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The DPC chronicle

Print edition : Feb 16, 2002 T+T-

"The Dabhol dispute feeds a chronic perception among the overseas community that India may not be ready for big-time international investment... It can spell death to potential investments in India."

- Robert D. Blackwill, U.S. Ambassador to India, at a meeting organised by the American Chamber of Commerce in India and the Indo-American Chamber of Commerce on January 28, 2002.

AMBASSADOR Blackwill's warning is not likely to worry India, considering the skeletons that are now emerging from Enron's closet. In fact, foreign direct investment (FDI) in India is not likely to be affected by Enron's shenanigans. The Dhabol Power Company (DPC) perhaps represented the largest single instance of FDI in India. It was clear that both the Indian government and the U.S. energy giant were equally responsible for the power project's problems. In fact, the dubious deal with Enron to buy power from the DPC plant in Ratnagiri in Maharashtra led to the bankruptcy of the once-profitable Maharashtra State Electricity Board (MSEB). The scandal in the U.S. involving Enron has also made Dabhol's Indian investors anxious.

While the DPC's parent company, Enron Corporation, is today practically non-existent, the power company in India is trying hard to keep its head above water. For over a year, the controversy-ridden, beleaguered 2,184 mega watt, $1-billion-power project has been fighting a protracted legal battle with the Government of Maharashtra over non-payment of dues. Moreover, it is so steeped in debt that the company could not even pay its security guards stationed at the plant. Following the closure of Enron's offices in Mumbai, only four people have been retained on the DPC's pay roll. For some time now, Enron's 65 per cent equity in the DPC has been up for sale. So is the 20 per cent equity that belongs to General Electric and Bechtel. Although Tata Power and BSES Ltd. showed interest in picking up a majority stake, it soon became clear that the tainted project had no takers. For a while, there seemed little hope for the Maharashtra government, for the lenders, and for the DPC.

However, in January there was a breakthrough. Indian financial lenders announced that they had drawn up a restructuring plan. Moreover, hearings in some of the crucial court cases and the verdicts are expected soon. Even the judicial probe that the Congress(I)-Nationalist Congress Party-led Democratic Front government had announced finally got off the ground. In fact, the number of bidders for a stake in the project has risen.

With an exposure of over Rs.6,000 crores to the power project, the Indian lenders are a jittery lot. Perhaps realising that it would go the Enron way if it did not act soon, the Industrial Development Bank of India (IDBI), a primary investor in DPC, announced on February 2 a multi-pronged strategy to restructure the project. The plan includes a reduction of interest rates, an increase in the tenure of loans and the conversion of foreign currency loans into rupee loans. Prior to this, the IDBI invited Expressions of Interest (EoI) from Indian and foreign corporates interested in acquiring 85 per cent of the DPC. An IDBI press release said that there were eight bidders in the fray and a confidentiality agreement had been signed by three of them. Meanwhile, the bidders have already begun the due diligence process to check the viability of the project. IDBI and other lenders hope that the DPC will be sold and the project will be back on track by mid-March.

After being stuck in a legal quagmire for about a year, the DPC and the Maharashtra government presented their closing arguments on the critical Maharashtra Electricity Regulatory Commission (MERC) jurisdiction case on February 7. Pradyumna Kaul, an activist with the Enron Virodhi Andolan, said: "It may take a week or even a month for the verdict, but at least the issue is getting resolved." The case traces its origins to the Power Purchase Agreement (PPA), which itself has a controversial history. According to the PPA, the MSEB is to pay the DPC a fixed monthly charge of Rs.90 crores irrespective of whether it buys power from the company or not. As a result of the clause, the MSEB ended up owing the DPC more than Rs.400 crores. The MSEB decided to stop the payments in October 2000, after accusing the DPC of defaulting. The MSEB alleged that in several instances the DPC did not provide power within the stipulated time as defined in the PPA. However, the DPC refuted the allegations and invoked the Central government's sovereign guarantee.

Although the Centre upheld its guarantee once, it refused to do so when the DPC invoked it again. The DPC, in turn, issued notices of political force majeure and later notices of arbitration and termination to the MSEB. In response, the MSEB cancelled the PPA, stopped purchasing power from the DPC and took the case to the MERC. However, the DPC said that it did not recognise the MERC as the quasi-judicial body was formed after the PPA was signed. The DPC challenged the MSEB in the Mumbai High Court on the issue of the MERC's jurisdiction and the case has dragged on ever since.

However, the legal problems of the DPC and Enron do not end with the case. Issues raised by about 10 public interest petitions are yet to be resolved. DPC spokesperson Jimmy Mogul told Frontline that the issues would have been settled earlier had the courts heard them. "We hope that by March-April all the matters will be settled," he said. Mogul says the plant is shut down and that unless the DPC is paid the power plant will not be operated.

Meanwhile, the appointment of a one-man commission to probe the controversial deal between Enron and the MSEB is significant. The commission, headed by Justice S.P. Kurdukar, a retired Judge, will investigate the circumstances in which the PPA was negotiated, cancelled and then renegotiated. Pradyumna Kaul told Frontline that "the commission's hearing and findings will cause ripples in the higher echelons of past governments and their leaders who were considered close to Enron".

Ever since Enron came to India in 1993, it has been mired in controversy. Two State governments and three Central governments have changed since then.

Kaul said that all the governments were involved in the issue. A final consent award signed between the two parties has been made available. The document, according to reports, proves what has been known for some time - the final sell-out was done by the BJP-Shiv Sena government.