Report on Dispute of Dabhol Power Project
Introduction And Overview
Preliminary - The Parties and Procedural History
The Claimantsf Case on the Facts
The True Nature of the Dispute
Structure of This Statement of Defense
Background - The Indian Power Industry and Its Regulatory Regime
Statutory Regime Before 1991
The Liberalization of the Indian Power Sector
The Creation of MERC and Reforms of the 1990s
The Dabhol Project - Participants and Contractual Framework
Background and Pre-Contract Negotiations
Other Major Project Agreements
The GOM Guarantee
The GOI Guarantee
The State Support Agreements
The Project Contracts
The Period Prior to the Dispute
Renegotiation of the PPA in 1996
State Elections in Maharashtra in October 1999
MERCfs Tariff Reforms in May 2000
The Contractual Dispute Between DPC and MSEB
MSEBfs Position in Late 2000
Appointment of Vinay Bansal as MSEB Chairman
Late Payment of October/November 2000 Invoices
The God bole Committee
The Escalating Dispute over Payment
A Fundamental Problem with the Power Station
The Importance of Fast Ramp Up
MSEBfs Decision to Rescind the PPA
Events Post Rescission 2001-03
Proceedings Relating to the Jurisdiction of MERC
DPCfs Arbitrations against GOM and GOI
Indian Financial Institutions
Order to restrain DPC from issuing Final Notice of Termination Appointment of a Receiver
IFIsf Attempts to Restructure the Project
Proceedings Before the Company Law Board
Introduction And Overview
Preliminary - The Parties and Procedural History
This arbitration takes place under the terms of the Agreement for the Promotion and Protection of Investments ("the Agreement") signed on 4 September 1998 between the Government of the Republic of India and the Government of the Republic of Mauritius.
The Claimants assert that the Agreement came into force on 20 June 2000.1 There is however a real issue as to when [, if at all,] the Agreement entered into force. The Respondentfs submissions on this point, as well as other threshold issues relating to the existence and scope of the Tribunalfs jurisdiction, are set out in more detail in Chapter IV.
The Claimants in this arbitration are Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company (respectively "Capital India" and "Energy Enterprises", and together "the Claimants"). Both Claimants are companies incorporated in the Republic of Mauritius ("Mauritius"), being locally incorporated "shell" companies with neither employees nor any form of commercial activity in Mauritius itself.2 They are indirect subsidiaries of, respectively, General Electric Company ("GE") and Bechtel Group Inc. ("Bechtel"), two of the largest American multinational corporations.
The Respondent in this arbitration is the Government of the Republic of India ("India" or "the Respondent"), the worldfs largest democracy.
The Claimants invoked the dispute settlement provisions of the Agreement, in particular Article 8, and initiated the present arbitration proceedings by a Notice of Arbitration dated 4 August 2003, received by the Respondent on [date] 2003.
In accordance with the Procedural Timetable laid down by the Tribunal in its Order No. 1 of 12 February 2004 the Claimants submitted a Statement of Claim dated 8 May 2004, setting out their version of relevant facts and their legal arguments in support of their claims.
In their Statement of Claim the Claimants have asserted that India has breached three Articles of the Agreement, namely -
Article 6 - in that India allegedly expropriated the Claimantsf investment in the Dabhol power project, or subjected it to measures having effects equivalent to expropriation, contrary to the provisions of that Article;
Article 4 - in that India allegedly failed to accord the Claimantsf investment fair and equitable treatment, as required by that Article; and
Article 11 - in that India allegedly failed to honor its obligations with regard to the Claimantsf investment, as required by that Article.
This Statement of Defense is delivered in accordance with the Tribunalfs Procedural Timetable of 12 February 2004, as amended by the Tribunalfs Order No. 2 of 24 September 2004.
This arbitration arises from the commercial decision taken in the early 1990s by three American multinational corporations - Enron Corporation ("Enron"), GE and Bechtel (together, the "Investors") - to invest in an electricity generating project at Dabhol in the Indian state of Maharashtra. The Investors together established the Dabhol Power Company ("DPC"), a company incorporated in India in which the ultimate ownership was shared 80% by Enron and 10% each by GE and Bechtel.3 The Investorsf shareholdings in DPC were held indirectly via a chain of numerous subsidiaries in a variety of jurisdictions4 (including Mauritius, the Cayman Islands, the Netherlands and the Bahamas). The Claimants are direct shareholders of DPC in respect of GEfs and Bechtelfs 10% interests.
In December 1993 DPC entered into a Power Purchase Agreement ("PPA") with the Maharashtra State Electricity Board ("MSEB"), pursuant to which DPC agreed to build a power station and to supply electricity in the State of Maharashtra.
In early 2001 a commercial dispute under the PPA arose between DPC and MSEB relating to the accounting position between the parties and the performance capabilities of the power station. That dispute will be resolved either by arbitration in London or under the auspices of the Maharashtra Electricity Regulatory Commission ("MERC"), an independent tribunal set up to regulate the power sector in Maharashtra. The Indian Supreme Court will shortly rule on which of these two fora is the correct forum for the settlement of this commercial dispute.
The Claimantsf Case on the Facts
In order to elevate a commercial dispute between DPC and MSEB into a claim under an investment protection treaty, the Claimants, as shareholders in DPC, rely upon their incorporation in Mauritius. They also rely upon what amounts to an elaborate, though inherently improbable, conspiracy theory. The Claimants contend that they were in effect deprived of their investment in DPC as the result of organized and premeditated collusion between the Indian Courts, MERC, MSEB, the Government of Maharashtra ("GOM"), the Government of India ("GOI") and various Indian banks.5
In order to support this conspiracy/collusion theory the Claimants draw upon the proposition that events taking place in 2001 were simply a re-run of events which had occurred in 1995/6 (when GOM had attempted to cancel, but had then reaffirmed its commitment to, the project). The Tribunal is urged to treat this attempt to draw parallels between 1995/6 and 2001 with the utmost caution. The events of 2001 were entirely different and cannot be judged simply by reference to the earlier dispute; they can properly be assessed only after a full and detailed consideration of all the available evidence.
