August 30 2002 – The Enron energy empire may have gone dark, but not all of its projects will be abandoned.
One of those, the $3 billion Dabhol power project in India, is a top priority, the country’s new power minister said earlier this week.
The project has lain idle for more than 18 months, despite the more than $2 billion Indian lenders have invested in it, said Power Minister Anant Geete.
“We are discussing the matter with the state (Maharashtra) government and hope to see some solution in next two months,” Geete said.
Dabhol Power Co. has long been mired in controversy.
In July 1992, Enron signed an agreement with the Maharashtra State Electricity Board to set up in two phases a 2015 MW power station, about 100 miles south of Bombay, the state capital.
The first phase was the $1 billion, 740 MW plant, which was to be one of the government’s “fast track” projects.
The plant began generating power in May 1999 but only ran for a year. Its sole customer, the MSEB, stopped paying for the power it had purchased. Among other reasons, the board said that the plant was overcharging, at almost twice the prevailing rate for power.
All of DPC’s stake holders — the Indian government, its consortium of lenders, and Enron and its joint shareholders, General Electric and Bechtel – tried repeatedly to revive the project. But they could never resolve their conflicting goals, and as Enron collapsed, these efforts were abandoned.
According to Geete, his ministry is serious this time.
“I have the support of the Indian government,” he said, adding that if necessary, he would change the rules.
The government, meanwhile, in a special meeting in mid-August, proposed a raft of tax benefits to revive Dabhol. These include a total waiver of duties and exemption from other taxes — such as sales and excise — on naphtha, the plant’s primary fuel source.
The government also offered to cut the interest rates on DPC’s debt, some of which are as high 18 percent, to a more realistic 11.5 per cent.
Although closure of a 2015 MW power plant doesn’t make much of a dent in India’s vast power generation network, any revival of DPC would be significant for other reasons.
For one thing, DPC’s high-profile failure harmed the image of the country’s power industry. Rattled by India’s handling of the project, several multinational power ventures exited the country. These included AES Transpower, Powergen, Unocal, Daewoo Power, Electricite de France and Tractebel of Belgium.
Except for Tractebel, all left because of a dispute with the government or frustrations over the country’s power policies.
Experts hope that a revival of DPC would kick-start other “non-progressing” power projects, too.
“The government would like to extend support for all such private power projects, which were not making much progress due to small disputes, by way of discussions with the respective parties,” said Geete.
DPC’s revival would also be a relief to at least half-a-dozen Indian financial institutions, which have lent about $2 billion to the project.
Although the project was mothballed months ago, the banks have continued to classify these loans as performing normally. But they are now under pressure from the central bank, the Reserve Bank of India, to start treating the loans as “non-performing assets” — that is, bad debt.
“The lenders don’t want (their DPC loans) to be classified as non-performing assets,” said a spokesperson of the lead Indian lender, IDBI Ltd., which is facing financial trouble.
“Treating DPC as bad debt could drastically hit credit ratings of many lenders and thus add to their financial woes.”