Message-ID: <17950023.1075848124005.JavaMail.evans@thyme> Date: Sun, 7 Jan 2001 11:33:00 -0800 (PST) From: john.ambler@enron.com To: steven.kean@enron.com, mark.koenig@enron.com, james.hughes@enron.com, paula.rieker@enron.com, mark.palmer@enron.com, scott.vonderheide@enron.com Subject: Urgent: Media Reports re Payment Issue and Revised Statement Cc: rebecca.mcdonald@enron.com, wade.cline@enron.com, bruce.lundstrom@enron.com, jimmy.mogal@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable Bcc: rebecca.mcdonald@enron.com, wade.cline@enron.com, bruce.lundstrom@enron.com, jimmy.mogal@enron.com X-From: John Ambler X-To: Steven J Kean, Mark Koenig, James A Hughes, Paula Rieker, Mark Palmer, Scott Vonderheide X-cc: Rebecca McDonald, Wade Cline, Bruce Lundstrom, Jimmy Mogal X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf As a follow-up to our discussions yesterday, attached is a revised=20 statement/Q&As. This statement reflects significant changes=20 from the Enron India team. It has been approved by Wade Cline and Sandeep= =20 Katwala (legal). The issue will probably resurface tomorrow,=20 so your early comments and approval would be appreciated. I can be reached= =20 at home (713-572-9556) or cellular (281-948-7273) this evening. =20 There have been a number of press reports today about the payment issue. = =20 Copies of the stories follow. The Reuters' story was previously forwarded = by=20 Jim Hughes.=20 In addition, there have been a number of India press reports including the= =20 Times of India story, which may be picked up by some international wire=20 services. The other=20 two Indian press reports appear to have taken other discussions/background= =20 briefings and unfairly attributed some quotes to Wade. We can expect=20 additional=20 media interest Monday. =20 FYI, Jim Hughes has indicated that Ken Lay wants to advise the US Ambassado= r=20 before drawing the securities, so the probable timing for the draw is Monda= y=20 night=20 or Tuesday India time. John =20 =20 01/07/2001=20 Reuters English News Service=20 (C) Reuters Limited 2001.=20 =20 =20 BOMBAY, Jan 7 (Reuters) - The Indian government has=20 asked the western state of Maharashtra to work out ways to pay outstanding dues t= o=20 U.S. energy giant Enron Corp, media reports said on Sunday.=20 Enron has threatened to invoke letters of credit (LC)= =20 and the federal government's counter guarantee.=20 =20 "The state government has to work on the issue," the= =20 Press Trust of India said, quoting unnamed official sources.=20 The Economic Times on Sunday said that the lenders to= =20 Enron's local unit, Dabhol Power Company, were meeting on Tuesday in New York to discus= s=20 the inability of the Maharashtra State Electricity Board (MSEB) to clear it= s=20 dues.=20 "As a result of MSEB's mounting dues Enron said it wou= ld=20 be forced to invoke the LC," the newspaper said.=20 The report said the MSEB had outstanding dues worth 2.= 62=20 billion rupees ($56.15 million).=20 Enron's local unit said on Friday it will lower tariff= s=20 from next month in a bid to defuse criticism that it charges higher rates for the=20 electricity it produces in Maharashtra state.=20 Last month, the Maharashtra government decided to revi= ew=20 the rate at which it buys power from Enron's Dabhol Power, saying the high cost was=20 threatening its finances.=20 Enron is spending about $1.9 billion to build a facili= ty=20 to generate 2,184 MW of electricity.=20 India, which needs to generate an additional 100,000 M= W=20 of power within the next decade to meet growing demand, is desperate to attract foreig= n=20 capital. But after nearly a decade of liberalisation, Enron is among the few private power= =20 companies to begin generating power in India.=20 FIs in U.S. press panic button as MSEB fails to pay Enron=20 S. Balakrishnan=20 =20 01/07/2001=20 The Times of India=20 Copyright (C) 2001 The Times of India; Source: World= =20 Reporter (TM)=20 =20 =20 MUMBAI: Financial institutions in the U.S. have presse= d=20 the panic button with Maharashtra State Electricity Board (MSEB) defaulting on payments= =20 for electricity it has purchased from the Enron subsidiary, Dabhol Power Corporation (DPC).= =20 The board owes DPC Rs 262 crores of which Enron expected Rs 114 crores would be= =20 paid by January 6. The board has thrown its hands up in the air saying that it is simpl= y=20 in no position to effect the payment. The situation has been vastly complicated with chief= =20 minister Vilasrao Deshmukh plainly refusing to bail out MSEB.=20 It is learnt that major lending institutions have=20 convened a meeting in New York on January 10 to decide a course of action to compel MSEB to coug= h=20 up the money. Indian lead financial institutions__including IDBI, SBI and ICCI,= =20 who have a collective exposure of $1.2 billion__ have also been asked to send their=20 representatives for the meeting. If MSEB does not pay up by then, the institutions may decide to=20 invoke the letter of credit. The implication is that lending institutions may seize MSEB's accounts= =20 with them and adjust the monies against the dues payable to DPC.=20 =20 It is learnt that Enron has informed the U.S. embassy = of=20 the intransigent attitude adopted by MSEB and the state government. Incidentally, Enron was= a=20 contributor to U.S. president-elect George W. Bush's election campaign.=20 Sources close to Enron said the company might be willi= ng=20 to restructure the power purchase agreement (PPA) provided MSEB does not defaul= t=20 on its payments. But the restructuring of the PPA may not be an easy task since= =20 it will require the endorsement by the Central Electricity Authority and the Maharashtra= =20 Electricity Regulatory Commission.