Dabhol deal on track, Bechtel says it’s willing to settle
Friday July 8 2005
NEW DELHI: The Dabhol settlement process is almost complete with US-based Bechtel Corp finally informing the Indian side that it’s willing to settle and not proceed with international arbitration.
A communiqué to this effect was sent recently and sources said that Bechtel has more or less accepted all conditions put forward by the Indian side on Monday. The two sides now need to iron out how to reach a final accord on the third-party claims.
In its offer, Bechtel has asked for 100 percent upfront payment of the settlement amount of $160 million as against the Indian side’s offer to pay the amount in two tranches of $80 million each.
While the Indian side is still to respond to Bechtel’s offer, sources said that Bechtel’s entire counter-offer is more or less in line with what the Indian government had offered on Monday to arrive at a settlement.
Once the settlement is reached, Bechtel will drop all their claims in the Dabhol power project. The engineering-cum-construction company, which was the only party that was still to come on board for a settlement is now also willing to absorb the tax levied on the settlement amount - which it didn’t accept even a few days back.
GE, however, agreed and signed the settlement agreement last Saturday. The deal with Bechtel has to be signed before July 19, 2005, the date set for the international arbitration in London.
Handling third-party claims was one of the main outstanding issues as gas suppliers to the Dabhol project (Oman LNG and AdGas) have been sending invoices for dues amounting to some $500 million that were not paid.
While LNG was never used in the Dabhol project, there was disagreement between the two sides on how to handle the issue if such “third parties” stake a claim in the settlement process.
While both want to contest such claims, Bechtel wanted to reserve the right to sue the Indian side under any treaty, for all “third party” claims if and when they arise. This list goes beyond the gas suppliers. This is where the talks broke down and both Bechtel and the Indian side were preparing for arbitration.
However, on Monday, the Indian side offered to broaden the scope of third parties, which seems to have been accepted by Bechtel. The Indian side also insisted that such claims have to be contested under the bilateral investment treaty.
Under the settlement agreement, Bechtel would initially transfer their 10 percent share in the Dabhol power project to New Age Power Company (NAPC), a separate company floated to hold the shares of GE-Bechtel.
Thereafter Bechtel would move to the New York bankruptcy court to withdraw its rights on the balance equity in Dabhol. GE, which has already signed a settlement agreement, along with Bechtel together hold Enron’s 65 percent equity in the Dabhol Power Company.
GE, which also holds 10 percent equity in DPC, would soon transfer its share to NAPC.
Once the New York court case is withdrawn and balance shares are transferred, NAPC would hold 85 percent equity in DPC. However it is still not clear whether these shares will be transferred to the NTPC-GAIL promoted special purpose vehicle that is supposed to get the power venture into running condition.
After GE’s settlement on Saturday, the Indian side is to sign an agreement with the foreign lenders on July 8 to settle their claims in the Dabhol project. A date to settle with US government-promoted Overseas Private Investment Corporation (OPIC) is yet to be fixed.
Earlier, both OPIC and foreign lenders’ claims were to be settled on July 8. While OPIC would be paid $228 million, the settlement amount with the foreign banks is around $230 million.
Gas & Power Investment Company (GIPCL) would pay the amount to OPIC and foreign banks and the Maharashtra Power Development Corporation is expected to pay Bechtel’s settlement amount.