The Maharashtra State Electricity Board (MSEB) should provide the new buyer of the Dabhol Power Company (DPC) an irrevocable letter of credit (L/C) equal to the sum of one month's capacity according to the financial consultants advising on the sale of the troubled Indian power plant.

Whether the new buyer is convinced that the L/C will be of any use if MSEB falls behind on its payments may however depend on how a new document compares with documentary credits provided by the electricity board to the power plant's former owners.

Despite many a legal wrangle, DPC has so far failed to obtain payment from standby credits provided MSEB that the power generator first wanted to invoke some three years ago.

L/C and escrow

N M Rothschild, the financial consultant to the Indian financial institutions that still have considerable exposures in the DPC has recommended that MSEB would have to offer an irrevocable L/C in an amount equal to the sum of one month's total capacity and one month's charges for energy based on the plant running at 100 per cent capacity.

The consultants go on to suggest that MSEB should put in place an escrow mechanism to be funded by payments from its customers and that the amount held in escrow should be at least 120 per cent of the L/C amount. The facility should be operational within three months of financial closure.

Dabhol revival?

A new buyer for DPC is expected to be identified in January 2004 and financial closure reached by the following June according to N M Rothschild. The Indian financial institutions called in the consultants after court rulings prohibited lenders and DPC from taking control over the assets blocked by MSEB.

Earlier this month a court ruled once again 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 (DC World News 11 September 2003).

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