Dabhol impasse may end

A settlement is likely to be reached between lenders and foreign promoters GE and Bechtel in a month or two so that Prime Minister Manmohan Singh could showcase India as a safe destination for foreign investment when he visits the US sometime in July, sources said.

"The Dabhol issue was discussed by External Affairs Minister Natwar Singh with top US officials during his recent visit to the US," the source said.

A final announcement on the Dabhol project is expected during Singh's visit to the US, the source added.

The Cabinet Committee on Economic Affairs has already approved the government's counter-guarantee for domestic lenders to take over the foreign debts.

Following the Cabinet decision, the Indian lenders are likely to take over the debts of other foreign banks for about $230 million.

A deal may be also be struck between Indian lenders and Private Investment Corporation of the US.

Indian lenders also wanted to buy back the equity of GE and Bechtel and settle their contractual payments totalling $460 million. The group of ministers, headed by Defence Minister Pranab Mukherjee, had expedited the process by asking NTPC and Gail to restart the plant that is lying idle for over three years.

"These developments, it is hoped, will help them (all stakeholders) settle the Dabhol issue at the earliest," official sources said.

The Dabhol project was showcased as the single largest FDI in the country in the early 1990s. The project, which ran into trouble shortly after, has been considered responsible for discouraging potential foreign investors. Reviving it could boost the country's image among foreign investors, they added.

DPC was set up in two phases. Phase-I (740 MW) was initially based on naphtha but to be switched to LNG while phase-II (1444 mw) was based on LNG at the outset.

A 'take-or-pay' power purchase agreement (PPA) between MSEB and DPC obliged MSEB to purchase 90 per cent of the power generated by DPC.

Due to commercial disputes between state government and Dabhol over the pricing, Maharashtra had stopped buying electricity from Dabhol and a major dispute arose between the two.

DPC has been lying idle for over three years and Indian FIs, which have an exposure of more than Rs 6,000 crore, have been struggling to revive the project in coordination with majority partners GE and Bechtel.