BUSINESS STANDARD, Thursday, November 15, 2001
FIs peg reserve price of Dabhol at $700 million
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THE ECONOMIC TIMES, Wednesday, November 14, 2001
Editorials - Just stick it out or be a sucker, Abracadabra / Shubhrangshu Roy 
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THE HINDU BUSINESS LINE, Wednesday, November 14, 2001
'LNG Laxmi' to bring prosperity to SCI, P.Manoj 
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THE FINANCIAL EXPRESS, Wednesday, November 14, 2001
DPC arbitration tribunal to meet on November 24, Sanjay Jog 
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THE TIMES OF INDIA, Thursday, November 15, 2001
`Enron buyout will not affect Dabhol project'
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THE FINANCIAL EXPRESS, Thursday, November 15, 2001
DPC meet suggests lenders taking cut, MAT exemption, Sanjay Jog 
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THE FINANCIAL EXPRESS, Thursday, November 15, 2001
Andersen's underbelly gets exposed, Sunil Jain 
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THE ASIAN AGE, Friday, November 16, 2001
Bidders demand distribution rights, Rajesh Unnikrishnan 
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THE FINANCIAL EXPRESS, Friday, November 16, 2001
MSEB asks Dabhol Power to defer Houston meet in wake of HC order, Sanjay Jog 
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THE ASIAN AGE, Saturday, November 17, 2001
MSEB 'will not' attend DPC meet in Houston
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THE DECCAN CHRONICLE, Saturday, November 17, 2001
MSEB to skip Enron board meet 
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THE INDIAN EXPRESS, Saturday, November 17, 2001
Parleys on Enron stake sale continue; BSES, Tata Power begin due diligence
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THE HINDU BUSINESS LINE, Sunday, November 18, 2001
It is deal-making time in Dabhol, D. Sampathkumar
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THE ECONOMIC TIMES, Wednesday, November 14, 2001
'DPC sale to be decided by Enron, Tatas, BSES' 
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THE TIMES OF INDIA, Thursday, November 15, 2001
Tatas, BSES keen to acquire DPC 
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THE ECONOMIC TIMES, Sunday, November 18, 2001
Govt not to encash gurantees against DPC 

Similar story also appeared in the following publication:

THE TIMES OF INDIA, Sunday, November 18, 2001
Govt restrained from encashing DPC guarantees
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THE ECONOMIC TIMES, Friday, November 16, 2001
FIs for allotting distribution zone to DPC buyer, Anto T Joseph
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BUSINESS STANDARD, Thursday, November 15, 2001
FIs peg reserve price of Dabhol at $700 million

The Indian financial institutions (FIs) led by the Industrial Bank of India (IDBI) have fixed the reserve price of the $3 billion Dabhol Power Company at $700 million. At a meeting in Singapore last week with the two prospective bidders _ BSES and Tata Power Company _for the controversial 2,184 MW power project, IDBI chairman P.P. Vora reportedly took a hard line and told them in no uncertain terms that they should be prepared to put in at least $700 million for the project. BSES and Tata Power have evinced interest in acquiring an 85 per cent stake in DPC (65 per cent of Enron Corporation of the US and 10 per cent each of Bechtel Enterprises and General Electric's equity). "Technically, no bid has been called for. But for all practical purposes, the reserve price has been fixed at $700 million as the IDBI chairman made it clear to the BSES and Tata Power brass that DPC would not be sold cheaper than this," an institutional source said. 

Both the companies seem to have accepted the IDBI stand on the project's price as they are planning to start due diligence of the project, after signing a confidentiality agreement with DPC. The FIs have taken a proactive role in scouting for a white knight for DPC because they would end up sinking hefty sums in the venture. The total exposure (both funded and non-funded) of the Indian banks and financial institutions to DPC is about Rs 6,100 crore _ about 70 per cent of the debt component of the project built on a 70:30 debt: equity ratio. IDBI has the maximum exposure (around Rs 2,300 crore), followed by the State Bank of India (Rs 1,800 crore) and ICICI (Rs 1,700 crore). Besides, the Industrial Finance Corporation of India (IFCI) and Canara Bank also have exposure to the project. The Singapore meeting focused on completing Phase-II of the project and the sale of the shareholding oh Enron, Bechtel and General Electric to either of the prospective new buyers, BSES and Tata Power. DPC has mothballed phase I of the project (740 MW) some time back. Phase-II of the project, 90 per cent of which has been completed, includes a LNG processing facility of about 5 million tonne per annum. 
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THE ECONOMIC TIMES, Wednesday, November 14, 2001
Editorials - Just stick it out or be a sucker, Abracadabra / Shubhrangshu Roy 

YOU move a step forward and you are a sucker, you move a step backward and you are a sucker still. That just about sums up India's predicament in trying to get one-time US energy trading giant Enron off its back and off the 2,100 MW Dabhol power plant for some time now. For the past fortnight or so, the institutions have been bargaining hard to find a buyer for Enron's assets in Maharashtra, having committed over Rs 6,200 crore in loans. Last weekend, they even went into a huddle in Singapore to sew up the loose ends of a bail-out. Little seems to have been thrashed out so far. Little possibly will. Unless, of course, the FIs tighten the screws with a take-it or leave-it offer. The time to make that choice is now. A gentleman in pin-stripes who's done a lot of running around these past few weeks to help sew up the deal, told me the other day that Enron had indeed agreed to part with its stake in DPC at a 30 per cent discount. That would have fetched it just about $800-odd million spread over a five-year period. So, why hasn't a deal been struck? 

