The Indian government is planning to acquire the assets of the failed Dabhol Power Company (DPC) through a debt recovery tribunal.

Wrangling over letter of credit (L/C) backed guarantees by both the federal government and the Maharashtra state featured prominently in the failure of the Enron-led privately operated DPC but it seems that in the new plans, L/Cs will feature in credit support arrangements to the new Dabhol.

Central government however remains concerned about its liabilities under L/Cs used in financing arrangements with the now fallen private power producer.

Clarifications

The Maharashtra government is currently seeking several clarifications from the central government before committing to a host of concessions aimed at reviving the project. The clarifications centre on the way tariff structures are calculated and what steps are being taken to avoid tariff escalation.

If the clarifications are acceptable to the state government, it is expected to waive stamp duty for sale of the Dabhol assets and provide sales tax exemption on equipment purchased to complete Dabhol's phase-2 expansion. Sales tax will also be waived on the purchase of naphtha for Dabhol phase-1 when it resumes operations.

The state government, through Maharashtra State Electricity Board - which will draw power from the Dabhol project - is also expected to provide credit support to the new Dabhol through L/Cs, an escrow mechanism and government guarantee.

Wary of L/Cs

The central government is however mindful of the disputes that emerged out of L/Cs used in DPC financing arrangements and is looking to the new Dabhol to limit its liabilities in this respect.

Consequently, the central government is asking whether the state government and Maharashtra Power Development Corporation would forego all claims of DPC as a shareholder including equity investments and claims arising out of L/Cs that may still be disputed.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.