per unit. According to its chairman, the MSEB would be paying DPC 1.4 billion rupees
(US$32.8 million) per month.
The MSEB fails to pay
During 2000 it became increasingly apparent that the MSEB could not afford its obligations
under the PPA. DPC tried to persuade both the state and federal governments to make the pol-
icy changes that would allow it to sell electricity to more than one state electricity board and
to any third party, but government officials seemed unwilling to focus on the problem. In
December the Maharastra state government announced that it would review the PPA because
it believed that the power rates that DPC was charging were exorbitant.
In February 2001 DPC invoked a federal guarantee to pay a November 2000 bill for 790
million rupees (US$17 million) owed by the MSEB. Once again DPC began the arbitration
process with the International Court of Arbitration in London. By April the MSEB’s unpaid
bills had risen to US$22 million and DPC had notified the federal government again. The
MSEB said that the power bill should be offset against a 4 billion rupee (US$86 million) fine
that it had levied against DPC for what it claimed had been non-supply of power for inter-
mittent periods between October 2000 and January 2001. The Indian federal government
asked the two sides to sort out their argument before it would consider making any payment
under the counter-guarantee. In April DPC sent the MSEB a notice of political force majeure
to enforce its rights under the 1995 PPA and to protect itself from being penalised by the
MSEB if political uncertainties interrupted its delivery of electricity.
In May DPC sent the MSEB a preliminary termination notice, which was required under
the PPA to precede a final termination notice by six months. A final termination notice would
cancel the PPA and transfer ownership of the power plant to the MSEB. DPC said that it had
continued to meet its contractual obligations, enforce its rights under contracts and take var-
ious disputes to the dispute resolution process, but it was forced to issue the preliminary ter-
mination notice because of the failure of the MSEB, the Maharastra state government and the
Indian federal government to meet their contractual obligations. DPC also said that the Indian
federal government had clearly communicated its unwillingness to assist the MSEB and the
state government in either buying power or providing credit support behind other buyers.
DPC noted that the federal government had not sent a representative to a recent renegotiation
committee meeting, despite several days advance notice, and had failed to respond to requests
from lenders to the project for assurances of its guarantee obligations. DPC said that a last-
ing and feasible solution would require the contractually bound parties either to purchase
power or to find other creditworthy parties to purchase baseload capacity when the plant was
fully constructed. Work on the second phase of the project, which was 90 per cent complete,
had been stopped recently because lenders had suspended disbursements, and the Maharastra
state government and the MSEB had not implemented the escrow account that was intended
to secure payments from the MSEB.^11
The MSEB cancels the PPA
The MSEB notified DPC on 24 May 2001 that it was cancelling the 1995 PPA and it stopped
buying power from the plant on 29 May. DPC shut down the plant shortly afterwards. Over
the previous few months the MSEB’s defaults, and the failure of the state and federal gov-
POWER PLANT