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Enron Indian lenders to lobby for government help

Indian lenders want the central government to intervene after a threat by US energy giant Enron Corp, the country's largest foreign investor, to walk out of a giant power project put their loans in jeopardy.

"We want the government to step in and resolve the matter with lenders' interests in mind. We are continuously monitoring the situation," a senior official at one of the lenders said. The official did not want to be named.

Local lenders including the Industrial Development Bank of India, ICICI Ltd and the country's largest commercial bank, State Bank of India, stand to lose if Enron pulls out.

They have lent $1.4 billion out of the project's total cost of $2.9 billion. The rest of the project is being funded through equity and by loans from foreign banks led by ABN AMRO.

Shares of the local lenders fell in early trade on Monday with IDBI sliding 9.39 per cent to Rs 24.60, SBI dipping 1.1 per cent to Rs 233.60, while ICICI was down six per cent to Rs 84.90.

The project is now 90 per cent complete, but faces an uncertain future after Enron's Dabhol Power Company on Saturday issued a preliminary notice to terminate power sales from the plant.

DPC cited payment defaults by the buyer, the Maharashtra State Electricity Board and non-co-operation from the central and state government as the reason behind the move. The notice leaves the door open for negotiations for six months.

The latest move is likely to further tarnish India's poor image as a place to set up power projects.

The central government has so far not reacted to the termination notice, although analysts say the country needs to tap more foreign investment in the power sector.

OTHER CUSTOMERS

"This is a complex problem and cannot be solved instantly. The basic issue is the cost of power and there needs to be an agreement on a reasonable tariff," the official said.

MSEB has said the power produced by DPC is expensive and has refused to buy the output from the second phase. The contract between the two signed in the mid-1990s had called for MSEB to buy the entire capacity of 2,184 MW. The first phase of 740 MW began operations in May 1999.

Enron has said it is open to negotiations and that the cost of power would fall once the second phase of 1,444 MW starts operations.

The lenders would like the government to clear MSEB's defaults of $48 million and also find a buyer for electricity from the second phase.

But the banker said roping in other customers to buy the second phase's output could be difficult to achieve.

"If the first phase is generating excess power, who will buy the power from the second phase?" he asked.

TO BLOCK FURTHER LOANS

The official said Indian lenders had decided to block further loans to the second phase till an agreement was reached. The SBI, for instance, had sanctioned about Rs 20 billion ($425.9 million), but has disbursed only Rs 14 billion so far.

Both ICICI and IDBI officials declined to comment, but sources said the domestic lenders were acting together.

Indian lenders said they were hopeful the matter could be resolved given there was a window of six months for negotiation.

"There is no reason to panic. We are hopeful that talks will resolve the issue," said the official.

Indian media speculated at the weekend that the balance sheet of the lenders would be under pressure if the dispute was not resolved quickly.

YOU MAY ALSO WANT TO SEE:
Enron's Indian lenders spooked by pull-out threat
DPC issues pre-termination notice to MSEB
Centre to lose upto Rs 28.50 billion if Dabhol is terminated
Enron, Indian panel to meet on May 23
India tells Enron to renegotiate Dabhol contract
DPC lenders set to vote on PPA termination
MSEB against buying DPC Phase II power
Loss-wary FIs ask govt to defuse Dabhol crisis
Enron moves towards ending Dabhol deal: Reuters

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