $2.9 bn DPC project

Lenders to the Dabhol Power Corp, that is majority-owned by troubled Enron Corp, will meet in Singapore with the US energy giant to discuss the $2.9 billion project, a banking source said on Monday.

Houston-based Enron is seeking to head off a credit crunch and restore investor confidence, damaged after its credit rating was cut and US authorities began investigating its financial transactions.

The meeting in Singapore this weekend will examine offers that two Indian companies have put forward to buy Enron's 65 per cent stake in Dabhol Power Company, which is building the controversial project, the banking source told Reuters.

"The meeting will gauge the interest of the two bidders," the source said.

Enron has been in talks with Tata Power, India's largest private electricity firm, and BSES Ltd about selling the stake, a deal in the works well before the recent crisis of confidence.

BSES and Tata Power officials were not immediately available for comment.

Enron's assets in Dabhol are estimated to be worth $870 million, analysts said.

WHO BLINKS FIRST

"It is a matter of who blinks first," said one banker familiar with the negotiations. "But given Enron's recent troubles, we expect them to sell at a substantial discount."

Sources at the lending banks told Reuters Enron was willing to sell its holding in Dabhol Power at a 10 to 15 per cent discount.

An Enron spokesman said he was unable to comment.

But in August, Houston-based Enron said it and its foreign partners were ready to sell their stakes in Dabhol for no less than $1.0 billion, an amount said to be sufficient to cover their costs and direct financial investment in the project.

Enron's deteriorating position, including a drop of almost 70 per cent in its share price in less than a month, has close watchers of the company saying it will probably have to break itself up if it is to stay independent.

Analysts say that while Enron had lined up $1 billion in credit last Thursday, it may have to sell power plants, pipelines and some of its energy trading assets. The company could also be the object of a takeover bid.

BITTER DISPUTE

The first phase of the controversial 2,184 MW Dabhol Power Plant, India's largest foreign direct investment, has been completed. But work on the second phase was abruptly stopped in June following a bitter dispute between Enron and the plant's sole buyer, Maharashtra State Electricity Board.

The meeting in Singapore will take place a few days before the expiry of Enron's six-month notice to the utility expressing its intention to terminate the power purchase agreement.

This contract governs the terms of the sale of power by Dabhol to the state-run Maharashtra State Electricity Board, the nearly bankrupt power distribution monopoly in the state where the plant is located.

After November 19, Enron will be entitled -- under the terms of the contract -- to submit the dispute to binding arbitration by the International Court of Arbitration in London.

US conglomerate General Electric and construction firm Bechtel Corp each own 10 per cent in the project, with the remaining 15 per cent held by MSEB.

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