Dabhol Power slaps asset transfer notice on MSEB

Our Corporate Bureau

Mumbai, Nov 5: The Dabhol Power Company (DPC), in yet another attempt to legally corner the Maharashtra State Electricity Board (MSEB), on Monday served an asset transfer notice on the latter and thereby set in motion the valuation process of Dabhol’s assets including the liquified natural gas (LNG) plant in connection with the termination of the power purchase agreement (PPA).

MSEB objects to DPC move

Sanjay Jog

Mumbai, Nov 5IN a preemptive move, the Maharashtra State Electricity Board (MSEB) has taken a strong objection to the Dabhol Power Company’s (DPC) move to serve asset transfer notice and appointment of experts, valuers and accounts under the power purchase agreement (PPA) in view of its decision to rescind the PPA on May 29. MSEB, which recently heaved a sigh of relief after the Supreme Court (SC) on November 2 extended the status quo until January 2002, in its communication of August 23 to the DPC had made it clear that the question of appointment of any experts, valuers and accountants did not arise as it has already rescinded the PPA. “As the rescission alongwith other disputes and differences are pending final determination by the Maharashtra Electricity Regulatory Commission (MERC), DPC ought to desist from taking any step as suggested,” MSEB said. Accordingly, the board has already refused to participate or give its consent to such appointments. MSEB sources told The Financial Express that the DPC was seeking to take improper advantage of the stay of the proceedings before the MERC secured by the board. Also, the DPC was seeking to circumvent and/or defeat the orders passed by the SC by resorting to issuance of preliminary termination notices (PTN) and asset transfer notice. “By these actions, DPC is seeking to alter the status quo and is attempting to achieve indirectly which the company has been restrained from doing directly,” sources said. The MSEB sources said that the board was of the opinion that in view of the recent orders passed by the SC, MSEB has been prevented from proceeding further with its case before the MERC until the issue relating to the Commission’s jurisdiction is decided by the Mumbai High Court. The preliminary termination notices issued in May, September and October were the subject matter of MSEB’s petition before the MERC. According to MSEB, DPC was driving the board to give up its case relating to the rescission of the PPA and the illegality of the PTNs. MSEB reiterated that the disputes and differences of non-payment raised by DPC through its PTNs were pending adjudication by the MSEB in its petition filed on May 25 this year.

However, MSEB, which has rescinded its PPA with DPC on May 29 for the material misrepresentation and default on the availability of power, has decided not to take cognisance but take future course of action after seeking advice from its solicitors.

“Consequently, DPC is left with little choice other than to serve the transfer notice on MSEB, which draws us closer to final termination of the PPA and the ultimate recovery of damages as allowed under the project documents,” the DPC said in a statement.

However, the MSEB chairman Vinay Bansal in his reaction told The Financial Express that “the transfer notice served by DPC is quite an expected move. The company has resorted to this move to follow the PPA which we have already rescinded.”

“This action follows more than two years of late payments and defaults in payments from MSEB and a repudiation of the PPA by MSEB.

The transfer notice is an important step in the asset valuation process agreed to by all parties to the PPA and is necessary to protect the interests of Dabhol’s sponsors, lenders and other stakeholders. Following this transfer notice, the final termination notice is likely to be served in the near future to continue the legal process against MSEB,” the DPC said in its statement.

The MSEB would be required to pay damages of around Rs 35,000 crore towards revenue compensation and demobilisation costs.

According to DPC, it would still prefer to resolve this dispute amicably through a negotiated purchase by the Government of India and Indian financial institutions (IFIs) of the foreign sponsors equity including offshore lender’s debt. However, ongoing discussions between DPC and GoI/IFIs are yielding no significant progress towards a fair and reasonable solution, the company said.

DPC, which has already served three preliminary termination notices in May, September and October to the MSEB by declaring its intention to opt out of the distressed Dabhol project after recovery of at least $1.2 billion, has issued the transfer notice under Clause 17.8 (c) of PPA. After issuance of asset transfer notice, the DPC would launch the process of evaluating the operating assets, preparation and auditing of provisional termination statement, preparation of legal documentation in order to issue a final termination statement in terms of schedule 11 of the PPA.

Independent accountants and valuers would be appointed by the party terminating the PPA within 15 days of issuance of transfer notice. The provisional termination statement would be prepared by the terminating party and submitted to the accountants within 45 days of the transfer notice or if later, then within seven business days following the receipt of the valuer’s certificates as per schedule 11 of the PPA.

The accountants would be required to issue a certificate to both parties certifying the same after reviewing the basis of the provisional termination statement. Thereafter, a final termination would have to be prepared by the terminating party and submitted to the accountants prior to the transfer date (the date of serving final termination notice).

The Enron Virodhi Andolan convener Pradmuna Kaul has welcomed the DPC’s decision to serve the asset transfer notice and termed it as an endgame of Enron project. “We are concerned but the Government of India (GoI), Government of Maharashtra (GoM) and MSEB are not putting out its cards to put Enron on defensive. The GoI, GoM and MSEB should prepare a full case including fraud, public interest and public policy against Enron in a bid to force the latter to carry out fair and correct business calculation and asset valuation. Enron should not be allowed to claim fancy compensation under the asset transfer notice and final termination notice,” he added.