The Claimants do not support their grave allegations and assertions of treaty violations with convincing - or even in places, any - evidence. They rely instead upon innuendo and spin, and are over-reliant upon extracts from media and press reports, some of which have been taken out of context or materially misquoted.6
The Claimants say that the expropriation of the project stems from a change in the Government in Maharashtra in October 1999 following which a "tenuous"7 coalition stood "Poised to launch another attack against the project".8 However, a simple review of the chronology will show that the Claimantsf theory is nonsense.
The Claimantsf arguments and witness statements are peppered with language insinuating that the Courts of India and MERC are puppets of politicians, and the Claimants take an alarmingly selective and simplistic approach to the facts. In the absence of any witnesses from the principal investor and driving force behind the Dabhol project, namely Enron, the Claimantsf main witness is Mr Nagarvala. However, he was at best a peripheral figure. His "evidence" is a combination of hearsay on matters outside his personal knowledge and opinions on matters (ranging from the construction of Indian statutes to the construction of combined cycle power plants) which are outside his expertise. His statement, in reality a series of submissions dressed up as evidence, is largely inadmissible and should be disregarded.
Regrettably the highly selective narrative of events in the Statement of Claim is not a safe guide to the factual background to this dispute. The Respondent has set out its own chronology in Chapter II of this Statement of Defense which it believes is a safer and more objective history of the events giving rise to the present dispute. The Respondent has also prepared a schedule highlighting the factual errors and misquotations in the Statement of Claim.9
The True Nature of the Dispute
In reality, this case arises from a straightforward claim for breach of a commercial contract to which the Claimants themselves were not parties.
The dispute between DPC and MSEB, the result of which has yet to be determined in an appropriate forum, was caused by the Dabhol power stationfs failure to perform in accordance with the requirements of the PPA (and pre-contract representations concerning the plantfs capabilities). The performance failure in question was the power stationfs inability to increase (or "ramp-up") power output with sufficient speed following a shut-down. The power stationfs actual capability is not in issue since DPC has admitted that the plant is incapable of achieving the ramp-up schedule required by the terms of the PPA.10 In order to excuse what was, on the face of it, a clear breach of contract, DPC argued that MSEB either waived any objection to, affirmed or otherwise acceded to the plantfs performance failure and thereby lost the right to object to it.
The power plantfs failure to perform in accordance with the PPA initially caused an argument about MSEBfs entitlement to a rebate of tariff payments. When MSEB learnt that the performance failure was due to an inherent defect in the power station, and not simply a one off incident as originally believed, this dispute over payment obligations escalated. Ultimately both parties purported to exercise rights of termination or rescission of the PPA.
In the course of this increasingly acrimonious dispute DPC made demands under two guarantees, one issued by GOM and the other by GOI. Unsurprisingly both guarantors refused to pay DPC in circumstances where MSEBfs payment obligations (if any) were still very much in dispute.
The Respondent will demonstrate that there is a bona fide commercial dispute between DPC and MSEB raising substantial issues of both fact and law. There is also a bona fide dispute between DPC and MSEB as to the appropriate forum for resolution of their arguments. Until this preliminary issue of jurisdiction has been decided, the Indian Courts have sought to preserve the status quo by staying London arbitration proceedings. However, DPC has participated fully in all of the legal proceedings in India, has consented to orders in those proceedings, has had access to legal advice at all times and has taken advantage of the appeal processes available to it in the Indian Courts. The Claimants now claim to be dissatisfied with the results of this litigation, and seek to disparage the Indian Courts and cast unwarranted aspersions upon the highly respected Indian judiciary.
On a proper analysis it is clear that the events of 2001 and thereafter do not satisfy the requirements for a claim of expropriation, nor do they amount to unfair or inequitable treatment or otherwise breach the terms of the Agreement, as the Respondent will explain in Chapters VI, VII and VIII of this Statement of Defense.
The commencement of this arbitration is in reality a crude and cynical attempt by the Claimants to improve their bargaining position in the underlying disputes by raising a new claim with a huge headline figure attached to it. The quantum of the claim has been greatly exaggerated, presumably in order to increase its impact, and the amount of compensation sought is out of all proportion to the amounts actually invested by GE and Bechtel in the project.11
India wholly rejects the Claimantsf claims as set out in their Statement of Claim and thus their entitlement to the redress claimed, or any redress at all. Apart from, and in addition to, various matters which the Respondent has raised going to the Tribunalfs jurisdiction and the admissibility of all or part of the Claimantsf case:
the Respondent denies that it was responsible for the conduct of any entities other than itself, GOM, the Indian Courts and MERC, with the consequence that the conduct of MSEB, MPDCL and the IFIs is not attributable to the Respondent and any element of the claim which is based on the conduct of those entities is to be disregarded;
the Respondent further denies that there has been any denial of justice by the Indian courts and MERC which could give rise to any international responsibility on the part of the Respondent; and
the Respondent further denies that there has been any expropriatory conduct or any unfair or inequitable treatment by either itself or GOM, and denies also that they have failed to honor their obligations with regard to the Claimantsf investment.
[NOTE: This case summary may be further amended/improved upon completion of Chapters VI, VII and VIII, when we know our best points on the legal issues raised.]
Structure of This Statement of Defense
The Respondent Government of India will set out its full case under the following headings:
The Facts (Chapter II)
Applicable Law (Chapter III)
The Jurisdiction of the Tribunal and Admissibility (Chapter IV)
The extent of the Government of Indiafs responsibility for other organs and entities (Chapter V)
The Government of India has not, in Violation of Article 6 of the Agreement, Expropriated the Claimantsf Investment in the Dabhol Project, or subjected it to Measures having effects equivalent to Expropriation (Chapter VI)
The Government of India has not, in Violation of Article 4 of the Agreement, failed to accord Fair and Equitable Treatment to the Claimantsf Investment in the Dabhol Project (Chapter VII)
The Government of India has not, in Violation of Article 11 (4) of the Agreement, failed to honor its Obligations with respect to the Dabhol Project (Chapter VIII)
The Claimants are not entitled to the Relief Requested (Chapter IX)
Conclusions and Submissions (Chapter X)
Background - The Indian Power Industry And Its Regulatory Regime
In setting out the facts as fully as possible in order to assist the Tribunal in gaining an understanding of the matters at the heart of this arbitration, the Respondent is doing so without prejudice to the matters raised in Chapter IV regarding the Tribunalfs jurisdiction. In particular, the Respondent there submits that the Claimantsf claims are inadmissible insofar as they rely upon acts or omissions occurring before the Agreement came into force; the Claimants have failed to establish that they are "investors" who have made "investments" in accordance with the requirements of the Agreement; and certain aspects of the Claimantsf claims are either manifestly unfounded or inadmissible.
