Foreign lenders sue govt on Dabhol

The total value of the claims is about $291 mn.

A group of seven offshore banks has initiated formal arbitration proceedings against the Government of India under the treaties that govern investments between the countries of their respective origin and India.

The lenders have proceeded against the government for its "failure to protect their (lenders') loans to the Dabhol Power Project". The 2,184 megawatt facility, promoted by Enron Power, General Electric and Bechtel, was shut down in May 2001.

The total value of the claims made by the seven banks is about $291 million.

A press release, issued on behalf of the offshore members of the Dabhol Steering Committee, claimed that the Indian government had failed to comply with obligations under international investment treaties.

If the claims were upheld, the government would be liable to pay compensation equal to the outstanding loans plus interest, default interest and expenses, the release added.

"The claims arise out of the problems affecting the project and reflect the lack of progress by the Government of India over the last three years to agree to a solution that recognised both the political nature of these problems and the rights of the offshore lenders," the release claimed.

The claims raised by lenders can only be brought by those incorporated in countries that have investment treaties with India.

However, the release said the claim were supported by the offshore members of the Dabhol Steering Committee, including Overseas Private Investment Corporation of the US and five major international banks.

In August this year, a London court had summoned as witnesses several bureaucrats in the Union and Maharashtra governments, who were connected with the Dabhol Power Company. This was for a Rs 33,000 crore arbitration case, launched by foreign lenders to the DPC project.

The government refuted the claims made by GE and Bechtel, which together controlled 86 per cent stake in DPC after buying out Enron's 65 per cent stake recently, and asked them to resolve disputes with the government of Maharashtra and the Maharashtra State Electricity Board.

The Dabhol Power Project was one of the largest foreign investments in India's history. It was financed by both Indian and offshore lenders. The plant was closed down following payment defaults by the Maharashtra State Electricity Board.

The finance ministry had estimated that the revival of the Dabhol Power plant would cost Rs 1,800 crore. The amount is required to complete the liquefied natural gas plant, completion of Phase II and payment of contractual charges to GE and Bechtel.

It is also estimated that it will take 18 months to complete all the three facilities before regenerating power from the troubled plant.