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Dabhol Power Co defaults on interest dues

A majority-owned Indian unit of US energy giant Enron Corp. has defaulted on interest payments to international lenders, Enron said on Friday.

"I can confirm that there was a technical default on the Phase 2 loans for the Dabhol power plant," Enron spokesman John Ambler said.

Enron's confirmation came after an industry source, who declined to be identified, said that the default occurred earlier this week.

Citibank, Bank of America, US Exim Bank and Japan's Overseas Private Investment Corp. are among the international lenders to Dabhol Power Company's $2.9 billion Indian plant.

"DPC was supposed to repay interest on loans it had taken for the second phase of the power project but it could not pay," the industry source said.

The source did not disclose the amount involved or the identities of lenders.

Ambler confirmed the default on Phase 2 loans, but said there had been no default on Phase 1 loans.

A Dabhol Power Company spokesman declined to comment on the default but confirmed that the company had asked foreign lenders for help in meeting its interest payments, some of which must be made by Sept. 30.

Sole customer stopped buying

Dabhol has faced cash problems ever since it was forced to shut its 2,184 MW plant on the west coast of India in June after its sole customer, a local state utility, stopped buying power and defaulted on earlier payments.

Ambler said Dabhol Power Co.'s default was a direct result of the cessation of payments by that customer, the Maharashtra State Electricity Board.

Almost 70 per cent of the power plant, built at a cost of $2.9 billion, was funded by debt. Indian lenders -- banks and financial institutions -- have lent around $1.4 billion and foreign lenders have contributed the rest.

Of the 30 per cent equity, Enron owns 65 per cent, the state utility owns 15 per cent, General Electric Co. and Bechtel Corp. each own 10 per cent.

Analysts said the default deals a huge blow to efforts to find a solution to the dispute between Dabhol and the MSEB.

Foreign lenders are now likely to be less accommodating, they said, and will be under increasing pressure to invoke guarantees given by the Indian lenders.

Besides lending money themselves, Indian lenders have guaranteed most of the loans given by the project's global creditors. Therefore, Indian lenders will be obliged to pay up whatever amount Dabhol defaults on.

The gas-based power project, India's largest foreign direct investment, has been mired in controversy from the very start.

This year, things came to a head when an ugly spat erupted between Dabhol and the state utility, which was the sole purchaser of the plant's power. The dispute centred around the terms of the power purchase agreement, the contract that governs Dabhol's sale and the utility's purchase of power.

The state utility claimed the power was too expensive and it did not need all the plant's power, which it had initially agreed to buy, while Dabhol accused the electricity board of reneging on its contractual obligations.

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