The Respondent has not sought expressly to deny each and every factual statement in the Statement of Claim with which it takes issue. The Respondent should therefore be assumed to take issue with any matter in the Statement of Claim not expressly admitted or averred.
Statutory Regime before 1991
The production and supply of electrical power to both consumers and industry is an issue of fundamental importance to the modern nation state. In some countries the supply of power remains entirely in the hands of the State. In others there are varying degrees of private participation. Even in those States where the power industry has to some extent been placed in private hands, the industry invariably remains subject to a degree of regulatory control. The provision of electrical power is of such importance to the general well-being of the community that every State has retained some measure of responsibility for its proper regulation.
India is no exception. However, the regulatory regime applicable to the Indian power sector has evolved as the industry has shifted between public and private ownership.
The regulatory framework for the Indian power sector was originally established by the Electricity Act 1910. The 1910 Act defined the obligations of suppliers and generators of electricity, who at that time comprised a mixture of private and public undertakings.
Prior to Independence in 1947, the majority of the Indian power sector was in private hands. However, after Independence the industry became subject to greater government ownership and control.
The Electricity (Supply) Act 1948 (the "1948 Act"), passed shortly after Independence, restructured the Indian electricity industry. In particular, it provided the framework for the creation of the Central Electricity Authority ("CEA"), the State Electricity Boards ("SEBs") and generating companies. The CEA assisted the Ministry of Power in setting national power policies and coordinating the activities of the planning agencies in relation to control and utilization of national power resources. Certain disputes had to be referred to the CEA for compulsory arbitration under the 1948 Act. The primary role in electricity supply was granted to SEBs. SEBs were responsible for all matters relating to generation, transmission and distribution of electricity at the State level.
The State of Maharashtra is the most industrialized State in India and one of the largest consumers of electricity. MSEB was established in 1960 pursuant to the 1948 Act. It is the largest SEB in the country and the largest generator of electricity.12 By the late 1980s the demand for power had risen rapidly in Maharashtra and MSEB was seeking to add generating capacity to the State grid.
The Liberalization of the Indian Power Sector
In 1991, as part of a policy to liberalize the Indian economy generally, the Indian Government started to encourage private participation in the electricity industry.
From 15 October 1991 the 1948 Act was extensively amended to allow private investors to set up generating companies for the supply of power in bulk to the grid.13
These modifications to the statutory regime changed the definition and enlarged the role of generating companies by allowing them to establish, operate and maintain generating stations. Generating companies were allowed to enter into contracts with SEBs for the supply of electricity, with tariffs to be determined by both the CEA and Central Government.
The changes were accompanied by a policy statement issued by the Ministry of Power permitting 100% foreign equity participation in the Indian electricity sector.14 Any profits were allowed to be repatriated and capital structuring was liberalized.
However, the Indian State continued to play a regulatory and supervisory role. For instance the Ministry of Power ordered that any scheme estimated to involve capital expenditure of Rupees 250 million (then approximately US$10 million) or more had to be submitted to the CEA for approval.15
The Statefs role extended to price regulation. By Ministry of Power Notification dated 30 March 1992 the parameters for determining the tariffs for sales of electricity by generating companies to SEBs and other purchasers were set out. This Notification was subsequently amended several times throughout the 1990s.16
Accordingly, whilst India was seeking to attract private investment (both foreign and domestic) into the power industry, the sector remained subject to a degree of State regulation and intervention. In this respect the process of privatization in India was similar to that in most other nations at around the same time where the industry moved from public to wholly or largely private ownership.
When the Claimants, together with Enron, embarked on the Dabhol power project, they were all fully aware of the commercial environment they were seeking to do business in and the tensions between commercial interests and State regulation in the power sector. For instance, Enronfs legal advisers, Linklaters & Paines, warned that the proposed PPA was inconsistent with the existing tariff regulations, and that there was a risk that arbitration clauses in the PPA would be overridden.17
The Creation of MERC and Reforms of the 1990s
On 2 July 1998 the Electricity Regulatory Commissions Act 1998 ("ERCA 1998") was passed. Together with the Acts of 1910 and 1948, the ERCA 1998 forms one of the three major pieces of legislation affecting the structure and regulation of the Indian power sector.
The ERCA 1998 was designed to reform the power sector by, inter alia, rationalizing tariffs and introducing transparent policies relating to subsidies. It provided for the establishment of a Central Electricity Regulatory Commission ("CERC"). It also gave State Governments the option of establishing their own State Electricity Regulatory Commission ("SERC"). One of the main functions of the SERCs was to determine the tariffs to be paid by consumers and by SEBs for the supply of electricity within the relevant State.
Previously State governments had set the tariffs. The creation of SERCs throughout India was intended to de-politicize the setting of tariffs by putting them in the hands of an independent body.18
In addition to a number of mandatory functions and powers which had to be conferred on a SERC,19 there were also additional functions and powers which each State Government had the option to confer,20 including regulatory and adjudication powers.
On 31 August 1998 GOM issued a notification constituting a Selection Committee for selecting members of a SERC for the State of Maharashtra pursuant to Section 18 of the ERCA 1998. MERC was established on 5 August 1999.21
On 27 October 2000 GOM bestowed on MERC the powers provided for under Section 22 (2) (n) of the ERCA 1998, enabling it to "adjudicate upon the disputes and differences between licensees and utilities and to refer the matter to arbitration".22 For the purposes of the ERCA 1998, DPC and MSEB were, respectively, a licensee and a utility.
