The Supreme Court in Mumbai has ruled that there will be no change in the legal position over a letter of credit (L/C) facility that has been centre of a three-year dispute between the now failed Dabhol Power Company (DPC) and the Maharashtra State Electricity Board (MSEB).

At the same hearing the court decided that the Maharashtra Electricity Regulatory Commission (MERC) should not issue an order for the resumption of power purchases by MSEB.

Status quo

The court's decision regarding the L/C facility ruled that the status quo would continue. This essentially means that DPC cannot invoke an approximately US$29.5 million L/C as a means to recover what the private power operator believes to be its dues from MSEB.

The court also rejected DPC's pleas to have the dispute resolved by arbitration in London. The company is currently looking to overturn a ruling made by a Mumbai court earlier this year that decided MERC had exclusive jurisdiction to hear the dispute between the private power firm and the state electricity board (DCWorld 8 May 2003).

History

The dispute dates back to late 2000 when the now collapsed US energy giant Enron started to consider invoking a L/C as a means to recover what it believes to be its dues from MSEB. The L/C was doubly backed by a state government guarantee and a sovereign government counter guarantee (DCWorld, 17 January 2001).

Although it looks as if it would be relatively straightforward for the L/C to be invoked by DPC, the MSEB has won considerable popular and political support for its refusal to pay the private power generator because it was charging a much high price for its power than alternative state-run power generators according to the state electricity board.

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