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Enron's Dabhol says needs cash to pay lenders

US energy firm Enron Corp's Dabhol Power Co said on Monday it has sought urgent funding from its foreign lenders to repay interest on past loans and preserve a $2.9 billion power plant that is lying idle.

Dabhol, which is 65 per cent owned by Houston-based Enron, said monthly interest payments to its lenders have to be made in September but it does not have enough cash.

It has about 25 foreign lenders, which include ABN AMRO, Citibank, US Exim and Bank of America.

"The company has funds in its account to make certain payments and anticipates that some of those will be made. It has requested disbursement from banks towards the rest," the spokesman said.

He did not disclose details of the interest payments nor the cash it wants. The project has been funded 70 per cent by debt.

Dabhol has not been earning any income after its sole customer, the Maharashtra State Electricity Board, in May stopped buying any more power from its plant citing high tariffs.

MSEB was buying the entire output from the plant's first phase of 740 MW and had committed to buy the second phase output of 1,444 MW when it was ready.

Following the cancellation, foreign and local lenders stopped disbursals of around $400 million forcing complete stoppage of work on the second phase.

They have also declined to provide funds to preserve expensive equipment from being damaged by natural elements.

"Without funds for preserving the facility, the physical assets will begin to deteriorate almost immediately, which in turn will further add to the overall cost of completion," the spokesman added.

Dabhol now wants at least a portion of this $400 million amount disbursed to help it meet its interest payments and take care of the plant.

The development is likely to put further pressure on India's federal government to solve the contentious dispute which has affected the country's efforts to attract foreign investment in the power sector.

Three foreign power companies have already pulled out, including French giant Electricite de France. Analysts believe that a quick solution to the problem is key to restoring investor confidence.

UGLY SPAT

Once considered the showpiece of India's liberalisation programme, the Dabhol project is now being dubbed an example of political and bureaucratic bungling.

Enron has announced its decision to sell its equity in the project to the federal government or any other company. It says MSEB is yet to pay bills worth $185 million.

On Monday, Dabhol further upped the ante by slapping MSEB with two preliminary notices of termination. One is for not paying bills for the months of June and July and the other for MSEB's decision in May to cancel the power purchase agreement, the contract that governs the state board's purchase of power from Dabhol.

This is the third such notice from Dabhol. In May, it served the first notice for non-payment of bills for December and January.

The two fresh notices are a body blow for MSEB, analysts said as it means the state utility could end up fighting three separate arbitration battles.

According to the power purchase agreement, all disputes will have to be settled by the International Court of Arbitration in London.

As per this agreement, serving preliminary notice is followed by a six-month cooling off period.

If the dispute is not settled by then, Dabhol can issue a final notice and the dispute automatically goes for arbitration.

The six-month period for the first notice, which was issued in May, ends in November. If there is no settlement by then, MSEB will have to answer Dabhol's charges of non-payment of bills for December and January. The same procedure will be followed in the case of the other two notices.

But efforts to solve the issue so far through arbitration have been delayed by domestic litigation. MSEB wants the dispute to be heard by local courts, while Dabhol is pressing for arbitration in London.

The Bombay high court, which began hearing this dispute on Monday, is expected to give a final verdict soon.

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