The Respondent will explain the structure and functions of MERC in more detail in Chapter V of this Statement of Defense relating to attribution of responsibility.
There is a suggestion in the Statement of Claim that the creation of MERC by GOM was part and parcel of Indiafs alleged scheme to expropriate the project. For example the Claimants describe MERCfs functions with the caveat that they were its "ostensible" functions, suggesting a hidden agenda behind its creation.23 The members of MERC are dismissed as former GOM officials who were mere political appointees with no legal or adjudicative experience.24 There is even an express allegation that MERC colluded with GOM and MSEB as part of a conspiracy aimed at DPC, to the extent that MERCfs order was drafted and agreed in coordination between these parties prior to MSEB filing its petition.25 These allegations are untrue and are denied.
The Dabhol Project - Participants And Contractual Framework
In May/June 1992 a senior delegation from GOI visited a number of major commercial cities in USA/UK, including London, New York, Washington DC, Houston and San Francisco. The purpose of the visit was to raise awareness about the liberalization of the Indian power sector referred to above and to encourage foreign private investment for the industry.
During the visit one of the companies to express an interest in such an investment was Enron. Enron was ultimately to become the main joint venture partner in the Dabhol project. The Claimantsf owners, GE and Bechtel, were to join Enron in the venture but remained in a subordinate position as minority shareholders.
Although neither Enron nor its affiliates are parties to this arbitration, Enron was the key figure in the development of the project and it is impossible to explain the history of the project without fully explaining Enronfs role. It is telling that the Claimants pay little attention to this aspect of the projectfs history in their Statement of Claim.
The central role played by Enron in the Dabhol Project is relevant to this arbitration for a number of reasons.
The Claimants make much of the political disputes and controversies which dogged the Dabhol project. They seek to suggest that the actions of individuals and institutions who criticized the project were only ever motivated by domestic political considerations, and they seek to characterize opposition to the project as the product of xenophobia, political opportunism and local hostility to foreign corporations. The Claimants have relied selectively upon statements made by politicians, as reported by the Indian media, to support this impression. In some instances they have compounded this by failing even to quote the statements accurately.26
In fact, from its inception the Dabhol project generated controversy for a number of understandable commercial, environmental and economic reasons. However, the level of controversy which the project attracted is probably no more than would have been seen in any democracy in relation to a project of this magnitude.27 It is in this context that the statements cited by the Claimants should be understood. The Claimants were well aware of the potential political difficulties which their involvement in the project might engender. The Claimants took the precaution of taking out a political risks insurance with Overseas Private Investment Corp. ("OPIC").28 They also freely negotiated a financial limit on any rights of recourse to GOI.29
One reason for the controversy was the aggressive and apparently unprincipled manner in which representatives of Enron acted when seeking initial approval for the project and during subsequent negotiations. Regulatory clearances for the project were sought and obtained in the face of opposition from numerous interested (mainly consumer) groups. The suggestion that representatives of Enron used bribery in order to smooth the path for the project and to obtain favorable contract terms has been made on numerous occasions in the past. This as yet unproven allegation is not relied upon by India in this arbitration, but it is relevant if one is to have a proper understanding of the background to the project and the reasons why it was regarded with suspicion. 30
The individuals at Enron responsible for persuading MSEB, GOM and GOI to support the Dabhol project were all generously rewarded.31 It is fair to conclude that Enron expected to reap huge rewards from its investment in the project. This not unnaturally gave rise to concerns (not least from the World Bank) that Enronfs desire to maximize profits had overridden other considerations, such as whether a power plant of this kind was appropriate for Maharashtra or whether the tariff structure was unduly generous to DPC and unduly onerous on the people of Maharashtra. Overall, it is apparent that the Claimants embarked upon the project on the basis of what the tribunal in Waste Management, Inc. -v- United Mexican States referred to as "unsustainable assumptions about customer uptake and contractual performance".32
The Claimants also seek to suggest that the difficulties faced by the project resulted entirely from the actions of the Indian Government and other Indian institutions. There is no reference in the Statement of Claim to the financial difficulties facing Enron in 2001 (which ultimately caused the companyfs collapse later that year) and how these factors influenced Enron and DPC in their aggressive approach to the dispute with MSEB. Since neither DPC nor Enron is a party to this arbitration, it is unlikely that the Tribunal will have the benefit of information or documents capable of shedding light on these issues.
By seeking to elevate the dispute between DPC and MSEB to the international plane, the Claimants are in effect inviting the Tribunal to decide disputed issues of fact in circumstances where the actions of only one party to the municipal dispute, namely MSEB, will be subjected to any scrutiny. The Claimants would therefore have the Tribunal try to form a judgment on the events of 2001 after having heard only part of the story, and this alone, apart from other reasons, demonstrates that the Claimantsf efforts are misplaced.
Finally, the role, conduct and motives of Enron and the Claimants will also be relevant to issues of liability and quantum in accordance with the terms of the Agreement. As the Respondent will explain in more detail in Chapter IX, the Claimantsf case on quantum is notable only for its lack of detail. The Claimantsf efforts to fix the level of compensation arbitrarily by reference to the Transfer Amount are an attempt to overstate the value of this claim. In the event the Tribunal ever has to address issues of quantum and the amount of fair and equitable compensation, there are a number of factors which the Respondent believes need to be taken into account, including the benefits which accrued to Enron and the other Investors as a result of the project.
Background and Pre-Contract Negotiations
On 20 June 1992 a non-binding Memorandum of Understanding (the "MOU") was signed by MSEB, Enron and GE. The MOU outlined in general terms an agreement in principle for the design, construction, operation and ownership of a 2000-2400 MW combined cycle gas power plant at Dabhol in Maharashtra. The MOU envisaged that the signatories would together form a joint venture company called the "Dabhol Power Company".
