MSEB refuses to backtrack from legal battle against Dabhol Power Company

Sanjay Jog

Mumbai, June 3: The Maharashtra State Electricity Board (MSEB) categorically told the Indian financial institutions (IFIs) that it would not be possible to keep legal battle aside against the Dabhol Power Company (DPC), although Dabhol phase-II is 90 per cent complete.

In fact, the MSEB made it clear that, although it has rescinded its power purchase agreement (PPA) with the DPC, it would continue to participate in the renegotiations "without prejudice, but with a positive mind."

MSEB sources told The Financial Express on Sunday that the Indian rupee lenders led by the Industrial Development Bank of India (IDBI) wanted that the MSEB should keep aside the legal battle and the Dabhol phase-II should be completed.

"However, we made it clear to them that MSEB has certain compulsions to continue its legal battle in view of various legal notices served by the DPC. However, we are not opposed to renegotiations and will participate in the process without prejudice," sources added.

The board made its stand clear at its meeting with IFI representatives held on Saturday. MSEB chairman Vinay Bansal, accounts member A Krishna Rao and state principal secretary (energy) VM Lal participated in the meeting.

The board asked the IFIs to persuade the BJP-led government at the Centre for the despatch of Dabhol phase-II power. The board expressed its inability to purchase Dabhol phase-II power at the existing tariff and said that the Centre should make all efforts for its disposal.

The IFIs reiterated that the Dabhol phase-II should be allowed to be fully completed and "an alternative mode for distribution of power should be explored in view of MSEB’s inability to absorb the phase-II power. The IFIs, which will participate at the lenders meeting at Singapore beginning from June 5, are believed to have explained the repercussions if Enron ultimately decided to pull out at this crucial stage. "Terminating the PPA will have serious consequences with regard to the investments made by the IFIs in the project," these lenders reportedly told the MSEB.

However, MSEB, while making its position clear said that it had entered into a legal battle since the DPC disputed the misdeclaration and default on the availability of power occurred on January 28, 2001. "Although we stick to our stand that DPC has defaulted and is entitled to pay a rebate of Rs 401 crore, DPC avoided its payment under the garb that the imposition of rebate was not as per the conventions and provisions of PPA," sources said.

Further, DPC invoked the state and counter guarantee of the Centre besides political force majuere. This was followed by the issuance of arbitration notices to the Centre and state governments and the MSEB. The board sources said that the DPC did not stop here but also served a preliminary termination notice on May 19 and a notice to reactivate escrow account. "We were left with limited choice and thus issued an avoidance notice on May 23 and filed a petition at the Maharashtra Electricity Regulatory Commission on May 25," the sources added.