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Industry News

Enron India Defaults on Interest Payments

LCG, Sept. 24, 2001--Enron Corp. has admitted that its Indian subsidiary Dabhol Power Co. defaulted on interest payments to international lenders, Reuters news agency reported on Friday.

"I can confirm that there was a technical default on the Phase 2 loans for the Dabhol power plant," Enron spokesman John Ambler said.

Ambler said the default was on loans for the nearly complete 2,144 megawatt Phase 2 of the Dabhol power plant near Bombay in India's Maharashtra state, and said their had been no default on loans for the 740 megawatt Phase 1, which began commercial operations a year ago.

A Dabhol Power Company spokesman declined to comment on the default but confirmed that the company had asked foreign lenders for help in meeting its interest payments, some of which must be made by next Sunday.

Almost immediately after Phase 1 of Dabhol began producing power, its only customer, the government-run Maharashtra State Electricity Board proved to be a payment-impaired customer. Enron was forced to invoke guarantees by the state of Maharashtra and the federal government of India to get any payment at all and in June of this year the MSEB quit taking power entirely and defaulted on outstanding bills owed to Dabhol.

In July, Enron said it wanted out of India and would be willing to sell its 65 percent interest in Dabhol for the $1 billion it had invested in the plant. It also suspended work on Phase 2 shortly before it was scheduled to begin commercial operation.

Ambler told Reuters that Dabhol Power Co.'s default was a direct result of the cessation of payments by the MSEB and observers say the default deals a huge blow to efforts to find a solution to the dispute between Dabhol and the MSEB.

Foreign lenders are now likely to be less accommodating, they said, and will be under increasing pressure to invoke guarantees given by the Indian lenders, the news agency said.

Besides lending money themselves, Indian lenders have guaranteed most of the loans given by the project's global creditors. Therefore, Indian lenders will be obliged to pay up whatever amount Dabhol defaults on.

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