The roles of the three signatories were outlined in a Term Sheet appended to the MOU. Enron was to be responsible for, inter alia, design and equipment procurement, negotiation of fuel and construction contracts and arranging for construction financing and long term project financing. GE was to supply 9E or 9F gas turbines,33 steam turbine generators and maintenance expertise. MSEB was to be responsible for matters such as providing transmission lines to the site.
The Term Sheet envisaged that the power plant would rely for fuel upon liquefied natural gas ("LNG") under a 15 or 20 year contract between DPC and a fuel supplier. LNG was however a novelty for the Indian power sector. Coal had previously been used widely since it was a relatively cheap and plentiful source of fuel. LNG had not previously been considered as a possible fuel for Indian power stations and the majority of existing plants were coal-based, supported by a small amount of domestic natural gas and hydro-electricity. The facility was to be the largest power station ever built by Enron.34
Enronfs proposal was submitted for the approval of Indiafs Foreign Investment Promotion Board, and on 3 February 1993 approval was granted. This enabled Enron to commence detailed negotiations with MSEB for a Power Purchase Agreement ("PPA").
On 29 April 1993 DPC was incorporated in India to act as the corporate vehicle for the project. It was initially 100% owned by an Enron subsidiary, Enron Mauritius Company ("Enron Mauritius"). Pursuant to a shareholders agreement dated 20 December 1994, 10% of the shares in DPC were acquired by Capital India and 10% by Energy Enterprises. Energy Enterprises represented the interests of Bechtel, which had by this stage joined GE as the main contractor for the project. Enron Mauritius retained an 80% shareholding in DPC.35
In addition to their anticipated return on capital, the three Investors expected to benefit from lucrative subcontracts arising from the project. These expectations proved to be fully justified, as a GE group company supplied DPC with the major power station equipment and a Bechtel group company acted as the engineering, procurement and construction contractor for the power station.
Whilst negotiations regarding the terms of the PPA were proceeding, the World Bank conducted an independent analysis of the proposed project. Following its review the World Bank warned against proceeding with the project in the form proposed by Enron. The World Bank wrote to the Indian Ministry of Finance on 30 April 199336 to advise that the project as formulated was not economically viable and thus could not be financed by the World Bank. Despite the conclusions of the World Bank, Enron was able to persuade MSEB and the Indian regulatory authorities that the project was viable. The PPA was duly signed by DPC and MSEB on 8 December 1993.
The PPA sets out the scheme of rights, obligations and liabilities for the development, construction, maintenance and operation of a combined cycle power station on a site to be agreed near Dabhol. It is a detailed, complex and lengthy agreement.
In order to assist the Tribunal to understand the subsequent dispute which arose between DPC and MSEB it is first necessary to have an understanding of some of the key terms of the PPA. This is not because the Tribunal has to determine the merits of either DPCfs or MSEBfs case in the contractual dispute between them. The Tribunal (subject to issues of jurisdiction) has only to resolve issues concerning Indiafs international obligations under the Agreement.
However, it is the Claimantsf case that MSEB "collaborated" with the GOM and with MERC in order to "fabricate" this commercial dispute. The Statement of Claim devotes only a single paragraph (paragraph 55) to the dispute which is dismissed as simply:
"an elaborate - but transparent - after-the-fact ruse" .37
The Statement of Claim seeks to bolster this theory by referring, to political gossip as reported by the Indian press:
"creports began to circulate indicating that high-level GOI and GOM officials had decided to direct MSEB to repudiate its obligations under the PPA and terminate the Project." 38
Even though the Claimants have manifestly failed to find any evidence to support these allegations, the Respondent is obliged to address the case that has been put to it. To enable the Respondent to refute the allegation that the contractual dispute under the PPA was fabricated as a "ruse" to mask a scheme designed to expropriate the Claimantsf investment, it is essential to understand how the dispute arose and what it was all about. This necessarily involves consideration of some of the terms of the PPA.
The power station was to be constructed in two phases. The first phase ("Phase I") required the construction of a block with nominal base load capacity of 625 MW firing oil fuel (635 MW firing natural gas) plus a "black start" facility.39 The second phase ("Phase II") required the construction of two further blocks each of the same nominal base load capacity fuelled by imported natural gas, and the conversion of the power station to natural gas firing once a supply of liquefied natural gas ("LNG") had been obtained. The total nominal base load capacity of the power station at Phase II completion was therefore to be 1905 MW.40
Under the PPA as originally signed Phase I was independent of Phase II. Although MSEB was committed to purchase power from the Phase I facility upon entry into commercial service, it was not obliged to proceed with Phase II.41
MSEB had to make two types of payment to DPC for electricity: Capacity Payments (calculated in accordance with Schedule 9 of the PPA) and Energy Payments (calculated in accordance with Schedule 10).42
DPC was supposed to provide MSEB with daily "availability declarations" stating the plantfs available power capacity for each hour of the following day.43 MSEB agreed to make "Capacity Payments" calculated by reference to these declarations, whether or not it actually used any of the declared capacity.44 The amount of DPCfs declared capacity therefore determined the amount of MSEBfs Capacity Payments.
MSEB had no means of verifying whether an "availability declaration" was correct, unless it instructed DPC to deliver the entire declared capacity and there was a shortfall. This system of declaring capacity was therefore based upon a high degree of trust in the accuracy and honesty of DPCfs capacity declarations.
However, in order to deter inaccurate declarations by DPC, the PPA provided for DPC to pay heavy rebates in the event of an identified mis-declaration of available capacity.45
The Capacity Payments were intended to recover DPCfs fixed costs for the project, including the capital costs of building the power station. The actual breakdown of these capital costs was not disclosed to MSEB, and when asked to provide such a breakdown Enron refused to do so.46 MSEB was therefore unable to audit DPCfs capital expenditure on the project, which it also had to take on trust.
MSEB was to provide instructions to DPC to deliver energy (up to DPCfs declared available capacity) according to the requirements of the Maharashtra grid system. MSEB was then obliged to make "Energy Payments" to DPC based on the amount of energy actually delivered by DPC pursuant to those instructions.47 Accordingly, one element of DPCfs monthly bill was dependent upon the amount of electricity actually supplied to MSEB, and the other element was calculated by reference to the declared capacity of the plant and was chargeable even if no electricity was supplied.
