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Enron India unit lenders move to solve row

Lenders to US energy giant Enron Corp's troubled Dabhol Power Company project in India may cut interest rates on almost $2 billion of loans to prevent default, business dailies said on Tuesday.

Indian and foreign lenders are willing to help DPC produce power at cheaper cost, but would not hesitate to sue if the stand-off between the government and DPC continues, the news reports said.

Enron's $2.9 billion project is mired in controversy after the Maharashtra State Electricity Board reneged on its commitment to buy all the power produced by the giant plant, saying it is too costly.

MSEB has also defaulted on monthly payments to DPC for the electricity it has taken, forcing the company's board last month to authorise the management to terminate the contract.

That possibility casts a long shadow over the fate of the project's 1,444-MW second phase, which is scheduled to start commercial operation next month. The 740-MW first phase began operating in May 1999.

"All lenders, both Indian and offshore, want to see the second phase of the project taking off. We may cut the rates if there is any formal request from either DPC or the government," a financial daily quoted an unnamed banking source as saying.

Five Indian financial institutions have lent a total $1.4 billion to the project. The five are the Industrial Development Bank of India, State Bank of India, the Industrial Finance Corporation of India, ICICI Ltd and Canara Bank.

The lenders are now working overtime to resolve the issue. Last week they sent a letter to the Indian finance ministry asking it to clear up $48 million in unpaid bills owed to Dabhol.

But the Business Line newspaper reported the banks may take legal action if a quick solution is not found.

"Our money is caught between two feuding parties....If they continue their hawkish stand, we will have no other option but sue the company, MSEB and the government," the paper quoted an unnamed banking source as saying.

The dispute has already damaged India's image as a safe destination for foreign investment.

It suffered another blow on Tuesday when another daily reported that customs officials in Bombay have blocked DPC's imports of project equipment due to a dispute over tax rates.

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Enron moves towards ending Dabhol deal: Reuters
History of Enron's Dabhol power plant: Reuters
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