Dabhol settlement finally underway

It's finally official. General Electric GE will receive a down payment of 110 million from the Maharashtra Power Development Corporation ...

It8217;s finally official. General Electric GE will receive a down payment of 110 million from the Maharashtra Power Development Corporation Ltd MPDCL on Thursday allowing NTPC and GAIL to start work on reviving the Dabhol power plant.

Under the settlement agreement, being signed in London between GE and MPDCL, where the Indian government and the financial institutions are also parties, the balance 35 million will be paid to GE from the sale proceeds of the Dabhol power project. In all, GE would be paid 145 million.

Funds for Thursday8217;s deal have been raised by the financial institutions. Talks with Bechtel, on the other hand, have not made headway and sources confirmed that Bechtel is not signing any settlement agreement on Thursday. This is despite differences between Bechtel and the Indian government being narrowed down to one single issue. The date set for international arbitration between the Centre and Bechtel is July 17, 2005.

However, once the agreement with GE is in place, both GE and the Indian government would also sign a 8216;deed of release8217; where both parties would drop all litigations against each other. In addition to this, GE would also drop its right of first refusal allowing the Indian government and its affiliates to officially start work on the restart of the power venture. There are over 20 legal cases that both GE and the Indian government have filed against each other.

On the equity transfer, once the deal is signed, out of the 42 per cent equity that GE directly and indirectly holds in Dabhol Power Company, only 10 per cent would be transferred to a new special purpose vehicle SPV that has been recently launched to park the equity. Sources said this SPV is different from the SPV being launched by NTPC-GAIL to run the power plant. Around Rs 1,300 crore would be kept separately in security deposit with SBI for the SPV that would restart the Dabhol project.

The balance 32 per cent of GE8217;s equity however needs the approval of the New York bankruptcy court for which the Indian government has to make a separate appeal or has to get Bechtel on board. GE-Becthel together hold around 84 per cent equity in DPC, while the balance 16 per cent is held by state-owned MPDCL.

Parallel to these discussions with GE-Bechtel, an agreement has been reached with the foreign banks on their settlement amount and sources said both ANZ and ABN Amro would now be getting a slightly higher amount. All the foreign banks were to have been paid a total of 230 million. Funding for this settlement is being raised through government guaranteed bonds. An agreement with the foreign banks is to be signed in July.

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On the Bechtel front, sources said out of the two outstanding issues, the issue of tax on the settlement amount can be handled under the double taxation treaty Bechtel unlike GE does not want its settlement amount to be subject to tax but on the issue of contesting third party claims, the Indian side is not willing to accept Bechtel8217;s stand to independently litigate the issue of such liability if it arises.