Search the Internet          Tips  Sites: Finance, Investment

DPC termination to cost govts, MSEB $5 billion in liability: Lay

US energy major Enron's Dabhol Power Company on Tuesday claimed that the liability of the Centre, the Maharashtra government and Maharashtra State Electricity Board will be about $5 billion (Rs 240 billion) in case it terminated the contract.

"Should this dispute (DPC's in this case) be eventually resolved through the PPA prescribed termination process, including international arbitration, the liability of MSEB, Maharashtra government and the Centre would be approximately $5 billion (Rs 240 billion), Enron Corporation chairman Kenneth Lay said in a statement in Bombay.

In a recent communication to the Union government Lay said given MSEB, the state and Centre's repeated refusal to honour their contractual obligations, a highly publicised and long-drawn legal route would raise serious questions about India's image as a safe and reliable destination for foreign investments.

Expressing disappointment over lack of progress in a quick resolution of the problem, Lay said, "it was clear that the recent 'roadmap' prepared by the Indian financial institutions apparently suggesting that the foreign sponsors take a 50 per cent to 75 per cent cut in equity, remains unrealistic for DPC's offshore sponsors, including Enron, GE and Bechtel."

In fact, he said, the reported recommendation from the FIs that the offshore sponsors should accept $400 million towards equity settlement was unacceptable, since it constituted just one-third of costs incurred by Enron, GE and Bechtel to develop, construct and operate the $3 billion project.

"This proposal results in over 66 per cent discount on offshore sponsors' investment and not 50 per cent as reported. Any proposal to purchase the foreign sponsor equity interest at less than 100 per cent cost recovery will be viewed as a very serious deterrent to India as an investment destination," Lay warned.

The Liquefied Natural Gas suppliers, which are controlled by Oman and UAE and government-owned export credit agencies, affiliated to governments of Japan, US and Belgium were becoming increasingly frustrated at the lack of progress, Lay said.

"So much so that the latter could soon call upon the guarantees given to them by the FIs, further weakening their credit rating," he said.

He said the delay in reaching a solution, as well as offshore lenders' decision not to fund care and preservation costs, will further add to the cost of completing the 1,444 mw Phase II of the project and adversely impact the tariff.

In the absence of care and preservation measures, the asset has already begun deteriorating, which will affect the plant's future performance, Lay said.

"The purchase offer proposed by the offshore sponsors, even assuming a full purchase of the offshore debt its costs, is less than half the potential legal termination damages," the chairman said.

ALSO READ:
The Enron Saga