8 April 2002 – Indian commercial bank creditors are likely to seize control of Enron’s $2.9bn Dabhol project in India this week following the resignation April 3 of representatives of Enron and its two US partners, General Electric Co. of Fairfield, Conn., and San Francisco-based construction group Bechtel Corp. from the board of directors of Dabhol Power Co.
The resignations were sparked by Enron’s refusal to sign a “sponsors co-operation” agreement between the plant’s owners and creditors. GE and Bechtel had agreed to sign the pact, sources said, but not without Enron, in order to preserve some control over the stalled power project 150 miles south of Mumbai.
The Indian and foreign lenders headed by lead-lender Industrial Development Bank of India Ltd (IDBI) are expected to set out plans to seize the assets making up the 2184 MW power plant and may conduct a direct sale instead of proceeding with the sale of the 85 per cent foreign equity, for which expressions of interest have been lodged.
P. P. Vora, chairman and managing director of IDBI, said all lenders to the Dabhol project will meet April 8 and April 9 to discuss various options before them. “There are more than 30 banks and financial institutions involved in this imbroglio,” he said. “The Bombay high court receiver has taken over DPC assets, and a decision on the seizure of these assets will be taken at the lenders’ meeting.”
“As of now the court has sealed the plant and taken control of the assets. In our two-day meeting starting Monday, the lenders will take a decision on enforcing their security and the consequent seizure of DPC assets”, a senior financial institution official said Sunday.
As a logical fallout, he said IDBI]-led consortium of Indian lenders, which have exposure of over Rs 62bn ($1.27bn) in the project, will make a call over the company and its assets by taking over its reigns from the hands of M A Patel, the Mumbai High Court receiver.
“The lenders will also discuss a possible DPC’s asset sale, as after taking over, it is us who own the property and not Enron, GE and Bechtel. If this happens, then IDBI may nullify the earlier expressions of interest for sale of DPC’s foreign equity and invite fresh EOIs for asset sale”, the official said.
The Dabhol power project, the largest LNG-fired plant in the world, has been controversial from its inception in the early 1990s. The 740 MW first phase started operating in May 1999. The 1444 MW second phase was nearly complete when construction was halted because its sole customer, the nearly bankrupt state electricity board, fell $240m behind in payments for electricity drawn from the plant.
Enron’s refusal to sign the “sponsor co-operation” agreement stems from concern that it will not get a fair deal from the creditors. India’s Business Standard daily newspaper quoted John Ambler, Enron vice president for international relations, as saying: “For some time, it has been clear to Enron that Indian financial institutions would attempt to seize all of our substantial equity value in the Dabhol project, leaving Enron and its stake holders without an opportunity to recover any of our very substantial investment.”