Enronfs pre-contract estimate of the "all in" tariff price (the cost per unit taking into account both Capacity and Energy Charges, assuming power dispatch at 90% plant capacity) had been US 6.91 cents/kWh (equivalent to Rupees 2.07/kWh).48 By April 1993 this had been adjusted to an estimate of Rupees 2.45/kWh.49 However, the tariff price was subject to a number of variables, including the price of fuel, the Rupee/US$ exchange rate and the level of dispatch required by MSEB. By July 2000 MSEB was being charged a tariff of about Rupees 7.80/kWh, more than a threefold increase in these pre-contract projections.50
Clause 6.1 of the PPA provided, inter alia, that DPC was under a duty to operate the power station in accordance with the "Dynamic Parameters". The Dynamic Parameters were certain technical characteristics of the power plant and were set out in Schedule 6, entitled "Operating Characteristics of the Power Station".51
Schedule 6 was in two parts. Part I contained performance curves showing the actual performance of the power plant for various modes of operation at different ambient temperatures. Part II contained 3 exhibits (identified as II.1, II.2 and II.3) showing the dynamic parameters for synchronization of reactive power. Exhibit II.1 showed the time taken by the power station to reach 100% power output from a "hot start" (i.e. after a shutdown of between 0-12 hours). Exhibit II.2 showed the time taken to reach 100% power output from a "cold start" (i.e. after an extended shutdown in excess of 12 hours).
As explained in paragraph 1.19 above, the speed with which a power station can rapidly increase its power output from zero to full or near full capacity is referred to as its "ramp-up" capability. According to Schedule 6 of the PPA the time required by the Dabhol power station to ramp up from 0% to 100% output from hot and cold starts was 1 hour and 3 hours respectively.
The PPA provided that its terms could neither be varied nor any rights waived except by an agreement in writing signed by both parties.52
The PPA was amended on three subsequent occasions, on 2 February 1995, 26 July 1996 and 9 December 1998. Unless specifically referred to below, it can be assumed that these later amendments did not materially affect the provisions of the PPA referred to above.
Other Major Project Agreements
In addition to the PPA there were a number of other major project agreements. It is also necessary to summarize these contracts and their principal terms since they too gave rise to legal disputes that have been characterized by the Claimants as part of the alleged conspiracy.
The GOM Guarantee
On 10 February 1994 GOM executed a guarantee (the "GOM Guarantee") in favor of DPC guaranteeing MSEBfs payments under the PPA. The amount guaranteed was unlimited. By Clause 1(A) of the GOM Guarantee, GOM undertook to pay DPC any sum which MSEB was "liable to pay to" DPC under the PPA within seven days after "a demand in accordance with Clause 1 (B)". Clause 1 (B) provided that DPC was entitled to make demand under the GOM Guarantee if MSEB failed to pay, within seven days of the due date for payment, any sum of money which it was "liable to pay to" DPC under the PPA. The GOM Guarantee was governed by English law with any dispute referable to arbitration, originally in Singapore but later changed to London.
The GOI Guarantee
In addition to the GOM Guarantee, at the request of overseas financial institutions who were providing finance for the project, GOI agreed to provide a counter-guarantee (the "GOI Guarantee") in respect of MSEBfs and GOMfs obligations under the PPA and GOM Guarantee respectively. Such a requirement had not been part of the original MOU.53
A proposed draft of the GOI Guarantee was provided by Enron in October 1993. This draft was rejected by GOI because it exposed GOI to an unlimited liability, which was unacceptable.
In order to limit GOIfs exposure under the proposed guarantee, a cap of US$ 300 million on any liability consequent upon termination of the PPA (as distinct from liability relating to monthly tariff charges) was proposed and ultimately agreed. This figure was intended to reflect the level of the offshore lendersf exposure to the project and was also equivalent to the maximum equity commitment to be made by DPCfs shareholders.
The rationale for, and value of, the cap on GOIfs potential exposure was the subject of detailed and lengthy negotiations which are explained in more detail in Gajendra Haldeafs witness statement. It is clear that all the investing parties, including Enron, GE and Bechtel, were well aware that GOI was unwilling to underwrite the entire project. They therefore made a calculated decision to proceed with the project knowing full well that there would be limited rights of recourse to the GOI. They were able (and in fact did) take out political risks insurance with OPIC54 in respect of their investment. By commencing the present treaty arbitration proceedings the Claimants are seeking to circumvent this negotiated, agreed and limited allocation of risk and governmental support for the project.
The Investors and the offshore banks clearly recognized that there was an element of political risk arising from a project in India, and this risk was reflected in the pricing of the tariffs charged by DPC (since the financing would have required higher rates of return to take account of perceived political risk). It is disingenuous for the Claimants now to contend that they did not go into this venture with their eyes open to the potential risks and rewards inherent in the project.
Having finally agreed this limitation on GOIfs exposure, on 15 September 1994 GOI executed the GOI Guarantee in favor of DPC guaranteeing GOMfs obligations under the GOM Guarantee subject to the terms set out therein.
By Clause 1 of the GOI Guarantee, GOI undertook within 30 days following receipt of demand from DPC to pay "any sum of money validly due" under the PPA which both MSEB and GOM had failed to pay in respect of Capacity Payments and/or Energy Payments relating only to Phase I of the project. This liability was subject to a cap of Rupees 15 billion (then approximately US$470 million) in any one financial year subject to annual escalation.
By Clause 5 of the GOI Guarantee, GOI also undertook within 30 days following receipt of demand from DPC to pay "any sum of money validly due" in respect of termination of the PPA which both MSEB and GOM had failed to pay. This liability was subject to a cap of US$ 300 million.
The GOI Guarantee was governed by Indian law with any dispute referable to arbitration in London.