It's probably not worked out because of what Enron considers a fair discount on what it has sunk into the project. Prospective buyers consider this too high an asking price. For the record, Enron claims to have sunk in $1.2 billion in the project together with its partners GE and Bechtel who have supplied equipment and helped construct the plant. But my gentleman friend in pin-stripes suggests that $1.2 billion isn't exactly their equity contribution in Dabhol. That amount works out to just about $800 million. Enron, actually splurged close to $200 million on development expenses, which in gentlemen's lingo is another way of saying that the energy giant could have ended up bribing its way to see the once coveted project through besides fighting sundry court cases in India. And it wants part of that money back. Now which prospective buyer will compensate Enron for possible bribes or for making court appearances? 

Enron, it appears, has also claimed another $140 million as its share of Dabhol's retained earnings, which should eventually go to all stake-holders in DPC (the MSEB included) once the company's board passes a resolution that the amount is shared proportionately among all those who have invested in Dabhol's equity capital. Till then, leave the retained earnings aside. So, what Enron should work on is a fair discount on its equity contribution in the project, which is no more than $800 million. Now given its willingness to take a 30 per cent knock, Enron should not expect more than $560 million as the asking price for walking out of Dabhol. Add to that, if you will, another $140 million by way of retained earnings and Enron should not be getting more than $700 million at the most. Is Enron willing to take this knock? 

Given a choice, it could resist this offer. But Enron has no choice. And that's reason for cheer. Last week, Enron, close to the present American dispensation (chairman Ken Lay was the biggest fund-raiser for President George Bush's campaign effort last year) opted for a $7.8 billion rescue offer from smaller Houston rival Dynegy after narrowly escaping credit ratings cut to junk status. For the past several months Enron had been using its clout with Mr Bush to push through a bail-out package on Dabhol that suited its terms. That privilege now seems to be gone as the company grapples to stave off a Securities Exchange Commission inquiry into off-balancesheet transactions. And until Enron clears several questions back home about its finances, it will remain suspect in the eyes of US investors. 

In India, where Enron's made more news for its misses than its hits, the timing couldn't have been more opportune than now for prospective private bidders to strike a potentially lucrative deal. Two such bidders, Tata Power and BSES, are said to have offered no more than $400 million to buy out Enron's stake in DPC. It's time they stuck to that price. Or else, we could still end up being suckers. What? 
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THE HINDU BUSINESS LINE, Wednesday, November 14, 2001
'LNG Laxmi' to bring prosperity to SCI, P.Manoj 

A DIWALI gift is on the way to State-owned Shipping Corporation of India (SCI) when a consortium takes possession of a 137,000 cubic metre capacity LNG tanker from Japan's Mitsubushi yard on Thursday (November 15) after weathering a last minute financial storm. Aptly named `LNG Laxmi', after the Goddess of Wealth and Prosperity, SCI's 20 per cent equity stake in the project worth $ 1 million will bring in returns in the form of time charter hire rates in proportion to its equity holding. Though, the 20 per cent stake will ensure a board presence for SCI on the joint venture Greenfield Shipping Company, it falls short of ensuring veto powers for the State-owned shipping line. This is the maiden foray by an Indian shipping company into the highly specialised and capital- intensive LNG shipping trade, marked by steady revenue streams over long periods, ranging from 10 to 25 years. Says Mr P K Srivastava, Chairman and Managing Director, SCI: ``This was a pioneering effort by an Indian shipping company into LNG shipping. 

So we were very keen that we should not fumble. We are optimistic that the experience gained from Greenfield would lead us to more such ventures in future.'' Rightly so. While LNG Laxmi was being built, SCI also secured its second LNG shipping deal, when it teamed up with Mistui, NYK Line and K Line to clinch the contract from Petronet LNG Limited (PLL) for owning and operating two tankers of 138,000 cubic metre capacity each for transporting gas from Qatar to Dahej in Gujarat. Though SCI had only 20 per cent stake in Greenfield, it managed to secure a higher holding of 34.21 per cent in the PLL deal worth Rs 130 crore. Originally, LNG Laxmi was ordered for transporting 2.5 million metric tonnes per annum of LNG from Oman to the controversial Dabhol Power Project in Maharashtra. 

Greenfield was formed for owning and operating the tanker costing $220 million. The consortium members comprise Japan's Mitsui O.S.K. Lines holding 60 per cent stake, SCI and Enron-affiliate Atlantic Commercial Inc with 20 per cent stake apiece. Greenfield had entered into a time charter agreement with DPC for transporting gas from Oman to its power plant in Maharashtra for a period of 20 years at a time charter hire rate of $98,600 per day. With DPC in trouble, the time charter party signed between DPC and Greenfield will be scrapped. `LNG Laxmi' went through major birth pangs before the promoters were able to take possession of the vessel. In the process, Greenfield underwent a major change in the complexion of its promoters leading to a re-alignment in the equity holding pattern.When Enron announced its intention to exit from DPC by selling its equity in view of the problems facing the power plant, the bankers to the LNG shipping deal led by ANZ Investment Bank, decided not to disburse the last tranche of the project loan of $ 55 million, declaring an event of default. This was after the 16-member lending consortium had provided $ 110 million as debt to fund the project out of a total loan commitment of $ 165 million. The three promoters were now required to invest an additional $ 55 million to bridge the gap in the project cost to take possession of the vessel or face the risk of the tanker being confiscated by the lenders to recover their investments. 

