WSJ/Major Business News: Enron's Fall Clouds Dabhol Power Project
November 30, 2001
By RASUL BAILAY
Staff Reporter of THE WALL STREET JOURNAL
NEW DELHI -- Enron Corp.'s plight in the U.S. is casting a long shadow over its Dabhol Power Co. generation project in India ahead of a planned meeting this weekend of the Indian company's board in London. It also is causing headaches for lenders with total exposure of $1.4 billion to the troubled project.
Board members were expected to take a major step in Dabhol's long-running feud with its only customer, the Maharashtra State Electricity Board, issuing formal notice that Dabhol will cancel its contract with the MSEB, according to observers. An Enron executive in India said the meeting would proceed but didn't detail the agenda.
But Dabhol's lenders, who also planned to meet this weekend in London, have canceled their gathering, according to an official at one lending institution. The Indian bank with the largest exposure to Dabhol is Industrial Development Bank of India, with around 30 billion rupees ($625.2 million) in direct and indirect exposure to Dabhol, including loans and guarantees to other lenders, according to analysts. A spokesman for the bank wasn't available to comment.
Dabhol, India's largest foreign investment, has long been mired in conflict. Earlier this year, MSEB stopped purchasing power from the 740-megawatt project near Bombay, saying its rates were too high. The MSEB has trouble paying its bills because of difficulties with its own customers' nonpayment for electricity, a widespread problem in India. Earlier this year, construction stopped on the second phase of the Dabhol project, and in June, the plant shut down.
The Dabhol project was one of the first big foreign investments in India after a wave of economic reforms in the early 1990s. However, opponents have long alleged the power-supply contract was slanted heavily in Enron's favor. In 1995, a newly elected state government rode to power on promises to cancel the original agreement between Enron and the MSEB. It did so, only to renegotiate an expanded version of the contract the following year. A government report on the project released in April acknowledged "numerous infirmities' in the approval process, with two of the five committee members recommending a judicial inquiry into the situation.
Outside India, Enron's experience is seen as a cautionary tale for foreign investors. As word of Enron's woes reached India, activists here celebrated. "Today is a great day," said Pradyumna Kaul, a consultant who has publicly fought Enron's $2.8 billion power plant. "I'm really waiting for Chapter 11 proceedings to begin."
Enron recently began aggressively trying to sell its 65% stake in Dabhol. Its partners in the project include Bechtel Corp., General Electric Co. and the MSEB. Enron has long insisted on a price of $1 billion for its stake. Analysts in India, however, have said Enron shouldn't expect to get more than $500 million to $700 million, a calculation based generally on what might be competitive market prices for power in the region where the plant operates.
Potential buyers include BSES Ltd. and Tata Power Co. A spokesman for Tata Power said Thursday that the company is expected to start due diligence "around mid-December or earlier, and we'll see what price we can offer them only after it gets completed."
If Enron files for protection under Chapter 11 of the U.S. Federal Bankruptcy Code that may send any sale of Dabhol into a new holding pattern. As creditors lined up in bankruptcy court, the India project would be "just another thing in that mess," said Abhay Mehta, author of a book on the power project. He predicts it could take a minimum of six months to a year for a sale to proceed. Meantime, he worries that interest payments may stop, and banks that would need to start listing Dabhol debt as nonperforming would be hit hard.
-- Joanna Slater in Bombay and Himendra Kumar of Dow Jones Newswires in New Delhi contributed to this article.
Write to Rasul Bailay at rasul.bailay@wsj.com1.
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
Hyperlinks in this Article:
(1) mailto:rasul.bailay@wsj.com
--------------------------------------------------------------------------------
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com
Used with permission of wsj.com |
