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DPC, lenders to meet in UK this week

Enron Corp's troubled Indian unit and its foreign lenders will hold separate meetings this week to decide the fate of a power project once considered the showpiece of India's reform programme, a banking source said on Tuesday.

The meetings, to be held in London on Friday and Saturday, will consider proposals to allow the Dabhol Power Company, which is 65 per cent owned by Enron, to pull the plug on a contract to sell power from a giant power project, he said.

The $2.9 billion, 2,184 MW project, which is India's largest foreign direct investment, has been shut since June this year following a dispute with its sole buyer the Maharashtra State Electricity Board.

The departure of Enron and its partners would be another blow to attempts to attract foreign investment into the domestic power sector.

Five foreign companies have either pulled out or announced plans to exit the sector, fed up with bureaucratic delays and legal wrangling over the past few years.

At the same time, parent Enron Corp of the United States is struggling to ward off bankruptcy and save its proposed buyout by smaller rival Dynegy Inc.

Its share price has already taken a beating this year over widespread investor doubts about its corporate governance practices. Enron shares closed down 73 cents, or 15.4 per cent, at $4.01 on the New York Stock Exchange on Monday, after dipping to at least an 18-year-low of $3.76.

A Dabhol spokesman in Bombay confirmed that the Dabhol board is meeting on November 30 in London. But he declined to disclose the agenda.

The banking source said the Dabhol board will consider giving the management authorisation to issue a final termination notice to the MSEB.

Foreign lenders, led by Citibank and Bank of America, are meeting in London on the same day and will also consider giving Dabhol permission to issue such a notice.

Under a 1995 agreement between Dabhol and MSEB in 1995, the company needs lenders' permission before issuing a terminating notice.

Once issued, the notice would trigger international arbitration to resolve arguments over damages.

MEGA PROJECT

Dabhol and MSEB have been feuding for more than a year over payment defaults and high tariffs. The dispute stopped work on the second phase of the unit, which is 97 per cent complete.

Enron and its fellow US investors General Electric Co and Bechtel, fed up with payment defaults, have already announced their intentions to exit the project.

They have agreed to sell their stake of 85 per cent to either the Indian government or a private power company. At the same time, they have also proceeded with plans to cancel the contract.

A preliminary cancellation notice was issued in May this year. This was to be followed up by a final termination notice after six months. That six-month deadline expired on November 19.

But Dabhol was prevented from taking the final step by a Bombay court. Acting on an urgent petition by Indian lenders, who were against the termination, the court asked Dabhol not to issue such a notice until December 3.

The banking source said Dabhol is only trying to secure all approvals and would not actually issue the notice on November 30.

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