11 Mar 2002 – UK oil giant BP plc on Friday joined seven other groups in expressing interest in acquiring Enron and other US investor’s stakes in the beleaguered Dabhol power project in Maharashtra state, India.
The $2.9bn gas fired plant has been idle since June and Enron’s 65 per cent interest is currently being auctioned off with the Industrial Development bank of India overseeing the sale, as the project’s lead creditor.
BP missed the official filing date for “expressions of interest” , which was February 7. It is not immediately clear whether its proposal will be accepted, although the late notification is unlikely to hinder BP’s participation.
“BP has officially communicated its expression of interest in participating in the due diligence process of the Dabhol Power Company (DPC) on Thursday,” a statement from the firm said.
BP sees the 2184 MW plant and associated LNG terminal as potentially playing a key part in its future gas business in the region. BP said, “We believe the asset is a key piece of infrastructure for the future development of the gas business in India.” The company’s involvement in the Indian gas business has been limited to feasibility studies on importing liquefied natural gas from Iran.
Dabhol was Enron’s largest investment in Asia and was India’s biggest overseas investment. The plant is still only 95 per cent complete and ceased operation after sole customer, the Maharashtra State Electricity Board, fell $240m behind in payments and refused to draw further power at what it regarded as uncompetitive prices.
The 740 MW first phase of the power project began operating in May 1999 but phase two remains incomplete. General Electric and Bechtel each own 10 per cent of the Dabhol Power Company – the company set up to build and operate the plant. The remainder is held by the Maharashtra State Electricity Board.
IDBI invited bids for the 85 per cent foreign shareholding in Dabhol on January 30, a few months after Enron and the other foreign shareholders said they wanted to leave the project.
More than 20 lenders, including both Indian and foreign banks, have nearly $1.9 billion in outstanding loans to the project.
But the due diligence process, which was to have started in the third week of February, has been delayed following disagreements between Enron and its lenders over the destination of the sale proceeds.
A lenders’ committee has also been working on a package to bring down the cost of power produced at the plant by renegotiating the loan terms.
The foreign bidders in the race for the plant’s foreign shareholding are Royal Dutch/Shell , French utility Gaz de France and British Gas.
The Indian bidders include India’s largest petrochemicals company Reliance Industries , private power utilities BSES Ltd and Tata Power Company , and state-run Gas Authority of India Ltd , the country’s largest natural gas distributor.
Enron, GE and Bechtel, have demanded an upfront payment of $500m for the sale of their equity before agreeing to cooperate in the due diligence process. Currently, the offshore sponsors are negotiating with the Indian and foreign lenders on three counts, including the upfront payment, recovery of risk insurance cover of $200m each, and their right over DPC’s billions in unpaid bills to the Maharashtra State Electricity Board.
“Enron’s demands have posed a problem for us. We cannot just agree to whatever they ask. However, we are inching towards a solution which will be acceptable to all parties,” financial analysts said.
Sources said both Indian and foreign lenders are trying to make the sponsors understand that unless they do not cooperate with the sale process by assisting the due diligence process, none of their demands could be considered.