Financing in limbo as Dabhol crisis winds on

Sanjay Jog

Mumbai, May 7: UNCERTAINTY looms large over the disbursement of $201 million by foreign lenders and Rs 371 crore by Indian Financial Institutions (IFIs) for the completion of Dabhol phase-II, in view of the aggressive postures taken by the Dabhol Power Company (DPC) and Maharashtra State Electricity Board (MSEB) over the issue of preliminary termination notices.

Ironically, foreign lenders as well as IFIs comprising Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI), State Bank of India (SBI), Canara Bank, have already suspended disbursement of loans since April 25 in view of the impasse over non-payment of bills and fulfillment of various other contractual obligations by the MSEB, state and Central governments.

Although, two weeks of the total three weeks’ time given by the foreign lenders have passed, there are no signs of the crisis blowing over.

Sources from Indian rupee lenders told The Financial Express that the chances of resumption of disbursement of pending loans by the foreign lenders are very poor under the present circumstances. “Neither state nor Central governments have paid the December and January bills so far. In addition to this, the MSEB has not made any progress to reactivate the escrow arrangements as pressed by foreign lenders,” sources added.

These sources said that the “inaction” on the part of the state and Central governments to resolve the crisis would result in termination of EPC contracts. This would lead to forestalling the completion of Dabhol phase-II construction and escalation of the project cost.

These sources said that foreign lenders have already received a “notice of default” from one of the contractors of the Dabhol project. “If EPC contract is terminated and the contractor pulls out from the site, revival and remobilisation of the contract would involve substantial additional cost, apart from the consequent time overrun,” sources added.

Of the balance of $201 million, Japanese Bank for International Cooperation, formerly Export Import Bank of Japan and the Ministry of International Trade and Industry of Japan would have to disburse $79 million which has been guaranteed by IFIs ( the share of sanction of IDBI, which is a consortium leader of IFIs for rupee loan, is $181.383 million).

Office of National du Ducroire of Belgium (OND) would have to disburse $27 million which has been also guaranteed by IFIs (IDBI’s share of sanction is $45.528 million). In addition to this, foreign banks would have to disburse $95 million and non-guaranteed loans of foreign lenders would be worth $95 million.