The State Support Agreements
On 24 June 1994 DPC and GOM signed a state support agreement (the "State Support Agreement"). The State Support Agreement set out a number of general obligations on the part of GOM to provide support and assistance to the project. By Clause 6 GOM undertook to take all steps within its power to see that none of its own agencies, authorities or departments (excluding MSEB) took any of a number of defined actions deemed to be detrimental to the project. On 26 July 1996 a Supplemental State Support Agreement was signed between GOM and DPC.55 The State Support Agreements were governed by English law with any dispute referable to arbitration in London.
The Project Contracts
For the development of Phase I, DPC appointed an affiliate of GE, General Electric Technical Services USA ("GETS"), as the main equipment supplier and an affiliate of Bechtel, Overseas Bechtel Inc. ("OBI"), as the main engineering, procurement and construction contractor.
DPC signed several contracts with the various suppliers/contractors in relation to Phase I. The major project contracts for the construction of the power plant were (i) an Offshore Power Station Contract dated 9 May 1994 with OBI; (ii) an Onshore Power Station Contract dated 9 May 1994 with OBI and GETS; (iii) an Offshore Ancillary Facilities Contract dated 9 May 1994 with OBI; (iv) an Onshore Ancillary Facilities Contract dated 9 May 1994 with OBI; and (v) an Operation and Maintenance Agreement dated 9 May 1994 with Offshore Power Operations CV ("OPO"), an Enron group company.
Accordingly, each of the Investors, via its subsidiaries and affiliates, was party to lucrative contracts with DPC for the provision of construction, engineering, procurement and maintenance services in connection with Phase I of the project.
The Period Prior To The Dispute
Renegotiation of the PPA in 1996
On 1 March 1995 Phase I of the project achieved financial closure. On 1 March 1995 Phase I construction started.
The project provoked intense debate in India.56 This high level of public interest in the project was natural in view of its scale and ambition. The New York Times, for example, calculated that the cost of the project to Maharashtra would exceed the Statefs entire budget for primary and secondary school education.57 Concerns were raised on both sides of the political divide, and these were unsurprisingly exacerbated by some of Enronfs own public statements relating to the project.58
The Claimants now seek to question the independence of the Indian judiciary. For example, Mr Nagarvala refers to the Indian courts being "susceptible to government influence".59 The Statement of Claim asserts that the Indian Courts would "not provide a level playing field" for adjudication of disputes.60 This attack on the integrity of the highly respected Indian judiciary is without justification and is denied.
In fact, a number of groups challenged the project in the Indian courts using the Indian concept of "public interest litigation" ("PIL").61 However, every single PIL challenge to the project was rejected by the Indian courts. By 1998 DPC had fought 24 PIL lawsuits and won all of them, prompting Enron to comment favorably about the independence and the quality of the legal system in India:
"If you had to fight this in any place you would want to do it in India. The courts looked at the merits and they did not get into the politics. The BJP knew that they were not going to buy off the judges."62
As a result of State Assembly elections, the Shiv Sena-BJP Alliance assumed office in Maharashtra on 14 March 1995. In response to the controversy surrounding the project, the new State Government proposed a review of the project and formed a sub-committee to undertake this task headed by the Deputy Chief Minister, Gopinath Munde (the "Munde Committee").
The terms of reference for the Munde Committeefs review of the project included (i) the reasons for not calling competitive bids; (ii) whether there was any secrecy in relation to the negotiations for the project; (iii) whether the capital costs of the project were reasonable; (iv) whether the rates for the purchase of power were reasonable; and (v) whether there would be an adverse environmental impact as a result of the project.
The Munde Committee held several meetings throughout the month of May 1995 and heard representations from various institutions, consumer interest groups and representatives of both DPC and MSEB. The Munde Committee published its findings in a report dated 18 July 1995 recommending to the GOM that it should repudiate Phase I and cancel Phase II of the Project. On 3 August 1995 GOM Chief Minister Joshi was quoted in the press as announcing the cancellation of the project. In response to this announcement, the very next day DPC commenced arbitration proceedings in London against GOM under the terms of the State Support Agreement.
GOM tried to reach a settlement with DPC and as part of this process formed a Negotiation Committee to hold discussions with DPC in order to revive the project and this led to a renegotiation of the terms of the PPA.63 As a result of these renegotiations the nominal base load capacity of the power station was increased from 1905 MW to 2150 MW and MSEB committed itself to purchasing power from both Phase I and Phase II of the project. Despite the political controversy and the criticism of the Munde report, the result of the negotiations not only confirmed the PPA but actually increased capacity and committed to Phase II.
The amended PPA reflecting these changes was signed on 26 July 1996, together with a Supplemental State Support Agreement. As part of the renegotiation DPC also agreed to settle the London arbitration and later that year, on 17 December 1996, proceedings were terminated by the publication of a final consent award pursuant to which GOM accepted, inter alia, the validity of the PPA.
For the development of Phase II, GE was again selected by DPC to supply the main equipment for the power plant. DPC also signed a number of further contracts with suppliers/contractors.
The major contracts relating to the development and construction of Phase II were (i) an Offshore Supply Contract dated 30 November 1998 with General Electric Japan Limited ("GEJ"); (ii) an Onshore Construction Contract dated 30 November 1998 with Bechtel International Inc ("BII"), Ling take Constructors LP (an Enron subsidiary) and General Electric International Inc. ("GEI"); (iii) an Offshore Services Contract dated 30 November 1998 with Bechtel Overseas Corporation, Enron Power Services BV and GE Power System; (iv) an Onshore Services Contract dated 30 November 1998 with BII, Ling take Constructors LP and GEI; and (v) an Amended and Restated Phase II Operation and Maintenance Agreement dated 2 December 1998 with OPO.
DPC also entered into agreements for the development, construction, operation and maintenance of the LNG unloading facility, re-gasification and storage facility at the project site. Much of this work was contracted to affiliates of Enron.
Once again each of the Investors, via its subsidiaries and affiliates, was a beneficiary of lucrative contracts with DPC for the provision of construction, engineering, procurement and maintenance services, on this occasion in relation to the much larger Phase II of the project.
