A major roadblock to a solution to the 2,184 MW, $2.9 billion Dabhol Power Company problem has been cleared, with foreign lenders to the Enron-promoted project agreeing in principle to Indian lenders buying out their debt.
Even though high-level meetings of DPC's stakeholders in New York during January 10-13 did not yield any result, a meeting in Singapore on Friday brought the lenders close to signing a deal.
"We have crossed a major hurdle. It will take a few more weeks to work out the nitty-gritty of the deal," an executive at one of the lenders to the DPC project told Business Standard on Saturday.
Indian banks and institutions, led by the State Bank of India, ICICI Bank, Industrial Development Bank of India and Canara Bank, have an exposure of over $1.3 billion in the utility company.
Over 20 foreign lenders, including Bank of America, Citicorp and ABN Amro, lent $600 million for the two phases of the project.
According to sources, Indian lenders will buy out the exposure of the foreign lenders at a discount of around 40 per cent. This essentially means the foreign lenders will get around $360 million of their exposure.
"They were resisting it and bargaining hard for a higher amount. But now there has been an understanding between the Indian and foreign lenders. The ice has been broken," said a banking source.
According to the plan, a special purpose vehicle will be floated to buy the offshore debt. The government is expected to offer a counter-guarantee for the SPV, which will be floated by the Indian lenders.
"Finally, we see light at the end of the tunnel. Things can move fast from now on," said a senior banker from Singapore.
DPC shut the plant in May 2001 after a dispute with its sole customer and part shareholder, the Maharashtra State Electricity Board. The plant was mothballed. Subsequently, a series of meetings were held across the world by various stakeholders.
There have been over two dozen court cases and arbitration proceedings, as the stakeholders, including DPC's majority shareholders, General Electric and Bechtel Group, as well as the foreign lenders, have been trying to recover their investments.
General Electric and Bechtel now own 86 per cent of DPC after buying Enron's 66 per cent stake in April. The MSEB owns the rest.
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