The Hindu : National : Dabhol: Centre to stand guarantee

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Saturday, Apr 09, 2005

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Dabhol: Centre to stand guarantee

By Our Special Correspondent

NEW DELHI, APRIL 8. The Government has decided to stand guarantee for domestic financial institutions (DFIs) to help settle the foreign debts of the Dabhol power project as part of the ongoing exercise to resolve the payment imbroglio and resume power generation.

Briefing newspersons after a meeting of the Cabinet Committee on Economic Affairs (CCEA) today, the Defence Minister and Chairman of the Group of Ministers (GoM) on Dabhol, Pranab Mukherjee, said: "We are negotiating with all parties concerned for settling the issue amicably. This, it is hoped, will help them [all stakeholders] to settle these issues early."

The project, developed by Enron, was set up in two phases of 740 MW initially, based on naphtha and later LNG, while the second phase was LNG-based for a capacity of 1,444 MW. Under a power purchase agreement (PPA) with the Dabhol Power Company (DPC), the Maharashtra State Electricity Board (MSEB) was under obligation to buy or, in any case, pay for 90 per cent of the Dabhol power.

The State Government guaranteed the payments by the MSEB while the first phase was counter-guaranteed by the Centre as a "showcase" foreign investment project.

Owing to a dispute over pricing, the MSEB stopped buying power from the DPC, leading to a major dispute between the two parties while the plant was mothballed. For more than three years now, the Dabhol plant has been lying idle. The domestic FIs, having an exposure of over Rs. 6,000 crores, have been making efforts to restart the plant in association with GE and Bechtel, majority partners, as Enron is under liquidation in the U.S.

GE and Bechtel have bought 49 per cent of the shares of a "shell" company and, with an option of purchasing the balance 51 per cent also, the two partners have a direct holding of 59 per cent and effectively control 85 per cent of the Dabhol project. The purchase agreement is under judicial scrutiny and the Bombay High Court recently held it as against the terms of the DPC agreement.

To settle the issue, the UPA Government set up an GoM, which has asked public sector enterprises (PSEs) such as NTPC and GAIL to help in restarting the power plant. The GoM also asked the domestic lenders to buy the offshore debts. A special purpose vehicle (SPV) is to be set up by the PSEs and the lead lender, IDBI. The GoM has given its `in principle' nod for this.

IDBI along with ICICI Bank, State Bank of India, Canara Bank and some others have an exposure of over Rs. 6,000 crores in the power project. Offshore lenders, such as OPIC and a host of foreign banks, have an estimated exposure of over $140 million in loans. While Enron has gone bankrupt, GE and Bechtel are looking forward to complete the project and were open to selling their stakes in the company.

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