Then came the knight in shining armour in the form of the Oman Government who was generous enough to bail out LNG Laxmi from the tentacles of the lenders. The Oman Government offered to time charter LNG laxmi for 20 years at a charter hire rate of over $70,000 per day besides picking up 50 per cent equity in Greenfield, buying out the 20 per cent stake of Atlantic as well as acquiring 30 per cent from Mitsui. The financial crisis facing LNG Laxmi was thus sorted out. Oman Government would bring in $27.5 million as its contribution for holding a 50 per cent stake in Greenfield, Mitsui will invest an additional $ 16.5 million for its 30 per cent stake while SCI's extra contribution would be $11 million for its 20 per cent stake. As per current plans, the Oman Government will sub-charter `LNG Laxmi' to Oman LNG in which it holds a 51 per cent stake to ferry some of its LNG cargo to Korea and Britain, among other destinations. 
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THE FINANCIAL EXPRESS, Wednesday, November 14, 2001
DPC arbitration tribunal to meet on November 24, Sanjay Jog 

The maiden meeting of the arbitration tribunal headed by Lord Mustill, after the takeover of Enron Corp by the Dynegy Inc, will take place on November 24 in London to decide the future course of action on carrying out arbitration proceedings against the Maharashtra government initiated by the Dabhol Power Company (DPC) for the non-payment of December bill of Rs 102 crore. The arbitration tribunal comprises Maharashtra government's arbitrator Queinton Loh and the DPC's arbitrator Andrew John Rogers QC (former chief judge of the commercial division of the Supreme Court of New South Wales). The meeting deserves significance especially when the conciliatory efforts between the DPC, the Maharashtra government and the government of India which concluded on August 18 failed to reach a compromise formula as the trio stuck to their stands. The DPC referred the matter of non-payment of December bill to the arbitration tribunal led by Lord Mustill. 

Sources told The Financial Express that the November 24 meeting would decide the future timetable of arbitration proceedings to be held in London as per the power purchase agreement and the UNCITRAL Arbitration Rules. The dispute related to the non-payment of December bill would be taken up during these proceedings. The DPC, which has been restrained by the Supreme Court from proceeding against the Maharashtra State Electricity Board for carrying out arbitration process until the issue of jurisdiction of Maharashtra Electricity Regulatory Commission is resolved, in its arbitration notice served on April 12 had said that the board had disputed the payment of December 2000 bill. The MSEB, which was served a total bill of Rs 159.86 crore on January 5, 2001 failed to pay the full the sum on the due date, January 25. 
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THE TIMES OF INDIA, Thursday, November 15, 2001
`Enron buyout will not affect Dabhol project'

The buyout of Enron Corp by its rival, Dynegy Inc, would have no bearing on the future of the Dabhol Power project for the moment. It is learnt that talks on selling out Enron's investment in DPC, amounting to over $ 1 billion, would continue as before. A DPC spokesman said, "It is too early to comment on how this will impact us." On the question of selling Enron's stake in DPC, he said, "While discussions are happening, it will be inappropriate to comment." According to the agreement worked out last week with Dynegy, Enron Corp would sell its share for $9.5 million. Pointing out that the deal with Dynegy would materialise only in the third quarter of 2002, an official with a Indian financial institution aid, "It is important to realise that this is not a deal based on balance sheets but a stock-swap." 

The deal was announced even as Indian and foreign lenders to the DPC were meeting in Singapore with DPC office-bearers to negotiate with bidders. The prominent companies interested in buying out DPC at this stage are Tata Power and Bombay Suburban Electric Supply (BSES). A senior official with a financial institution said that though assets like DPC could be transferred to Dynegy at a later stage, these aspects would emerge only later in the talks to consolidate the takeover. Financial institutions though are concerned about the fallout of the deal on the offers received for Enron's stake in DPC. Also, the legal status of such a sale, if it does take place, would have to be scrutinised carefully, says a senior official of a company which has lent funds to DPC. In Singapore, Indian FIs led by IDBI and including ICICI and State Bank of India met DPC executives over two days from November 8 and discussed the pricing of the stake of the three multinational partners in DPC - Enron, Bechtel and General Electric - with the prospective sponsors, Tata Power and BSES. Incentives promised by the Centre to expedite resolution of the decade-old controversy and the possibility of an affordable tariff also came up for discussion. 
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THE FINANCIAL EXPRESS, Thursday, November 15, 2001
DPC meet suggests lenders taking cut, MAT exemption, Sanjay Jog 

A reduction in per unit tariff at Rs 2.70, equity holders and lenders to take hits and cuts, a cut in interest rate, exemption from payment of minimum alternate tax, providing mega power status for the Dabhol project and, above all, separation of the liquefied natural gas (LNG) facility from the power project are some of the highlights of the package considered by the Indian Financial Institutions (IFIs) along with Dabhol Power Company (DPC), Tata Power and BSES at the recently concluded three-day meet in Singapore. 

IFI sources involved in the Singapore meeting told The Financial Express that the participants have made it clear that the implementation of the package would not be possible unless the present equity holders and lenders are prepare to take hits and cuts and the Government of India, Government of Maharashtra and Maharashtra State Electricity Board (MSEB) provide substantial incentives and concessions. The emphasis has been laid on a substantial reduction in tariff and an early completion of Dabhol phase-II - the construction of which has been suspended since June 17. "The project will continue to languish if there is no possibility of providing power at an affordable tariff by adding value to the equity," sources added. 

