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Enron's woes may delay Dabhol exit

Negotiations to sell Enron Corp's stake in a controversy-ridden $2.9 billion power plant in India have been brought to a standstill by the collapse Wednesday of a planned merger, leaving the US energy trading giant on the verge of bankruptcy, analysts and bankers said.

Enron owns a 65 per cent stake in Dabhol Power Company, the operator of a 2,184 MW power plant near Bombay that has sat idle since June.

"Enron is going to be too busy with its mess to pay much attention to Dabhol," an industry analyst said a day after Houston-based Enron's proposed merger with Dynegy Inc blew apart, and rating agencies slashed Enron's bonds to junk status.

The collapse rocked world financial, energy and commodities markets, and ignited fears in India that Enron's woes could affect Indian lenders.

The Industrial Development Bank of India, State Bank of India, ICICI and other Indian lenders have lent directly or guaranteed loans totalling $1.4 billion to Dabhol.

Enron, which wants to exit the project, has been in talks with the lenders and two potential buyers, Tata Power Company Ltd and BSES Ltd, to sell its entire 65 per cent stake, and there had been hopes a deal might be completed by January.

Any delay could increase the losses Enron is likely to incur on the project as interest costs mount as the plant sits idle, shut down since June when Dabhol decided to quit providing electricity to the Maharashtra State Electricity Board, its sole customer, for non-payment.

The DPC board was to meet in London on November 30 to consider authorising the management to serve a final contract termination notice on MSEB.

Analysts said it now looks likely the sale of the plant will be delayed beyond January.

If Enron were to file for bankruptcy, then all its assets worldwide, including Dabhol, would be taken over by a liquidator, which would oversee the sale of the Indian plant, an analyst said.

"It would go out of the hands of Indian financial institutions, who have so far been participating in the talks. The potential buyers will also have to deal with the US court," said the analyst.

A delay could also prove very expensive for Indian lenders, as DPC is not able to make interest payments as long as the plant sits idle.

"Profitability of State Bank of India would be affected. They would have to increase their provisions for sticky loans," said Punit Srivastava, financial sector analyst with Enam Financial Securities Ltd.

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