The beleaguered Dabhol Power Company (DPC) and the Maharashtra State Electricity Board (MSEB) have reached a temporary agreement in their long-running dispute over power prices and payments.

The two sides agreed before an Indian Supreme Court to freeze their dispute until a decision is taken on the issue, leaving questions wide open over the enforceability and effectiveness of letters of credit (L/Cs) to guarantee payments in major utility projects.

No arbitration

DPC is currently looking to overturn a March 2002 ruling in the Bombay High Court that decided the Maharashtra Electricity Regulatory Commission (MERC) had exclusive jurisdiction to hear the dispute between the power firm and the state power board.

The power company had wanted the matter to go to arbitration in London, which the court in Bombay decided was not appropriate. The high court also granted an interim stay on the approximately US$28 million worth electricity dues claimed by DPC from the MSEB for December 2001.

The DPC-operated power plant shut down over a year ago in the wake of a dispute over the price to be paid by the state power board to the promoter on the purchase of power. (D C World, 12 March 2002).

Status quo

In DPC's latest appeal in the Supreme Court, both parties produced details of a three-point agreement between them stating the status quo would continue until the end of July 2003 when the matter would be taken up by the court. Two judges passed the order with the consent of both parties.

Until the Supreme Court decides on the appeal, the commission will not pass any further order on the application made before it by the MSEB and that the arbitration proceedings started by DPC against the power board would not proceed till then.

L/C status

DPC has also agreed not to invoke the L/C opened by the MSEB until after six weeks of the disposal of the appeal.

All questions regarding the enforceability of the L/C have been kept open and proceedings on it will be adopted only after the final disposal of the appeal.

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