A row over bankrupt Enron Corp's $2.9 billion power plant in India was poised for international arbitration after foreign creditors moved to exit from the stalled project and sought to recover their loans.
The foreign lenders told Enron's Indian unit, Dabhol Power Co, on Thursday to scrap its power purchase agreement with the Maharashtra State Electricity Board, which would force the loss-making state-run utility to take over the plant.
But Indian lenders, who carry the bulk of the project's $1.9 billion loan, vowed on Friday to resist moves by foreign creditors to enforce the takeover of the project by the state utility.
"We will not move the court to lift the injunction on serving a final termination notice," a source at one of the banks said. "It is now up to the foreign lenders if they want to take the matter to international arbitration."
If the matter goes for arbitration and the Indian lenders lose the case, the foreign creditors can invoke guarantees that the governments of India and Maharashtra have given them for the first phase of the project.
And if the funds raised by invoking the guarantees are insufficient, the foreign banks who have made loans of nearly $339 million to the first phase of the project, can lay claim to Dabhol's unpaid dues owed to them by the state utility, bankers said.
Analysts estimate the unpaid dues owed by MSEB, the power plant's sole customer, at around $600 million. Since MSEB is cash-strapped, any payments would have to be made by the state government.
Indian lenders had obtained a court order last year forbidding Dabhol Power Co from issuing a final termination notice to end the power purchase agreement after the company served a pre-termination notice on MSEB in April 2001.
Foreign lenders said on Thursday, in the latest twist to the nearly three-year saga, that they expected the local banks to soon apply to the court to lift that order.
The offshore lenders said they had decided to ask Dabhol Power Co to proceed with terminating its power purchase pact with MSEB because of the extensive costs they have incurred and the slow progress in restructuring the project.
A termination will contractually oblige MSEB to buy over the project at a price determined by a valuation procedure agreed upon by all stakeholders. If MSEB fails to do so, the spat between the two classes of lenders is likely to end up in arbitration in London.
The plant at Dabhol, 250 km south of Mumbai, has been idle since June 2001 when Enron, which owns 65 per cent of the venture, shut it down after MSEB fell $240 million behind in payments.
Nearly 30 financial institutions lent $1.9 billion to build the 2,184 MW gas-fired power plant and an adjacent LNG facility.
Loans from overseas creditors total nearly $600 million, some of which are guaranteed by India's central and state governments.
Endless delays
Overseas lenders, led by ABN AMRO Bank, wrote a letter to the Indian government last month, threatening to pull out from the venture, citing endless bureaucratic delays in restarting the project.
In the letter they also made it clear that they did not wish to be part of any restructuring plan to revive the project unless they recovered their loans.
Both Indian and foreign lenders then met in Singapore on April 1 and 2 to sort out differences and thrash out measures to revive the stalled project.
But analysts said the meeting failed to achieve its aim and the latest spat could force the Indian creditors to take action on their own.
Foreign and Indian lenders had earlier disagreed over a plan that domestic banks proposed to sell the plant to a new owner.
Apart from Enron, General Electric Co and privately held Bechtel Group Inc each own 10 per cent of the equity, while MSEB owns the remaining 15 per cent.
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