GE and Bechtel Hang Tough as India's LNG Developments Hinge on Restart of 'Enron's' Dabhol Project

---

Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). There is something predictable and not at all reassuring about the mire of legalities, subsidy fallouts, tariff contentions, and cross bidding, which has been the fate of the 2,184 MW power plant at Dabhol in India. Enron originally built the plant at a cost of $2.9 billion. See related news story February 17, 2003 - GE and Bechtel Give India's Stalled Dabhol Plant Work Restart Pledge.

In the first half of October, General Electric (NYSE:GE)(Fairfield, Connecticut) and Bechtel (San Francisco, California), who together control 86% of Dabhol Power Company (DPC), threatened to leave negotiations for the restart of the power plant and seek legal recourse for their claims of $12 billion from India.

GE and Bechtel have initiated offshore arbitration proceedings in London against India, claiming up to $6 billion for lost profits, plus and indemnity for any third party liabilities under the Mauritius-India Bilateral Investment Treaty. Another $6 billion ICC arbitration has been initiated in New York against the Maharashtra government claiming willful breaches of the DPC shareholder agreement and other misconduct.

"The time is approaching when one or both companies will decide that the upside of pursuing the claims of arbitration far out weighs the value of the settlement. Both GE and Bechtel are confident of prevailing," said GE India CEO, Scott R. Bayman to Planning Commission deputy Chairman Montek Singh Ahluwalia, as reported by newindpress.

Towards the end of October, and a couple of days before a meeting of Indian ministers considering the future of Dabhol, GE, and Bechtel agreed to cooperate with the U.S. government promoted Overseas Private Investment Corporation (Opic) and Indian lenders in implementing the process of selling the company's assets. Letters to this effect were sent to the government and the Industrial development Bank of India.

GE and Bechtel have indicated to the Indian government and lenders that they are prepared to work with any new buyer to restart the plant. It is reported that Opic is proposing to send a team to India towards the middle of this month to begin work with Indian lenders to provide a support package for interested bidders. The Indian ministerial group is discussing a $670 million guarantee to lenders to buy out the project's offshore debt.

In July, GE had suggested that the National Thermal Power Corporation (NTPC) should be appointed prime contractor for the restart of the 740 MW first phase, with Gail as contractor for the LNG facility at Dabhol to provide gas for the 1,444 MW second phase. Now the air is thickening with bid positions and suggestions of possible bids. Tata Power Company (Bombay) and Reliance Energy Limited (Bombay) have indicated they intend to bid and have had separate conversations with Opic and ONGC. India Oil and Natural Gas Corporation has said it will also bid for the project. ONGC may work with Petronet LNG to bid for the power plant and the adjacent LNG import terminal.

IOC (Indian Oil Company), ONGC, GAIL and Bharat Petroleum are equal promoters of Petronet. In the meantime, GAIL has teamed up with Tata Power and BP for DPC assets. British Gas, Shell, TotalFinaElf, and Gaz de France have also expressed separate interest in purchasing the plant.

A number of other gas and power projects hinge on the resolution of the Dabhol saga. The Mangalore LNG import terminal in Karnataka, proposed by ONGC, to be constructed by Hindustan Petroleum and Petronet LNG, will only go forward if there is unmet demand after Petronet LNG's $340 million Kochi and Enron's Dabhol terminals are put into operation, Indian petroleum secretary, Sushil C Tripathi has said.

While ONGC plans to invest $5.3 billion in the Managalore project, covering LNG imports, shipping and transportation, a jetty, and a regasification plant, a C-2/C-3 extraction plant, a 1,445 MW power plant, and a basic petrochemical complex, with a dual feed cracker and associated facilities, Tripathi says the group should stay out of Mangalore and concentrate on its core competence of oil and gas exploration and production.

Petronet LNG with its partners has already begun operation of the country's first LNG import project at Dahej in Gujarat and will complete the Kochi terminal in 2008. Shell is constructing an LNG terminal at Hazira in Gujarat and demand for natural gas on the west coast of India will have to be assessed in the light of these developments before Mangalore gets the go ahead in this ongoing set of playoffs.

View Project Report* - 89000360 89000080 89000757 89000758

*Links to project reports are available to subscribers of Industrialinfo.com's PECWeb Direct. See online catalogue below for details. Industrialinfo.com is the leading provider of global industrial market research. We specialize in helping companies develop information solutions to maximize their sales and marketing efforts.