- The Washington Times - Wednesday, January 8, 2003

CALCUTTA, India, Jan. 8 (UPI) — The travails of the bankrupt Dabhol Power Corporation, Enron's $2.87 billion Indian power project, took a new twist recently.

The project has been lying closed since June and since then it has been Indian interests that were creating trouble for DPC. However, it now appears that foreign lenders are posing barriers to India's efforts to restarting DPC.

Faced with the possibility of taking a $272 million hit, foreign lenders to DPC are opposing the domestic lenders' plan to restart the 658-megawatt first phase of the power project.

The leading Indian financial institutional lender, Industrial Development Bank of India, which along with other Indian lenders has more than $1 billion exposure to DPC, has been trying desperately to restart the power plant. But, foreign lenders comprising Citibank, Bank of America, ANZ Bank, Credit Suisse First Boston and ABN-Amro, which have a total of $372 million in exposure to the whole project, insist that a comprehensive solution, which will cover their $272-million exposure to the 1,444-megawatt second phase as well, must be crafted first, before the first phase is restarted. According to the current deal, they are covered only to the extent of $100 million for the first phase.

"The offshore lenders to DPC have written to the federal government communicating their opposition to restart the first phase of the project without a solution to the project as a whole," said a disgruntled officer of the DPC project at IDBI. "They have also voiced their opposition in various meetings with the domestic lenders," he said adding that the move by foreign lenders has resulted in the IDBI-scripted revival plan going into limbo.

The Indian banks planned to restart the plant before March 2003 and sell the first phase's entire power output to the state-owned utility company, the Maharashtra State Electricity Board. They also planned to hive off the phase 1 plant to an independent buyer after it reaches its optimum level of operation.

Foreign lenders' stand is crucial because they have a veto, and can stall the domestic institutions' plan to restart the phase with the help of the state-owned National Thermal Power Corporation.

According to officials, the inter-creditors' agreement crafted recently, clearly specifies that the project cannot be restarted without the agreement of all the lenders. And, initially all lenders were in agreement for a first-phase restart.

But subsequently, foreign lenders started fearing that once the first phase is restarted and a possible buyer for DPC is found, the second phase, which is yet to commence operations, will take a back seat.

The domestic lenders have been trying to restart DPC for the last 18 months. For them restart is crucial because they not only have more than $1 billion at stake but also fear that unless the plant restarts operations soon, it will turn into junk.

Reportedly, foreign lenders are also apprehensive about their first-phase exposure, which has been given a counter-guarantee by the Indian government.

"The Indian government has said unless DPC thrashes out a power purchase agreement with MSEB (and MSEB is unwilling to enter into an agreement unless the plant is started), they will not honor the counter-guarantee," officials in the lenders' consortium added.

Meanwhile, posing yet another hurdle, the latest directors' report of MSEB has said that the company saved as much as 25 percent on power purchases after it stopped buying power from DPC since June last year.

DPC operations came to a halt last year solely because of a dispute with MSEB, its sole buyer, which felt that DPC was charging excessively. The latest MSEB report said that the company's power purchase costs reduced to $293 million in financial year 2001-02 compared to a total power purchase cost of $1.14 billion in the previous financial year (the year in which MSEB was buying all of DPC's output.)

"With so much saving as revealed by the accounts, how would the board be able to justify power from the Dabhol project once it is restarted?" the report said.

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