According to sources, both equity holders and lenders would stand to loose enormously as both would have to take hits and cuts. "The existing equity promoter would have to be prepared to take a substantial cut in the equity value without which the tariff would not come down to a reasonable level," sources said. They have stressed the need for a payment security mechanism for the sale of power. "The Government of Maharashtra will have to take a policy decision to allot suitable distribution circles of above 1,500 mw capacity load without which the project will remain unviable," sources said. The IFIs and utilities have demanded that the Centre would have to provide exemption from the payment of minimum alternate tax (MAT). "Such an incentive is needed as tax is passed on to the consumers. The exemption in MAT will ultimately help in the reduction of tariff," sources said. The package also envisages substantial reduction in interest rates by lenders, conversion of foreign debt into rupee debt so that the price of power would not get affected following foreign exchange fluctuations. The IFIs, DPC, Tata Power and BSES have also suggested a suitable moratorium period of 15 years or more. They have unanimously called for providing a mega power status to the Dabhol project in a bid to get concessions in the customs duty. 

According to sources, the existing promoters would have to facilitate finalisation of a new fuel supply agreement which would result in the fall in cost of supply. Further, the LNG facilities would have to be restructured to help reduce the capital cost substantially. According to the power purchase agreement between DPC and MSEB, the re-gassification facility is for 5 million metric tonne per day (MMTPA) of LNG, whereas the power plant has contracted for only 2.1 MMTPA of LNG (of which 1.8 million tonne is take or pay), and even using that requires an unreasonably high plant load factor. According to Madhav Godbole renegotiation committee, after segregating the LNG facility, it could be marketed to other buyers of gas, separate from the power project. Sources said various government departments and lenders would have to consider this package as appropriate decisions would have to be taken at different levels. Moreover, cabinet decisions as well as approvals from the board of directors of IDBI, ICICI and other lenders would also be required for the implementation of the package. 
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THE FINANCIAL EXPRESS, Thursday, November 15, 2001
Andersen's underbelly gets exposed, Sunil Jain 

The Enron disclosures raise questions about top-notch audit firms. After all the curious financial dealings of various Enron Corp officials, comes the admission that the firm had overstated its profits by around a fifth for the past four years. The disclosure comes in a Securities and Exchange Commission filing on the eve of the Enron-Dynegy takeover talks. For those Indians who've been agitating against Dabhol Power Company plant in Maharashtra, all this is, of course, just another 'example' of the power company's perfidy. If Enron could do this in the US, imagine the kind of fiddles it must have done in the case of the Dabhol plant. 

This, may or may not be true, and certainly needs to be proved. But the firm whose reputation has taken an equal, if not bigger beating, is the audit firm Arthur Andersen, a reputed global player. What was, a lawsuit filed last week in Oregon asks, Arthur Andersen doing when all this happened? How could Andersen not find anything fishy with Enron's financial deals? And, though the law suit doesn't deal with this, how did Andersen allow such a massive over-stating of profits? While only a probe will reveal how things managed to go so wrong, it's a good idea to go back and read a book called The Big Six by Mark Stevens, incidentally also the author of The Big Eight, which is the number of the top global audit firms before they consolidated and reduced their number to six. Stevens' most evocative story is the one about ZZZZ Best, the carpet-cleaning business begun by Barry J Minkow. Barry built his company into a formidable enterprise with a turnover of $ five mn, and then decided to go public, and while doing so, boasted that his firm was in the lucrative insurance-restoration business - that is, he got restoration contracts from insurance firms. Minkow then hired top accounting firm Ernst & Whinney (that later merged with Arthur Young to become Ernst & Young) to help boost his image. 

Ernst decided to do an audit of Minkow's insurance business. Minkow hired someone's office in Sacramento, bribed the security guard to pretend he was familiar with ZZZZ's staff and forced Ernst to do an inspection on a Sunday, when other offices were closed. Ernst gave a glowing report of the business. The same pattern of 'inspections' was then repeated in other cities. When the scandal became public, Ernst pleaded they couldn't be blamed for not being able to detect such an elaborate fraud, and they certainly didn't have the skills of the police. The police, who, for instance, just spent around ten minutes in each city going to the building department to find out if the buildings that ZZZZ was helping 'restore' had ever had a fire or water leakages ZZZZ claimed they'd had. 

Fair enough, but the House Committee on Oversight asked what about the 'confidentiality letter' that Ernst had signed? A confidentiality letter that said Ernst would never disclose the location of the buildings ZZZZ was restoring to any third party - that's fine. It also said it would 'not make any follow-up telephone calls to any contractors, insurance companies, the building owner ... involved in the restoration project.' Congressman Ron Wyden asked Ernst how it proposed to do an independent audit with such restrictions? Ernst said 'It did not restrict me being able to perform that and I did go on site ... if I would have had any questions that came up in the course of that review, I would have pursued those questions ...' Of course, questions didn't come up because Ernst wasn't looking too hard. 

It gets better. An informant told Ernst the 'restoration' job it had inspected in Sacramento was a fake. Later, the charge was withdrawn, but none of this made Ernst want to revisit the Sacramento site. Later, Ernst walked out on ZZZZ after some bad press about false credit card billings by ZZZZ, and the account was taken over by Price Waterhouse. This despite Ernst telling Price Waterhouse that it had found evidence of payments by ZZZZ to the individual who made and then withdrew the complaint about the restoration jobs being fake! Incidentally, the discovery didn't prompt Ernst into reporting the matter to the authorities either. 

