What went wrong

It's been close to 15 years since Enron first evinced interest in investing in India in a power plant to be located in the Ratnagiri district of Maharashtra.

It8217;s been close to 15 years since Enron first evinced interest in investing in India in a power plant to be located in the Ratnagiri district of Maharashtra. It was one of the biggest investments to be made in India by a MNC. In one of the most complex deals ever, Enron, through Dabhol Power Company, was able to sign a take-or-pay deal for a power-cum-LNG project with the state government and the electricity board. The Centre was to compensate the financiers and the promoters in the event of default in payment from the state.

The project8217;s financial closure, tying up of both debt and equity funds, was a mammoth task. Apart from routing funds through a dozen countries before reaching India, the financial closure involved at least 30 banks and institutions, both Indian and foreign, which were either directly lending money to the project or were guaranteeing loans by other banks made towards the project. Over 2 billion of debt and equity funds were tied up by 1998-99. If one was to add the non-debt funds pumped into the project, the total commitment was well over Rs 6,000 crore. Embedded in the agreement were also clauses that allowed Enron and its promoters to contest cases in international courts. This proved to be one of the strongest points that the company negotiated in the deal.

Since then a lot has changed. Enron worldwide folded up after it filed for Chapter 11 bankruptcy in 2001 and their key people, including chairman and CEO Ken Lay, are being investigated for one of the world8217;s largest corporate fraud cases. The key officials responsible for implementing the plant, however, quit the company just before the controversy unfolded. But not before earning a commission for having executed the project. Some of the top people both in banks and the companies are understood to have earned 1-2 percent of the project cost as commission for the Dabhol deal. But that is history.

On the construction side, the plant8212;split into two phases8212;was almost ready by 2000 and it started selling power to the state. However, power tariff from the plant skyrockted to Rs 7/unit and forced the state to shut down the plant as it could not meet the large invoices. Both Enron and the Indian side alleged breach of contracts. Legal notices were exchanged and even after Enron exited India after its worldwide implosion, it had ensured that India could not move forward and use the plant on account of several legal cases in the pipeline. Even the crucial software was taken out of India.

But Enron was not alone in DPC. GE and Bechtel, who were co-partners in the company, were the main suppliers of equipment, machinery and were also responsible for construction of the plant. Stung at not being paid for their investments in the plants, these two companies escalated the case to international arbitration and slapped a claim of Rs 2,5000 crore on the government in 2004 for both recovery of funds and loss of business opportunities.

The Centre initially wanted to contest these claims but changed its mind as it was the Indian banks and Financial Institutions which had more to lose in what promised to be a long- drawn legal battle to be played in London. There was always the possibility of losing the case in international arbitration.

By early 2005, India explored the settlement option and was able to buy out GE and Becthel8217;s stake by July after having agreed to pay 305 million. Assets were transferred back to an Indian company called Ratnagiri Gas and Power8212; jointly promoted by NTPC and GAIL. By November last year, this process was complete.

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Parallel to the settlement process, both the Indian PSUs were directed to restart the project and with the cooperation of GE and Bechtel, work began to revive the plant.