Lenders stop advances
By this point the foreign lenders were so unhappy with the lack of progress in project con-
struction that they were not advancing any additional funds. Because the physical assets were
not being maintained, there was a possibility that the plant would never reach its specified
performance levels. Suspension of construction already had increased the cost of the project
by several hundred million dollars and the longer it was delayed, the greater the increase in
construction costs would be.
On 10 September 2001 DPC requested payment of US$80 million from the Indian fed-
eral government for electricity that it had provided to the MSEB in April, May and June. The
MSEB in turn sought to force this dispute into Indian regulatory channels rather than arbitra-
tion. The MSEB appealed to the Indian supreme court to prevent the federal government from
paying DPC until the Mumbai high court had rendered an opinion. DPC sent the MSEB
another preliminary termination notice for nonpayment of electricity fees and abrogation of
the PPA, and, once again, the MSEB claimed damages from DPC for failing to deliver at 90
per cent of capacity. The Maharastra state government asked the MERC to set the power
plant’s tariff. DPC then appealed to the Indian supreme court to free it from the MERC’s juris-
diction, but the court ruled that the MERC could decide on the scope of its own jurisdiction.
DPC appealed against the ruling and the supreme court responded by transferring all DPC-
related cases, including the appeal, to a single branch of the Mumbai high court.^13 The latter
court affirmed that the MERC has exclusive jurisdiction over ongoing disputes between the
MSEB and DPC.
In an article in the Journal of Structured and Project Finance(Fall 2002) Mark Kantor,
retired partner of Milbank, Tweed, Hadley & McCloy, observed that the Mumbai high court
reached this conclusion despite mandatory arbitration clauses in project documents signed by
the MSEB, the Maharastra state government and the Indian federal government. Although the
project documents were originally executed in 1993 and 1994, and the statute creating the
MERC was not passed until almost five years later, the effect of the court’s ruling was to
afford the MERC sole competence over the MSEB’s claim that the project documents were
invalid because of material misrepresentations by DPC. The court’s decision thus had the
effect of enabling state parties to override arbitration clauses by relying on legislation enact-
ed later.^14
On 11 October 2001 the Commercial Court in London gave DPC an ex parteorder (that
is, an order undertaken on behalf of only one of the parties) restraining the Maharastra gov-
ernment from filing a suit in London to challenge the arbitration proceedings that DPC had
initiated there. The order made a distinction between the Maharastra state government and the
MSEB, which is owned by the state government. The order was intended to stop the state
government from reneging on its obligations even if the MSEB did so.
Mark Kantor noted that the Mumbai high court’s ruling did not directly address the ques-
tion of separate claims by DPC against the State of Maharastra and the Government of India,
both of which signed documents with mandatory arbitration clauses. DPC later obtained an
English court injunction prohibiting the Maharastra state government from filing suit in
Indian courts to contest separate ongoing ICC arbitration in London against Maharastra under
one of the project agreements.^15
In early November 2001 the Indian lenders’ consortium filed a petition to try to prevent
DPC from pulling out of the project. Following procedures outlined in the PPA, DPC recent-
ly had taken an additional step toward a final termination notice by issuing a notice of trans-
POWER PLANT