In other cases, like the widely-reported Savings & Loan scandals in several states, it was the Big Six - such as Touche Ross in the S&L case - who allowed firms to get away with major fiddles such as changing descriptions of loans, and ignoring warnings by even the internal auditors. In one Congressional hearing, for instance, the Touche partner was talking of a particular deal which had both an equity and a loan component. What was the amount of the equity, the Congressman asked. I don't know, replied the Touche partner? And they were the auditors. The Enron-Andersen episode shows much remains the same. It'll be interesting to see what action the SEC takes against both Enron and Andersen in this case. The veneer of professionalism of the Big Six audit firms, needless to say, has been badly damaged. 
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THE ASIAN AGE, Friday, November 16, 2001
Bidders demand distribution rights, Rajesh Unnikrishnan 

The two bidders for the 85 per cent stake in Enron promoted Dabhol Power Company - Tata Power and BSES Ltd have demanded the distribution rights for the 1,500 mw power from Dabhol in the Maharashtra state as one of the pre-condition for buying out the stake. The bidders' demand will be one of the main points in the new proposal being prepared by the Indian financial Institutions led by the Industrial Development Bank of India for the Maharashtra state government and the Maharashtra State Electricity Board. This was one of the main issues which had been discussed between the Indian FIs, Tatas and BSES during their recently concluded meeting in Singapore. 

Sources close to the development said that both Tatas and BSES have asked a 1,500 mw power distribution zone preferably Nagpur Distribution Zone or Navi Mumbai Distribution Zone to formulate a workable model for DPC project once the equity acquisition gets over. FIs sources said that there have been some preliminary talks in this direction. " We believe that a workable model would emerge in order to facilitate the take-over," they said. However, the sources refused to divulge more on the issue. However, a senior executive engineer of MSEB said that the Board is totally out of the picture now. There is no official communication from the FIs as far as the allocation of distribution zones are concerned. Once a proposal comes in, MSEB will consider it. Industry sources pointed out that allocating new distribution zones will not be a viable idea for MSEB as the financial health of the board has been deteriorating for the last couple of years. Navi Mumbai Distribution Zone and Nagapur Distribution Zone are considered as the cash- rich distribution zones and giving away any of these zones would further affect the financial health of board. 
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THE FINANCIAL EXPRESS, Friday, November 16, 2001
MSEB asks Dabhol Power to defer Houston meet in wake of HC order, Sanjay Jog 

The Maharashtra State Electricity Board (MSEB) has dashed off a letter asking the Dabhol Power Company (DPC) to postpone the November 19 board meeting slated to take place in Houston, in view of the Bombay High Court restraining DPC from issuing a final termination notice. The DPC board among others proposes to authorise the Enron India managing director K Wade Cline to issue the final termination notice to the MSEB. MSEB, which has heaved a sigh of relief following the Bombay High Court order on a civil suit filed by the Indian financial institutions (FIs), have made it clear that the meeting needed to be postponed as the state principal energy secretary VM Lal, who is on the DPC board, had been to London to brief the government solicitors DLA in connection with the ex-parte order passed by the London court restraining the state government from filing any civil suit against DPC in India. MSEB has said that Mr Lal would need some time as he was busy with the London court matter. 

MSEB sources told The Financial Express that it has told the DPC that there was no point rushing for November 19, as the high court has already prohibited the DPC from issuing a final termination notice "until further orders." Sources added that the high court has slated next hearing on December 3. However, DPC has verbally communicated to the MSEB that as of now the meeting was on. According to DPC, the final termination notice would not be served at the November 19 meeting but it would simply authorise the Enron India managing director K Wade Cline for issuing such a notice to MSEB, the sources said. DPC spokesman Jimmy Mogal said "we are unable to confirm or deny. Mr Cline, who had recently attended the three-day Singapore meet convened by the Indian financial institutions, has yet to land in Mumbai as he is still camping in Singapore. Mr Cline, who would later go to Houston, New York and Washington in the wake of Dynegy Inc's decision to acquire Enron Corp, is likely to return to Mumbai around December 3. 

The November 19 meeting, which coincides with the expiry of six months since the issuance of a preliminary termination notice by DPC to MSEB on May 19, would also take up issues related to the question of financial position of DPC relating to the phase-I (740 mw) which has been lying idle since MSEB's decision to suspend power purchase from May 29. The meeting would also take up matters related to the debt servicing for phase-II (1,444 mw). The construction work has already brough to a halt following the termination of construction contract by the construction contractors from June 17. The DPC has already defaulted the interest/guarantee fee of Rs 57 crore, which was due in September/October this year to rupee lenders/guarantors. 

Maharashtra govt denies permission to attend meet 
The Maharashtra government has denied its consent to MSEB chairman Vinay Bansal, the state principal energy secretary VM Lal and MSEB technical director Prem Paunikar for attending the November 19 meeting at Houston. It is likely that none of the directors representing MSEB and the state government would be present for the said meeting. MSEB holds 30 per cent equity in the Dabhol Phase-I while it has not picked up similar equity in the Phase-II in view of its precarious finances. 
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THE ASIAN AGE, Saturday, November 17, 2001
MSEB 'will not' attend DPC meet in Houston 

Maharashtra State Electricity Board has once again decided not to attend the board meeting of Enron-promoted Dabhol Power Company, scheduled to be held in Houston on November 19. "We reserve our right to be present in the board meeting being held in Houston," MSEB sources said on Friday. This is the third time that MSEB has refused to attend the board meetings, which were earlier held in Mumbai. It also did not attend the annual general meeting of the energy major held a couple of months ago in the city. "DPC has consistently ignored our rebate claim for their material misrepresentation in the operating capabilities of the plant. Since there is nothing that we can discuss we see no point in attending such meetings," sources added. 

