ernments to honour their guarantees, had caused DPC to default on all its contracts. By this
time most of the contracts had been cancelled.
In early June the Indian lenders asked DPC to start renegotiating the PPA with a specially
convened expert panel formed to arbitrate in a tariff dispute between the two parties. Later in
June, acting on a plea from the MSEB, the newly established Maharastra Electricity
Regulatory Commission (MERC) ruled that DPC could not proceed with arbitration in
London. DPC replied that it was proceeding with such arbitration in accordance with the PPA.
It also requested that the Mumbai high court reverse the Commission’s decision, but the court
ruled that the Commission was the expert body empowered to decide on the issue.
In early July Daniel Pearl reported in the Wall Street Journalthat even though Enron
and Maharastra officials were meeting regularly, their dispute had fallen into a ‘slow-
motion stalemate’, with Enron saying that it had not agreed to renegotiate the contract and
the MSEB saying that it had already rescinded it. Vinay Bansal, the MSEB’s chairman, said
that completing the second phase was not a priority because the utility, required to pay for
most of the plant’s generating capacity, could not afford the power. Maharashtra’s recent
electricity consumption had been far below projections. Bansal said that he had approached
the central government to help to buy excess power, but that they continually had said no.
He noted that other states would be willing to buy DPC’s power if rates could be lowered
to 2.5 rupees (5.3 US cents), but he doubted that DPC would be willing to reduce its prices
that far. Pearl noted that if construction did not resume by the end of the summer, suppli-
ers of LNG from Abu Dhabi and Oman under 20-year contracts would become increasing-
ly nervous. As for the Indian lenders’ consortium, led by the state-controlled IDBI, they
had more to lose than the foreign banks because they were guarantors of a large portion of
the project’s foreign debt.^12
Later in July Enron indicated a willingness to sell its interest in the project at cost and
the Indian federal government directed the Indian lenders’ consortium to work out a pack-
age to save the project. By that point the sponsors had invested US$875 million in the 1,444
MW second phase and an additional investment of US$230 million was needed to complete
the project. Enron was willing to provide technical and other assistance to help the buyer
complete the project. Jawanti Mehta, India’s junior power minister, said in early August
that the government was not interested in buying the project, but that it was coordinating a
negotiating committee, including Enron and the other investors, to find a way out of the
disagreement. Later in August the Indian lenders’ consortium offered to reschedule DPC’s
project debt.
Enron’s chairman, Kenneth L. Lay, wrote a letter to the Indian prime minister in
September questioning the Indian government’s willingness to honour its contracts and its
ability to attract foreign investment. Lay threatened to take legal action in pursuit of claims
up to US$5 billion. Enron’s proposals to the Indian government included the sale of its equi-
ty investment at cost, for approximately US$1.2 billion, and the purchase of its debt, for
approximately US$1.1 billion, amounting to a total cost of US$2.3 billion. Lay’s letter indi-
cated that a proposal by Indian financial institutions that equity held by foreigners be sold for
about US$400 million, about one third of their actual investment in the project, was unac-
ceptable. If Enron received anything less than its full investment, it would consider that the
Indian government had committed an act of expropriation. Lay warned that it would be dif-
ficult for DPC to complete the second phase of the project unless the government reached an
amicable solution with the sponsors.
DABHOL POWER COMPANY, INDIA