Reports in the local press and from the Reuters news agency suggest that US power group Enron is in preliminary discussions with Tata Power Company, India’s largest private utility, over the sale of its interest in the troubled $2.9m Dabhol power plant.
Speaking to Reuters on Monday, Tata’s managing director, Adi Engineer said, “Everyone knows some solution has to be found for Dabhol, and we have submitted a preliminary letter of interest.” He said Tata would go ahead only if it made sense for both consumers and shareholders.
The Economic Times daily reported at the weekend that Tata Power, a unit of India’s second-largest conglomerate, would start final negotiations with Enron after the consultants it had appointed to value the project submit their report.
It said JM Financial and Ernst & Young had been appointed to carry out a due diligence exercise, a process in which a firm’s financial records and operations are inspected.
The paper quoted Engineer as saying his company would “demand Enron scale down the (selling) price” to make it viable to buy the stake.
The Financial Express said in an unsourced report on Saturday that Tata Power and Enron were close to an agreement on the stake deal.
A separate report in the local press revealed proposals emanating from the independent panel established to resolve the impasse which has arisen between Enron, the 65 per cent owners of Dabhol Power Company, and the local utility, which has contracted to take all the electricity generated by the plant. The Indian panel suggested that the federal government would be willing to spend 57m rupees ($1.19bn) to help resurrect the project – Indians largest foreign investment.
The plant stopped producing power three months ago and work has ceased on the planned second stage, which would have increased the capacity of the gas-fired plant to 2184 MW
Enron wish to exit the project and has given notice to withdraw as well as seeking to claim on guarantees given by the Indian government intended to protect its investment.
The panel is reported to have proposed a detailed solution in which all stakeholders absorb a proportion of the loss.
According to the panel’s report, the federal government’s liability of 56.63bn rupees included an infusion of 25bn rupees in cash, waiving of customs duties on the import of LNG and cutting import duties on capital goods. The panel suggests that Enron, along with co-owners GE and Bechtel, together absorb a loss of 28.35bn rupees on their investment in the project.