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INDIA: Bechtel Sells Its Stake In Dabhol Power Plant



Payment of $160 Million Paves Way for Indian Firms To Restart Troubled Project

by JOHN LARKINWall Street Journal
July 14th, 2005

Bechtel Group Inc. agreed to sell its equity in the troubled Dabhol power project for $160 million, according to people involved in the transaction, edging India closer to ending a four-year dispute that has plagued its efforts to boost foreign investment.

The transaction, finalized in London during negotiations between representatives of San Francisco-based engineering company Bechtel and a group of Indian financial institutions, is one of the final steps in the transfer of Dabhol's assets to Indian hands. It paves the way for the Indian government's rescue plan, under which two public-sector energy companies would take over the $2.9 billion plant and oversee its restart.

A Bechtel official familiar with the outcome of the talks said the $160 million payment -- minus some $2 million in taxes paid to the Indian government -- already has been made. "The money has been transferred. It's all over," the official said.

In a statement, Bechtel said it agreed to forgo international arbitration of its Dabhol-related claims against the Indian government and to work toward terminating all legal actions in the Dabhol case. An arbitration hearing had been due to take place in London on July 18.

Bechtel was the last foreign stakeholder to reach a settlement after General Electric Co. of Fairfield, Connecticut, sold its stake for $145 million earlier this month.

The two U.S. companies together had held around 86% of Dabhol after buying the stake of original owner Enron Corp. The remainder was held by the Maharashtra State Electricity Board.

GE and Bechtel each paid just under $100 million for their original 10% stakes in the project, before buying the rights to obtain Enron's 66% holding last year.

According to a banker involved in the transaction, the payment to Bechtel was made by the Maharashtra Power Development Corp., a wholly owned subsidiary of the Maharashtra State Electricity Board. A spokesman for the electricity board wasn't immediately available for comment. Enron, a Houston energy concern, filed for bankruptcy protection in 2001 amid a massive accounting scandal.

The uncertainty surrounding Dabhol has proved a deterrent to foreign investors looking for opportunities in India's fast-growing economy. People involved in the settlement negotiations say the government of Prime Minister Manmohan Singh wants to demonstrate its enthusiasm for foreign investment by resolving foreign claims on Dabhol before his summit with U.S. President George W. Bush in Washington, also set for July 18.

The Dabhol plant, located 180 kilometers south of Mumbai, was designed to produce 2,184 megawatts of power. It was seen as evidence of India's eagerness for foreign investment in key sectors when it began producing power in the late 1990s.

But it shut down in 2001 after a tariff dispute between Enron and its sole customer, the Maharashtra electricity board. Since then it has sat idle, the target of competing legal claims between its foreign stakeholders, the state government of Maharashtra and the Indian government.

This year Mr. Singh's government moved aggressively to resolve the impasse by seeking to address the claims of Dabhol's stakeholders and its creditor banks, which include Citigroup Inc. of New York and ABN Amro Holding NV of the Netherlands.

But there are doubts New Delhi can meet its goal of restarting the plant next year using liquefied natural gas and sell the electricity for a reasonable price.

"India is gas short," said Vishwajeet Kanwarpal, chief executive of Asia Consulting Group Pvt. Ltd. in New Delhi.





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