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Volume 8, Issue 98
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Tuesday, May 22, 2001
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Indian Lenders Seek Government Intervention in Power Project Completion. May 21, 2001—Following a threat by US energy giant Enron Corp, the country’s largest foreign investor, to abandon a $2.9 billion power project, Indian lenders have sought federal government intervention to avoid jeopardizing the $1.4 billion worth of loans. The move could further tarnish India’s poor image as a place to set up power projects. Should Enron withdraw, local lenders including the Industrial Development Bank of India, ICICI Ltd, and State Bank of India, the country’s largest commercial bank, stand to lose substantially. The remaining $1.5 billion of the project cost is funded through equity and loans from foreign banks led by ABN AMRO. The project is now 90% complete.
On May 19, Enron’s Dabhol Power Company (DPC) issued a preliminary notice to terminate power sales from the plant. DPC cited payment defaults by Maharashtra State Electricity Board (MSEB), and non-cooperation from the federal and state government as the reason for the action. MSEB has said the power produced by DPC is expensive and has refused to buy the output from the second phase. Enron has said it is open to negotiations and that the cost of power would fall once the second phase starts operations.
The lenders would like the government to clear MSEB’s defaults of $48 million and also find a buyer for electricity from the second phase. The DPC notice leaves open a six-month negotiation period. So far, there has been no federal government reaction to the termination notice. The Indian lenders anticipate a resolution of the matter could within the negotiation window.
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