A DPC spokesman, when contacted, declined to comment stating that "it is a statutory internal matter." MSEB also refused to take cognisance of the November 5 asset transfer notice and several monthly bills despatched by DPC stating that it had rescinded the power purchase agreement. The first preliminary termination notice expires on November 19, the same day as the board meeting. However, the Mumbai high court has restrained DPC from issuing the final termination notice till December 3. DPC has also sought lenders' approval for issuance of the final termination notice but Indian lenders are yet to give their consent. (PTI) 
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THE DECCAN CHRONICLE, Saturday, November 17, 2001
MSEB to skip Enron board meet 

Maharashtra State Electricity Board has once again decided not to attend the board meeting of Enron-promoted Dabhol Power Company, scheduled to be held at Houston on November 19. We reserve our right to be present in the board meeting being held in Houston, top MSEB sources said here on Friday. This is the third time that MSEB has refused to attend the board meetings, which were earlier held in Mumbai. It also did not attend the annual general meeting of the energy major held a couple of months ago in the city. DPC has consistently ignored our rebate claim for their material misrepresentation in the operating capabilities of the plant. Since there is nothing that we can discuss we see no point in attending such meetings, the sources added. A DPC spokesman declined to comment on the matter. 
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THE INDIAN EXPRESS, Saturday, November 17, 2001
Parleys on Enron stake sale continue; BSES, Tata Power begin due diligence

WHILE more skeletons are tumbling out from Enron's cupboards in Houston, hectic negotiations are currently on between Indian financial institutions and power firms BSES and Tata Power for the sale of Enron's Dabhol power project. Mumbai-based power companies BSES Ltd and Tata Power have kicked off the process of carrying out due diligence - to find out the true value of the project and economics of the takeover - of the troubled $2.9 billion Dabhol Power Company (DPC). Facing a default on its Rs 6,190 crore loan to DPC, Indian financial institutions are pushing the takeover plan seriously with Enron and bidders. They are also looking out for other buyers besides DPC and BSES. 

BSES has already announced its decision to appoint internal and external task forces for carrying out due diligence of the project after signing a confidentiality agreement with DPC. Tata Power is also negotiating to work out the modalities for signing a confidentiality agreement for carrying out due diligence. "Indian institutions are insisting for a minimum reserve price of $700 million (around Rs 3,360 crore) for the Enron stake. Now the ball is in the courts of BSES and Tata," said an institutional source. However, both BSES and the Tatas are not in favour of paying more than $400 million for the project due to huge liability including to the Indian Customs. 

BSES chairman and managing director RV Shahi had already gone on record saying that the company has shown its interest to acquire 85 per cent stake (65 per cent of Enron and 20 per cent of GE and Bechtel) in the Dabhol project at the recently concluded Singapore meeting convened by the Indian financial institutions (IFIs). The rest of the equity would be held by MSEB which is the only buyer of power from Dabhol Power. Shahi said until the completion of due diligence, BSES expects concrete formulations of various types of incentives/concessions which should be available from the Government of India, Government of Maharashtra and lenders. "Outcome of due diligence with concrete proposals of incentives/concessions will enable BSES to assess the valuation for the Dabhol project. It is not a workable proposal for the company to accept without due diligence," he added. Bidders are keen that all the steps should be required to significantly reduce the generation tariff. "Unless that happens it will be difficult to positively look at the opportunity," said an official. 

But it's still not clear whether Dynegy will support the exit plan. "Though the takeover has been announced, the process will be completed only by the third quarter of next year," Enron circles said. Maharashtra State Electricity Board (MSEB) which holds 15 per cent stake in DPC is trying hard to prevent any exit before the stake sale. It is learnt that the two bidders are keen for a reduction in per unit tariff at Rs 2.70, a cut in interest rate, exemption from payment of minimum alternate tax, providing mega power status for the Dabhol project and separation of liquefied natural gas (LNG) facility from the power project. These issues were considered at the recent Singapore Singapore meet. "The project will continue to languish if there is no possibility of providing power at an affordable tariff by adding value to the equity," FI sources add. 

According to sources, both equity holders and lenders would stand to loose enormously as both would have to take hits and cuts. "The existing equity promoter would have to be prepared to take a substantial cut in the equity value without which the tariff would not come down to a reasonable level," sources said. They have stressed the need for a payment security mechanism for the sale of power. "The Government of Maharashtra will have to take a policy decision to allot suitable distribution circles of above 1,500 mw capacity load without which the project will remain unviable," sources said. The FIs and utilities have demanded that the Centre would have to provide exemption from the payment of minimum alternate tax. "Such an incentive is needed as tax is passed on to the consumers. The exemption in MAT will ultimately help in the reduction of tariff," sources said. 

The package also envisages substantial reduction in the interest rates by lenders, conversion of foreign debt into rupee debt so that the price of power would not get affected following foreign exchange fluctuations. The IFIs, DPC, Tata Power and BSES have also suggested a need for a suitable moratorium period of 15 years or more. They have unanimously called for providing a mega power status to the Dabhol project in a bid to get concessions in the customs duty. MSEB, which has heaved a sigh of relief following the Mumbai high court order on a civil suit filed by the Indian financial institutions, have made it clear that the meeting needed to be postponed as the state principal energy secretary VM Lal, who is on the DPC board, had been to London to brief the government solicitors DLA in connection with the ex-parte order passed by the London court restraining the state government from filing any civil suit against DPC in India. MSEB has said that Lal would need some time as he was busy with London court matter.
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THE HINDU BUSINESS LINE, Sunday, November 18, 2001
It is deal-making time in Dabhol, D. Sampathkumar

