Still tangled

In December 2001, when Enron filed for bankruptcy, the government had a good chance to resolve the impasse over the Dabhol Power Company (DPC), with the largest shareholder bankrupt.

But there was little progress and, last week, the other two foreign shareholders, General Electric (GE) and Bechtel, bought Enron’s Dabhol stake for $22 million, and now control over 60 per cent of DPC’s equity.

None of this matters, if the Indian financial institutions (FIs) are to be believed, since all of DPC’s assets have been pledged to the FIs and overseas lenders, and the rights of secured creditors supersede those of equity holders.

But then, why would either GE and Bechtel pump in another $22 million to buy Enron’s equity, or waive the $57 million they won in an arbitration against the US Overseas Private Insurance Corporation (OPIC) which had sold them risk cover for the project?

Clearly both companies expect higher returns now that their bargaining strength has improved. And this must flow from the multiple roles they have in the project, as equipment providers, technology suppliers and project managers — anyone buying the company’s assets in an auction will have to simultaneously strike a deal with GE and Bechtel, and this is what gives them extra bargaining power.

Since many rounds of negotiations between different parties will have to take place before the mess is sorted out (the Indian and foreign lenders go into a negotiating huddle in a fortnight’s time), no clear view is possible as yet on the eventual outcome, other than the obvious one that there will have to be give and take on all sides.

It is therefore difficult to hazard a guess as to whether the FIs would have been better off bidding for Enron’s stake since the US bankruptcy court didn’t go by the bids alone — it rejected the Reliance Energy bid even though it was higher than that of GE/Bechtel because the latter’s bid was backed by OPIC.

So, it is possible, that had it been made, an FI bid would also have been rejected. But what is easier to say with certainty, is that almost 30 months after Enron’s bankruptcy, and several false starts later, the FIs have lost over Rs 2,000 crore in interest costs alone.

And the losses will mount, for it could take up to a year more before the project can be auctioned and the proceeds used to pay creditors.

GE and Bechtel, in turn, have to be careful about not appearing intransigent, because they have a stake in the growing Indian market, and Dabhol cannot therefore be a be-all and end-all game for them. Equally, the FIs have to start recognising that they don’t hold all the cards in their hands.