Marathon asks Essar to act fast on contractual obligations

Marathon, however, has said in the letter that it was still open to extend the June 27 deadline for completing the share acquisition transaction, sources said, adding that Essar has not yet replied to Marathon’s proposal.

Essar group’s spokesperson, when contacted, declined to comment on any communication between Marathon and Essar. "The board of directors of Essar group companies involved will meet a few days before the expiry of the deadline to take a final decision," he said.

Government and FI sources said that with the Gujarat government insisting that Essar Power would not be permitted to directly sell power to Essar Steel post-acquisition, the "Essar-Marathon deal is as good as over". The Gujarat government wants Essar Power to sell electricity to the Gujarat Electricity Board which in turn would supply to Essar Steel at commercial rates.

FI sources said the deal was highly unlikely to go through in the absence of Gujarat government’s approval as Essar Steel is not in a position to buy power at commercial rates. Essar Steel is currently buying 215 mw of power from Essar Power at a concessional rate in consideration of being a sister concern.

Following the acquisition by Marathon, this arrangement would come to an end in case the state government sticks to its stand. The MoU signed between the two companies clearly stipulated that following the acquisition, Marathon Power would continue to provide uninterrupted supply of 215 mw of power to Essar steel for a 20 year period at an economical cost.

It may be mentioned here that Section 43 AI (C) of the Electricity Act allows a generating company to enter into contract to sell power with any entity but stipulates that the consent of the concerned state government has to be secured.

The proposed acquisition deal by Marathon was being considered as one of the biggest such deals in the country. Under the deal Marathon Power was to pick up the entire equity of Essar power for $170 million. Marathon Power had also agreed to take up the entire debt liabilities of Essar Power at Rs 1500 crore.