FINANCING PHASE II - SO NEAR, BUT YET SO FAR

Vol 3, PW 6 (14 Apr 99) Midstream & Downstream
     

Enron appears unable to maintain the same deadline discipline for construction of the 1,444-MW (nameplate capacity:1,624-MW) LNG-fired Phase II of the Dabhol Power Project.

In December 1993, Enron signed its Power Purchase Agreement (PPA) with the Maharashtra State Electricity Board (MSEB), in which construction of Phase II was set for the third quarter of last year. The company has not yet achieved financial closure but insists it will happen before end-April.

Financing of Phase II has been a problem from the start. In 1995, a change of government in Maharashtra signalled its cancellation, forcing Enron to spend time and money re-educating the new government.

Sanctions against India last May threw the project off track again, as US agencies dropped support overnight. Poor investor sentiment - a failed $500m foreign currency loan syndication in October 98 - forced back the initial December 1998 deadline to 1 March 1999.

Today, Enron finds itself deep in controversy again. Plans to borrow foreign currency from Indian financial institutions have been condemned.

Opponents argue Phase II deserves no support, unlike Phase I which was the first foreign power project in India. They argue Enron should bring in funds from abroad.

Also, there are renewed calls for the cancellation of Phase II on the grounds that the tariff is prohibitive. Amar Singh, an influential power broker belonging to the Samajwadi Party, accuses Enron of forcing MSEB to buy power at Rs3 when local plants produce power at Rs0.98.

Amar Singh echoes the charges of Mohan Guruswamy, a sacked advisor to the Ministry of Finance, who accuses the government of unfairly accommodating Enron. Re-education, it seems, pays dividend.

TABLE:-Breakdown of $1.082bn foreign debt component sought by Enron for Phase II of Dabhol Power Project. TRANCHE AMOUNT BACKERS 1 $436.6m Exim Bank of Japan 2 $90.8m OND of Belgium 3 $557m ABN Amro; Citibank; ANZ Grindlays State Bank of India; Bank of America Industrial Development Bank of India; CreditSuisse First Boston