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Indian lenders warned against seizing DPC

Domestic lenders to Enron's idle $2.9 billion Dabhol power project in India would court disaster by seizing the plant built by the bankrupt US energy trader, a top official at a foreign lender said on Tuesday.

About 30 financial institutions lent $1.9 billion to build the massive 2,184 MW Dabhol power plant, which was nearly complete when Enron halted construction in May 2001 after a dispute with the plant's sole customer, Maharashtra State Electricity Board.

That was about seven months before the Houston-based energy trader collapsed in the first of a blizzard of US accounting scandals.

Dabhol is the most valuable Enron asset still on the block.

Domestic lenders want to seek court approval to seize the plant as a prelude to selling it to recover as much as possible of the amount lent. But a top official at one of the foreign lenders told Reuters that could prove disastrous.

"They risk permanently alienating the equity holders, whose cooperation is essential to restart the plant safely and without damaging the equipment," said the official, speaking on condition of anonymity.

They could damage the asset by restarting it without the plant blueprints, operating manuals and other documents that Enron removed months ago, he said.

Under those circumstances, no operator would find an insurer willing to provide coverage, he said.

Enron owns 65 per cent of Dabhol Power Co, the company set up to build and operate the plant located on the Arabian Sea coast about 150 km south of Mumbai.

GE, which made the plant's turbines, and San Francisco-based contractor Bechtel, which built the plant, each own 10 per cent stakes.

The remaining 15 per cent is held by MSEB, the nearly bankrupt power distribution monopoly for the state where the plant is located.

"We think the liability here is huge. They (domestic lenders) are going to be liable," the official at the foreign lender said.

He said the chances of damaging or destroying the equipment was increased by the fact the plant has been idle and poorly looked after for more than a year.

"The assets have been rusting away in the jungle. There's leakage, animals, a whole nest of problems.

RELATIONS STRAINED

The 740 MW first stage of the plant began operating in 1999. The 1,444 MW second state was nearly complete when construction was halted after the MSEB fell $240 million behind in payments for electricity supplied.

The foreign official indicated relations were becoming strained between at least his institution and the Indian creditors.

"This is a real case study in how not to resolve a commercial dispute," the official said.

Enron, GE and Bechtel have submitted claims to the US-government-funded Overseas Private Investment Corp, which insured $220 million in political risk insurance. OPIC also directly lent $150 million for the project.

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