In early December 2001 Enron filed for Chapter 11 bankruptcy protection in the United
States. Later that month DPC filed a US$180 million claim with OPIC, arguing that the
MSEB’s failure to pay its electricity bills was tantamount to expropriation by the state, an act
that should be covered by its OPIC political risk insurance policy. After the claim was filed
OPIC began to work with the IDBI on finding a buyer for the power plant. DPC issued its
final termination notice to the MSEB on 27 December.
In January 2002 the IDBI invited formal expressions of interest from potential buyers of
DPC. Six companies already had indicated a possible interest. There were three Indian com-
panies – BSES Ltd, GAIL and Tata Power Company – and three foreign companies:
TotalFinaElf, Royal Dutch/Shell Group and Gaz de France. The creditors’ preference was to
sell the facility as a whole rather than to accept separate bids for the power plant, the landing
jetty and the LNG storage facilities. DPC announced that it was willing to settle any dispute
arising with potential buyers under English law, as provided in the original project docu-
ments; its discussions with BSES Ltd and Tata Power had hit a roadblock the month before
over whether a proposed deal would fall under Indian or international law.
While the IDBI and OPIC were continuing to work together, by February 2002 OPIC
appeared to be more in control of the sale process, defining the terms of sale and setting a
mid-March deadline for the submission of bids. OPIC planned to set up a data room in
London where each qualified bidder would have three days to carry out due diligence, fol-
lowed by a two-day visit to the plant. Operating data, information on the status of the second
phase and historical construction records would be provided in the data room, and OPIC
planned to have a pre-bid conference in late February.^19
At this point the search for a buyer was becoming increasingly urgent because DPC, with
fewer than 100 employees, no longer had enough cash to maintain the plant. NTPC turned
down an offer by the MSEB to take over the plant because it found the price too high but
offered to operate the plant in the national interest if it was purchased by financial institutions
or the MSEB.
In March a dispute between DPC’s lenders and foreign equity holders began to jeopar-
dise the sale of the project. The lenders proposed that proceeds from the sale of the project be
deposited into the Trust and Retention Account operated by Bank of America, and that money
in that account be used for debt service, guarantee payments, and bank charges and defaults
before distribution to the equity holders. The lenders, including OPIC, estimated that a few
hundred million dollars would be needed for these payments. The equity holders protested
against the transfer of the sale proceeds to the Trust and Retention Account because they
thought that they would probably receive only a few million dollars after all the other distri-
butions.^20 Later in March the equity holders took their argument a step further and said that
they would not proceed with a sale unless they received an advance payment of US$500 mil-
lion, about half their asking price.^21 Meanwhile some of the bidders announced that they
regarded the lenders’ due diligence time frame as too short and that they needed at least six
months to scrutinise DPC’s financial records.^22
In April Enron refused to sign a cooperation agreement with DPC’s creditors because
of the dispute over the Trust and Retention Account. Disgruntled bidders began to ask for a
refund of the US$100,000 ‘good faith’ payments that they had been required to make when
they submitted their expressions of interest. The Indian and foreign lenders, and their
lawyers, began to discuss a foreclosure on DPC’s assets if Enron did not cooperate in an
equity sale, although such a foreclosure was complicated by an obscure US legal provision.
POWER PLANT