Big Payoff In Small Print

To get ol' Dabhol going, Rs 10,000 crore of public money will be spent, and most of it to retire its foreign debt.
25 April, 2005
Rajesh Ramachandran
Outlook


After the meeting of the Cabinet Committee on Economic Affairs (CCEA) last week, defence minister Pranab Mukherjee made what seemed an innocuous announcement. "We are negotiating with all parties concerned for settling the issue amicably. This, it is hoped, will help them (stakeholders) settle these issues early." The issues in question were Enron and the revival of the Dabhol Power Company (DPC). Mukherjee stepped in because finance minister P. Chidambaram, former lawyer for Enron, had 'recused' himself.

What Mukherjee left unsaid was that it was the Indian taxpayer who would be bearing the burden of the Rs 5,000-crore bailout package for the promoters and lenders of the dubious US power company and its contractors. Outlook is in possession of the note prepared for the CCEA, which reveals shocking details of Enron's foreign loans that the government is promising to pay off. These include:

Offshore lenders: $230 million
Export credit agencies: $450 million
Overseas Private Investment Corporation (OPIC) loan: $138 million
OPIC political risk insurance: $111 mn
Buying out GE-Bechtel's stake and dues: $250-$350 million

The question of how the money would be generated has been left to Indian financial institutions (IFIS) which have already lost Rs 3,600 crore in DPC. The government isn't giving any details, neither to the media, nor even to Parliament. When the issue of Indian banks and financial institutions tapping the Employees' Provident Fund to repay Enron's loans was first reported by Outlook, the government refused to comment on it. When the matter was raised in the Rajya Sabha, minister of state for personnel, Suresh Pachauri, said it was improper to give out details since the issue is at negotiation stage.

The government's reluctance is understandable. It has never really revealed the full details of Enron's liabilities. Now, it has to subsidise a hugely unpopular project, the revival of which is fraught with questionable compromises.

April 21 is the deadline the government has set to pay off creditors. Through the Indian lenders to Enron—IDBI, ICICI, IFCI, SBI and Canara Bank—the government has promised to repay $230 million to 20 creditors, including Bank of America and ABN Amro Holding NV. To quote the cabinet note: "A settlement has been reached for the buyout of offshore lenders in the meeting between the negotiating committee and offshore lenders held in Singapore on January 21, 2005, and payments have to be made in the next 90 days. As per the terms of settlement, payment of US $230 million will be made against the principal debt outstanding of US $289, the outstanding interest will be waived, implying recovery of approximately 80 per cent of the principal dues of the offshore lenders."

That's not all. Enron owes $450 million to export credit agencies (ECAs) which have provided such credit for goods and services supplied to DPC. The primary ECA is the Japan Bank of International Cooperation. This debt too has fallen on IFIS, which have sought time till December 1, 2005. Then, the US government's lending arm OPIC had advanced $78 million for Dabhol's first phase and $60 million for the second stage. The total of $138 million is outstanding. Apart from this amount, OPIC had issued political risk insurance to Enron, equipment suppliers and contractors, GE and Bechtel and lenders Bank of America.

According to OPIC's official communication to the Indian government, it had paid $111 million under various political risk insurance policies and now wants all these to be repaid by the Indian government under the 'Investment Incentive Agreement between the Government of India and Government of USA'. A negotiating team led by Anoop Mishra, joint secretary of finance ministry, met OPIC representatives on January 12, 2005, and then again on March 7 and 9 in Washington to discuss the settlement of OPIC's claims.

The final settlement is to the benefit of OPIC: an upfront cash payment for the political risk insurance of $20.7 million before July 5, 2005, and the remaining $91 million to be repaid in eight years with 2 per cent interest. The deferred payment for $91 million would be guaranteed by the special purpose vehicle formed by IFIS and counter-guaranteed by the Indian government. The other upfront cash payment involves $108 million which goes towards the repayment of OPIC's $138 million loan. What the government's therefore agreed to pay under various heads is some $900 million or about Rs 4,000 crore.

This was stitched up even as the government told the Rajya Sabha that it could not reveal the details of the deal. Dipankar Mukherjee of the CPI(M) had sought a white paper on Dabhol on February 18. The CCEA note was written on February 19.

Another huge amount of over Rs 1,000 crore is at stake. For DPC to be revived, equipment suppliers GE and Bechtel have to be paid off. These two companies together had 20 per cent stake in DPC. Later, they bought 49 per cent of shares of Dutch shell company Offshore Power Production from Enron's liquidators, effectively controlling 85 per cent of DPC. The Mishra-led team went to New York on March 17 and the cabinet note written two days later says, "Information on the meeting was received orally by telephone from Mrs Kalpana Moreparia, deputy managing director, ICICI, on the morning of March 19, 2005."

When negotiations first began in January 2005, GE-Bechtel had sought $460 million for its equity and unpaid dues. The Indian government's offer began at $158 million and was then raised to $213 million while GE-Bechtel lowered its demand to $290 million. On March 12, 2005, GE and Bechtel wrote that the $213 million offer was "well below the $250 million verbally offered by (former IDBI chairman) Mr Damodaran in (GE chief executive officer) Scott Bayman's last meeting with him". They also upped their demand to $350 million. Mishra's team that reached New York on March 17 raised the Indian offer to $250.

Interestingly, Damodaran had told the government that while GE was keen on a settlement, Bechtel was insisting on full payment of dues because, "the personal funds of one of the directors of Bechtel were included in the contract". Thus the government has already committed $250 million or over Rs 1,000 crore to GE and Bechtel. This figure can only go up as the government bends over backwards to meet their demands.

Even this Rs 5,000-crore bailout package will not get the Dabhol plant going. The government has already asked NTPC, GAIL and IFIS to invest Rs 500 crore each to get the plant running. At the end of the day, over Rs 10,000 crore (including the Rs 3,600 crore already lost) would have been spent to get the 2,184 MW plant going. This is at least Rs 2,000 crore more than what a wholly new plant would have cost! Reliance's gas-based 3,500 MW plant in UP is expected to cost just Rs 10,000 crore.

Power experts have already asserted that by selling power at the competitive rate of Rs 2.2 per unit (as clearly indicated in the cabinet note), all the money sunk in Enron's bailout and GE-Bechtel's equity and dues can never be recovered. Who knows, the government may be waiting with yet another bailout package for this FDI once it gets revived.