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Global bankers ask govt to honour DPC obligations

Tamal Bandyopadhyay, Surajeet Dasgupta & Santosh Tiwary

Global arrangers for the Dabhol Power Company have mounted fresh pressure on the finance ministry to honour the Union government's counter-guarantee and have also set strict conditions for reconsidering the termination of the power purchase agreement between the DPC and the Maharashtra State Electricity Board.

In a related development, the DPC has sent a note to all lenders saying they would have to bear the consequences of the turn of events as they have prevented the DPC from serving the PPA termination notice last month.

The lenders. in their turn, sent a statement -- prepared by the New York-based legal firm White & Case -- defending their stance saying they are working in the best interest of the project.

The lenders are expected to meet in London over the next fortnight to take stock of the situation. The deadline for resolving the issues is drawing to a close as 10 days of the three-week reprieve have passed.

At the DPC board meeting in London on May 25, the lenders had managed to stall the issuance of the termination notice and got three weeks' time for themselves to convince the Centre as well as the Maharashtra government to resolve the impasse on the controversial project.

In a letter to finance secretary Ajit Kumar dated April 30, the global arrangers said the government must own up its responsibility and meet its obligations without further delay.

Among the stiff conditions, set by the arrangers, are the demand that the central government ensure payment of all the pending bills of MSEB for December 2000, January 2001, February 2001 and March 2001 which remain unpaid without any protest or reservation by May 7.

Any payment previously made under "protest" should be made free and clear of such protest or any other reservation, and the Center should ensure timely payment of future bills by MSEB, they said.

Meanwhile, sources said that the finance secretary was expected to meet the international lenders to the Dabhol projects in London within few days to explain them the Union government's stand on the issue.

The lenders' list of demands also include asking MSEB to take steps required under the existing contracts to activate the escrow arrangements put in place at the time of financial close of Phase II of the Project by May 7.

They have demanded that the Union government and the Maharashtra government should take all required actions to ensure that no government agency will take any step to impede the operation of Phase I or the construction and operation of Phase II without due cause.

The lenders have also asked them to ensure that the relevant customs authorities permit import of all goods and equipment required for the Project by May 21.

CSFB, ANZ Export Finance, Citi, Bank Of America and ABN Amro are the global arrangers for both phase I as well as phase II of the project. The State Bank of India, which is also a global arranger for phase II, did not sign the letter.

"Ten days have passed since the lenders bought three weeks time from the company delaying its declaration of the termination of the PPA. Since then, nothing has moved at the material level barring MSEB's payment of the January bill to the tune of Rs 1.34 billion under protest," said a source among the global arrangers. Neither the state government nor the Centre has come forward to meet its obligations

The lenders are planning to meet around mid-May in London and this time they will be left with no choice but to give the go-ahead to the company to terminate the PPA unless the finance ministry comes forward to settle the issue, the source added.

The lenders are, however, not ready to take the blame for any delay in the termination of PPA as implied by the company. The White & Case statement said the lenders are concerned about the fate of the project and they are exploring all intermediate steps before choosing the last option -- termination of PPA.

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