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MSEB lacks funds to pick up stake in Enron

The Maharashtra government's stake in the Enron project has run into difficulties. The state government, which was to invest Rs 4.55 billion through the Maharashtra State Electricity in the Dabhol Power Corporation, has not been able to raise the funds. This would have given MSEB a 30 per cent equity stake in the power company.

It is unlikely that the central government will bail out the state government.

The Dabhol Power project, in which Enron Inc has a large stake, is a 2,430 mw combined cycle, natural gas-fired power plant which will supply power to MSEB. The project, which is financed on a 70:30 debt-equity ration, is the first to use non-recourse project financing in India.

The project, which is designed on a fixed tariff structure unlike other Indian plants based on cost plus variable tariff, has been facing difficulties from its very inception. Environmentalists, local persons affected by the project, and right-wing groups had opposed the project. On winning the elections, the present Shiv Sena-Bharatiya Janata Party government had ordered a review of the entire project. It was on the submission of the review report that the state government decided to pick up 30 per cent of the Dabhol Power Corporation through MSEB.

International banking sources said that MSEB has attempted to get funds through the external commercial borrowings route. However, the sources said that following the major crisis that financial institutions and international banks are facing in Thailand at present, they are likely to be very cautious of long-term lending to developing countries. Incidentally, Indian companies, especially those in core sectors, can now avail or external commercial borrowings of any amount as long as they carry a maturity period of over 10 years.

The financial crisis which has gripped Southeast Asian countries is one of the worst in recent years, with even South Korean car manufacturers facing bankruptcy. This will make it extremely difficult for MSEB to raise funds before the end of the year. MSEB is seeking the funds through JM Financial Services and Merill Lynch.

Japanese financial institutions remain a favoured source for the borrowings, with their interest for Enron-like projects at around 1.5 to 2 per cent. However, the Japanese are wary about lending for terms of 10 years or more, preferring loans for five-year periods.

Compiled from the Indian media