THE Enron-promoted Dabhol Power Company continues to navigate choppy waters, in its quest for the safe harbour of unhindered domestic operations. If the uncertainty over cancellation by the Maharashtra State Electricity Board (MSEB) of its power purchase agreement with the company is not enough, there comes the news that MSEB, a 15 per cent stakeholder in the company, refuses to participate in the deliberations of the company's Board. Its tactical compulsions in this regard are entirely understandable. It does not want to be even remotely seen as party to decisions of the company that could compromise its claims against the company at a later date. But the continuing standoff between the MSEB and the overseas promoters notwithstanding, a unique combination of circumstances has provided the right conditions for an amicable resolution of the messy tangle that the project is enmeshed in, at the moment. Each of the parties with a stake in the project has its own compulsions in seeking a resolution of the dispute and thereby put an end to the uncertainties facing them vis-a-vis their financial exposure to the project. For all the bravado, the basic fact remains that none of the parties involved in the deal can afford to dig in its heels and refuse to go along. Leading the list is Enron, the project's principal promoter. Its claims to being the injured party in the game of political football that the project has become, has lost some of its strength in the wake of troubles confronting it at home. Its non- energy business is largely in tatters and controversies over accounting policies and disclosures of performance, are developments it could have done without in its quest for an image of purity of a fresh driven snow. 

Adding a new dimension to the issue is the news of takeover of Enron by Dynegy Inc., a much smaller rival in the industry but without any of the excess baggage of questionable investments of the former. This is a positive development. Dynegy would have its hands full managing the merged business with all its inherent complexities. The position domestic financial institutions find themselves in, in this imbroglio, is even more untenable than that of the overseas promoter. Servicing of debt would be the first casualty in any termination of the commercial contract between the Maharashtra Electricity Board and Dabhol Power Company. With their balance sheets in a precarious position the implications for provisioning for non-performing assets that a default occasions are horrendous. As for the Central Government, its position as merely the counter guarantor of MSEB's payment obligations under the power purchase agreement does not offer it much room for comfort. Also, while in theory, the Centre can pay and recover it out of the finances devolving on Maharashtra from the Centre, in practice, this may prove to be politically infeasible. As it is, some of the more prosperous states in the federal set-up feel they are contributing far more to the cause of balanced regional development than they can reasonably be credited with. The extraction, by way of counter-guarantee obligations, is certain to stoke fissiparous regional sentiments besides handing out a stiff price to the party in power at the Centre when it is election time in that region. 

What, then, could be the contours of a possible deal among the interested parties? If the deal is to be sold by each party to its constituents, it must be seen as a fair one and yet recognise the harsh commercial realities that characterise the present situation of each of the parties to the dispute. The project with its integrated structure of power generation, port handling and regasification can no longer be sustained if domestic bidders are to be roped in as new promoters. For then, the financial outlay implicit in a project of such a composite nature is beyond the capability of most domestic players in the power utility business. It hence needs to be rebundled into two components - namely, the generation assets and support infrastructure such as gas terminal and regasification plant. 

Second, differential treatment in the valuation of assets in the two phases of the projects is a must. Enron, after all, is in possession of a counter-guarantee for the investment made in the first phase of the project. Hence, the broad principle of international market price for assets taken over will have to be tempered by the recognition that insofar as the first phase is concerned, the valuation is not so much for pieces of generating equipment as for a stream of guaranteed cash flows from a commercial contract. The political education expenses that Enron has admittedly incurred cannot completely be ignored as some Indian entities appear to have been the beneficiaries. Sensitivity to these aspects provides a possible framework for resolving the dispute.
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THE ECONOMIC TIMES, Wednesday, November 14, 2001
'DPC sale to be decided by Enron, Tatas, BSES' 

THE INDUSTRIAL Development Bank of India on Monday said the selling price of the erstwhile US energy major Enron's troubled Dabhol Power Company will be decided by the two city-based utilities Tata Power and BSES with the multinational through `mutual negotiations'. "It is expected that further steps in this regard will be initiated by DPC, BSES and Tata Power in the next few days to begin the due diligence, after signing a confidentiality agreement with DPC," IDBI chairman and managing director P P Vora said in a statement here. He said Indian financial institutions including IDBI, ICICI, State Bank of India and IFCI, who have an exposure of over Rs 6,000 crore in DPC, along with the Centre, MSEB and Maharashtra government, could consider certain incentives to prospective new sponsors with a view to making the project more attractive and bring down the tariff to a reasonable level. "Brief features of an incentive package prepared by a committee appointed by the Centre were also discussed," Vora said.

DPC officials also clarified various technical and operational issues, which will need to be resolved for smooth management transfer and successful operation of the plant by the new sponsors, it said. The three day Singapore meeting of the FIs with DPC and the private utilities also included officials from National Thermal Power Corporation and Central Electricity Authority to to provide technical advice, the Chairman informed. The issues discussed included completion of the 1,444 mw phase-II of the project and the cost thereof, sale of Enron, Becthtel and GE's shareholding in DPC (aggregating 85 per cent of total capital) to either of the prospective new sponsors like BSES and Tata Power."Based on these discussions and clarifications provided by IFIs and DPC, both BSES and Tata Power have expressed deep interest to purchase the 85 per cent shareholding of DPC subject to certain conditions, inter-alia, on price of shares and other related technical and operational issues," Vora said.

