While Enron digests the implications of its recently announced takeover by fellow US energy group Dynegy, a potential solution to its headache over the Indian Dabhol power plant emerged with Indian groups TATA Power and BSES seeking clearance to carry out preliminary assessment of the 2184 MW plant.
At a meeting of the financial institutions who have backed the project, BSES indicated that it had put forward a number of proposals under which a possible buyout of the Dabhol Power Company (DPC) could be considered by creditors and the Enron Group. It is reported that the two Indian utilities have offered about half the $1.2bn demanded by Enron for its stake.
Both TATA Power and BSES are understood to want all DPC contracts, including long-term fuel and construction contracts, to be renegotiated before they would take over the plant.
Any arrangement to assume ownership of Dabhol would also be dependent upon the settlement of legal battles including that with the Maharashtra State Electricity Board (MSEB). The DPC, in which Enron has a 65 per cent stake, has already served notice to quit the project but on Friday an Indian court stopped it from pulling out of its beleaguered $2.9bn power project until December 3.
The Bombay high court, which on Friday heard a petition against the DPC by Indian lenders to the project, prevented the company from issuing a final notice to terminate its contract with the MSEB, a DPC official said.
The decision will be a setback to Enron along with General Electric Co and Bechtel Corp each of who own 10 per cent. The US energy giant’s attempts to exit the project by either selling its stake or terminating the contract has become more urgent in the face of its financial troubles at home.
The first phase of Enron’s controversial Indian project has been completed, but work on the second phase was abruptly stopped in June following a bitter dispute between Enron and the local utility, the plant’s sole buyer.
The cash-strapped Indian utility had in 1995 contracted to buy all the power from the plant on the western coast of India, the country’s largest foreign direct investment. The MSEB subsequently found the power too costly and refused to take any more electricity.
While the DPC has said it would prefer to resolve its dispute with the MSEB amicably, it felt the discussions with the power plant’s Indian lenders and the government were not progressing.
In that case, it may be forced to terminate the contract, and file for damages in the International Court of Arbitration in London.
But the Bombay high court has said it will hear the case again on December 3.
The case against Dabhol was filed by Indian lenders, led by the country’s largest term lender, the Industrial Development Bank of India, as they want to salvage their loans to the power project.
They fear that if Enron is unable to sell its stake and terminates its contract with the utility, it could end up defaulting on its loans.
The dispute between Dabhol and the Indian utility came to a head in June, when Enron decided it would stop work on the second phase of the project even though it was almost complete, after the Board defaulted on payments.
Dabhol served a preliminary notice in May to terminate the project and can serve a final notice if a six-month cooling-off period fails to produce a solution. That six month deadline ends on November 19.