=20 The sources said the defaulting by MSEB and the stance= =20 adopted by Mr Deshmukh will have serious implications since a large number of worl= d=20 financial institutions__like Citibank, ABN Amro, Bank of America, apart from the=20 governments of the U.S., Belgium and Japan__have financial stakes in the 2100 MW project. T= he=20 defaulting will also harm the interests of several Indian financial institutions who= =20 have lent money for the controversial venture.=20 Enron is hoping that the BJP-led government at the=20 Centre may persuade Mr Deshmukh to defuse the crisis. But if ultimately no payment is=20 forthcoming, Enron may act tough and invoke the guarantee and counter guarantee given to th= e=20 project by the state and the central governments respectively.=20 The deal with Enron was signed by Sharad Pawar when he= =20 was the chief minister in the early nineties. It was first scrapped and later=20 enthusiastically endorsed by the Shiv Sena-BJP coalition which came into office in 1995. It = is=20 learnt that Mr Deshmukh has been asked by the Congress high command to adopt a tough=20 stand so as to embarrass Mr Pawar__who is now in the Nationalist Congress Party__t= he=20 Sena and the BJP.=20 It is learnt that state finance minister Jayant Patil= =20 informed Enron representatives that the current situation was the outcome of coalition politic= s.=20 An Enron official countered this by pointing out that a coalition of lending institutions= =20 was involved at the other end of the table. Enron ready to renegotiate Dabhol deal=20 Our Corporate Bureau MUMBAI=20 =20 01/08/2001=20 Business Standard=20 1=20 Copyright (c) Business Standard=20 =20 =20 US energy major Enron is prepared to renegotiate its= =20 deal with the Maharashtra government on the controversial Dabhol Power project,= =20 but has emphasised that the new deal cannot be a unilateral one.=20 This is the first time that Enron has publicly spelt o= ut=20 its stand on the issue. Enron India managing director K Wade Cline said, "The deal cannot = be=20 a unilateral one. MSEB=20 (Maharashtra State Electricity Board) must continue to pay us for the= =20 power purchased. We=20 should also be allowed to continue operating our power station at=20 Dabhol. Obviously, it=20 must be a deal that works."=20 The state government, Cline said, must remember that= =20 just as it was important for it to sell a deal to its various constituencies, it was important= =20 for Enron to be able to sell it to its various stakeholders.=20 "A renegotiated deal will mean that we will have to=20 convince the gas suppliers to rework the agreement that we have signed with them. It also means= =20 that we will have to convince our lenders," Cline added.=20 The $3-billion project has an equity component of $1= =20 billion and a debt component of $2 billion. Cline pointed out that the entire equity as= =20 well as $1.6 billion in debt had already been brought in. Domestic lenders like ICICI, IDBI and= =20 SBI have contributed $1.2 billion.=20 "The Indian government has a huge exposure to this=20 project through the financial institutions. The governments of Japan, Belgium and US= =20 too have a stake in the project as banks and export credit agencies of these countries ha= ve=20 a huge exposure," he said.=20 The Economic Times Online=20 Printed from www.economictimes.com -> home -> back=20 Dabhol phase II in danger as arbitration looms Bodhisatva Ganguli & Girish Kuber=20 MUMBAI=20 THE MAHARASHTRA State Electricity Board's inability to pay the=20 Enron-promoted Dabhol Power Company is rapidly emerging as a threat to the viability of= =20 phase II of the Dabhol project.=20 The project involves a generating capacity of 1,400 MW and an LNG terminal= =20 of five million tonnes.=20 This is because there is an increasing possibility that the dispute over= =20 phase I may end up in arbitration courts if the MSEB continues to fail to pay up and the state= =20 government refuses to bail out the ailing electricity board. As a result, lenders may stop disbursing fun= ds=20 for phase II.=20 Enron India=01,s managing director K Wade Cline said on Saturday evening t= hat=20 international arbitration was a real possibility.=20 The PPA allows for arbitration in case a dispute cannot be resolved throug= h=20 negotiations. Enron officials say they have made no headway so far in talks with the MSEB or t= he=20 state government. Enron is also considering invoking the letter of credit and the state=20 government guarantee in order to recover its dues.=20 We have no alternative since if we don=01,t get paid, then our lenders are= =20 saying that they won=01,t fund phase II, Cline said. If the Maharashtra government does not pay then the= =20 central government=01,s counter-guarantee could be invoked.=20 At a meeting on Friday evening, the MSEB is reported to have asked the sta= te=20 government to provide it a subsidy of Rs 130 crore per month. However, the Maharashtra Chief=20 Minister, Vilasrao Deshmukh is said to have flatly rejected MSEB=01,s request.=20 The Maharashtra cabinet is meeting again on Monday evening. The cabinet wi= ll=20 also discuss the formation of a committee to review the project.=20 The lenders to the project are meeting in New York on Tuesday, January 9, = to=20 take stock of the situation arising out of MSEB=01,s failure to pay part of the bill for Oct= ober=20 and the entire bill for November amounting to a total of Rs 262 crore.=20 The project=01,s lenders are reported to be extremely concerned about the= =20 viability of the second phase of the project in view of MSEB=01,s failure to pay for power bought from the = first=20 phase.=20 Cline said that of the total second phase project cost of $1.89 billion on= ly=20 about $400 million of debt remained to be disbursed. About 80 per of the construction is complete and= =20 95 per cent of the machinery is on site.=20 , The Economic Times Online. All rights reserved.=20