After their return from the three-day Singapore meet, a senior FI official had confirmed that "the road map was now clear. Tata Power and BSES will formally look into the financial books of DPC, its loans, sponsors and other assets and most importantly the legal wrangles and then make a final bid for the distressed company". Interestingly, the erstwhile energy major had informed the FIs a few days ago that it was ready to take a 30 per cent hit on its equity at around $850 million from the initial offer price of $1.2 billion. However, both Tata Power and BSES have demanded a 50 per cent reduction in Enron's offer. (PTI) 
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THE TIMES OF INDIA, Thursday, November 15, 2001
Tatas, BSES keen to acquire DPC 

Indian power generation companies Tata Power Company Ltd and BSES Ltd have expressed interest in acquiring the 85 percent stake held by Enron and its associates in the controversial Dabhol Power Company. "Both BSES and Tata Power have expressed deep interest to purchase the 85 percent shareholding held by Enron and its associates. They would also like to conduct due diligence of the project," said a statement Tuesday by the Industrial Development Bank of India (IDBI), the lead lender to the project. The statement also said lenders and owners of Dabhol held a three-day meeting last week in Singapore that was "fruitful and expected to pave the way towards the solution for the various issues." US-based Enron has said expects about $1 billion for the stake. Enron, along with the Maharashtra State Electricity Board and the state government, had jointly set up the power plant in the western state, which stopped generating electricity after MSEB failed to pay for power from the 1,284 megawatt project. DPC has served an "asset transfer notice" to the MSEB for the valuation of the company's assets in order to sell them off. IDBI and other lenders such as the State Bank of India, ICICI and IFCI have lent more than Rs 6000 crore to the project and filed a lawsuit against DPC to ensure they get their funds back. ( AFP )
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THE ECONOMIC TIMES, Sunday, November 18, 2001
Govt not to encash gurantees against DPC 

IN AN ad-interim order, Mumbai High Court has restrained the Centre and customs authorities from encashing guarantees undertaken by State Bank of India in regard to customs duty payable by Enron-promoted Dabhol Power Corporation for importing equipment to build liquified petroleum gas terminal in its Dabhol plant. The ex-parte injunction was granted by justice D G Karnik on November 15 on a petition filed by DPC challenging the show cause notice issued by customs authorities asking the company to pay Rs 245 crore as import duty on the equipment. The court also restrained the SBI to make payment under the guarantees undertaken by it on behalf of DPC. The judge, however, allowed DPC to file an appeal before customs, excise and gold appellate tribunal within a period of four weeks from the date of his order (November 15). He also ruled that the ex-parte injunction order shall automatically stand vacated from December 15 subject to the orders that may be passed by the tribunal.

Meanwhile, the court directed DPC and respondents to keep the bank guarantee alive and enforceable. It also ordered that notices be issued to the respondents after four weeks. On a show cause notice issued by the customs department, the adjudicating officer had ruled that the power producer had wrongly availed of the customs duty concession to import equipment needed for LPG project. According to him, the concession was available only for the power plant and not for the LPG facility. He had also imposed a penalty of Rs 45 crore taking the total liability of DPC to Rs 290 crore. DPC, on the other hand, contended that LPG facility was essential to the power project and was thus eligible for concession in customs duty.( PTI )
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THE ECONOMIC TIMES, Friday, November 16, 2001
FIs for allotting distribution zone to DPC buyer, Anto T Joseph

IDBI-LED financial institutions are putting together a proposal to be presented to the state government and Maharashtra State Electricity Board, under which the buyer of Enron's Dabhol Power Company would be allotted a distribution zone. The new owner would also be allowed to sell electricity directly to consumers, if the proposal is accepted. This proposal formed the basis of discussions during the recent three-day Singapore meet between IFIs, DPC and the two utilities in the fray for buying Enron out of DPC, Tata Power and BSES. If the proposal doesn't find favour with MSEB and the government, it will be a setback for domestic lenders, who would be forced to piece together another workable model.

FI sources said offering a profitable distribution zone and allowing third-party sale of electricity was a pre-condition set by both the contenders. Primarily electricity distribution utilities, both Tata Power and BSES will also evaluate one of the lucrative distribution zones of Navi Mumbai, Thane or Pune as part of the package deal. ET had on October 6 reported that the domestic lenders had mooted a similar proposal, with the help of the Central Electricity Authority. Maharashtra State Electricity Board had then rejected the proposal to part with any part of its distribution network to any private power utility. Since then, things have moved fast and mostly in favour of the domestic lenders with the Union government and the power ministry supporting the proposal. "This is a payment security mechanism, thrown up by Indian lenders. If MSEB buys the power from phase I (744 mega-watt), there needs to be a buyer for the rest of 1440 MW produced by the second phase.

This could be a combination of two - handing-over of a MSEB-owned distribution circle and selling power directly to a few industries," said a BSES official. Another option of NTPC buying power from the plant was also discussed at the Singapore meet. MSEB chairman Vinay Bansal told ET that no such proposal has ever come to the board from domestic lenders. "Tata Power has been demanding an extension of their distribution areas. But we can't afford to oblige because that would imbalance our receivables," said Bansal. As the FI officials pointed out, the proposal involves all involved parties making sacrifices to salvage the project. While the sacrifice would be in the form of lower interest rates for lenders and selling its stake for an amount below its initial investment by Enron, MSEB would have to sacrifice a distribution zone.

MSEB, however, says that once a lucrative zone is chopped off from its distribution area, it will lead to MSEB's cashflows declining drastically. "These economics are preventing us from giving away any distribution areas," said a MSEB official. Over the last two years, Maharashtra State Electricity Board had tried to unbundle its functions and privatise distribution circles by appointing IL&FS and the Administrative Staff College of India of Hyderabad. Both IL&FS's proposal to form a joint venture to privatise Navi Mumbai, and ASCI's Maharashtra Electricity Reform Bill are currently on the backburner.