The Claimants rely heavily on the events of 1995/6 to bolster their case in this arbitration. On a number of occasions, where evidence is required to support particular aspects of their case, the Claimants simply refer back to the events of 1995/6 and invite the Tribunal to draw inferences.64 For example in the key section describing the "expropriation of the project" the Claimants say this:
"43. The only notable difference from 1995 was that the political roles were reversed. Ironically, the Congress Party led the anti-Dabhol charge this time". (Our emphasis added).65
As the Respondent will show, the events in 2001 were completely different from those of 1995/6. In 1995 there was no commercial dispute between the parties and the decision to cancel the PPA was simply a decision taken under immense political pressure generated by the controversy arising from Dabhol.66 In 2001 on the other hand there was a genuine commercial dispute between DPC and MSEB, and MSEBfs decision to seek a rebate and then to rescind the PPA had a sound commercial and technical basis and was made on the basis of legal advice. 67 It was most definitely not a re-run the dispute of 1995/6 as the Claimants allege.
As a result of the renegotiation of the PPA a second financial close for Phase I took place on 9 December 1996.
For Phase I project financing the overseas lenders agreed to provide US$ 548.21 million (of which US $[ ] was guaranteed by the IFIs) and the IFIs themselves agreed to provide US $94.8 million. Accordingly the parties with the largest exposure were not Enron nor the Claimants, but the IFIs. This project financing produced about 57% of the total capital investment for Phase I. These loans were secured by a package of collateral security documentation including mortgages over DPCfs assets, liens on DPCfs revenues and pledges of DPCfs shares.
The equity contributed by DPCfs shareholders for Phase I amounted to US$ 488.3 million (taking into account escalations in project costs), with each of the Claimants contributing only US$48.8 million (much of which would ultimately be paid to their own group companies under the various project agreements).
The financing package arranged for the project by Enron is relevant because it shows the proportion of project finance provided by banks and other financial institutions, as opposed to capital contributed by the Investors themselves. This not only demonstrates how the Claimants have grossly exaggerated the value of their claims in the present arbitration (the most obvious flaw in their calculation is that it takes absolutely no account of DPCfs debts), but it is also a necessary element in the events leading to DPCfs collapse.68
On 4 December 1997 MSEB established a wholly owned subsidiary, the Maharashtra Power Development Corporation Limited ("MPDCL"). On 31 October 1998 pursuant to a share sale and purchase agreement MPDCL purchased 30% of the equity in DPC from Enron Mauritius. However this shareholding was later diluted to 14.15% when MSEB declined to contribute further capital for Phase II of the project.
A Phase II Addendum to the PPA was signed on 9 December 1998. This Addendum amended the PPA, inter alia, to reflect the terms of the LNG contracts to be entered into by DPC. At the same time a Consolidated PPA was initialed by MSEB and DPC which amended and restated the PPA taking into account the amendments of 2 February 1995, 26 July 1996 and 9 December 1998. This Consolidated PPA was the agreement which was in effect between DPC and MSEB at the time of the dispute in 2001.
On 6 May 1999 Phase II of the project achieved financial closure providing US$ 1.87 billion of further financing. This took the form of five loans totaling US$ 1.414 billion, together with equity investments of US$ 453 million.
Shortly afterwards, on 13 May 1999 Phase I of the project entered into commercial service.
State Elections in Maharashtra in October 1999
In late 1999 State elections took place in Maharashtra which resulted in a change of government. The Claimantsf case is that the new coalition government in Maharashtra (comprising The Congress Party, The National Congress Party and various smaller parties) was compelled to accede to demands from one of its coalition members, The Peasants and Workers Party ("PWP"), and to promise that the Dabhol project would be scrapped.69
In fact, regardless of the rhetoric deployed during the election campaign, the new government made no such promise and did not adopt a policy of opposing the project.70
The most telling evidence in this respect is that in the months that followed the elections in late 1999 absolutely nothing of any significance happened vis ? vis the project. MSEB continued to pay DPC in accordance with the terms of the PPA. Preparations and construction for Phase II of the project continued.
The Claimants have failed to explain why, if the conspiracy/collusion they rely upon originated in the election campaign of 1999 and ensuing political instability, the dispute between MSEB and DPC which eventually led to the PPA being rescinded did not take place until more than a year afterwards.
MERCfs Tariff Reforms in May 2000
On 5 May 2000 MERC issued its first tariff order relating to the regulation of electricity tariffs. The key provisions of the order included the following:
MSEB was to ensure that all consumers were metered within a period of three years.
MSEB was to reduce transmission and distribution loss by 5%.
Subsidies to farmers were to be removed progressively over the following five years, so that by the year 2005 the tariff paid by farmers would reflect the cost of supply.
MERC reaffirmed the principle of "merit order dispatch". This meant that MSEB had to purchase electricity with the lowest variable cost first, and that with the highest variable cost last.
The principle of merit order dispatch was particularly relevant to the Dabhol power station, which despite Enronfs initial projections had by far the highest variable cost and was accordingly the last in the order of merit. MERC determined that it would be most economic to shutdown the Dabhol plant and start it up again according to grid requirements, even though MSEB would still have to pay fixed Capacity Charges to DPC (as well as start-up charges whenever it was restarted). As a result of the May 2000 order, MSEB was directed to purchase power from Dabhol only when and to the extent that power from all other sources was insufficient. The merit order dispatch principle meant that on numerous occasions from mid-2000 onwards the plant was shutdown completely.
Although DPC had the right to appeal the May 2000 MERC order, it chose not to do so. There is no allegation made by the Claimants that the merit order dispatch system forms part of the alleged expropriation.
The Claimants assert that in the following month, on 20 June 2000, the Agreement between India and Mauritius came into force. Even if the Claimants are correct on this point (which is denied - See Chapter IV), it is only after this date than any acts or omissions of, or attributable to, India can amount to a breach of its international obligations under the Agreement.
The Contractual Dispute Between DPC And MSEB
MSEBfs Position in Late 2000
Since the contractual argument between DPC and MSEB has been dismissed by the Claimants as merely an "after-the-fact ruse" fabricated by MSEB in collusion with the GOM and MERC, no attempt whatsoever has been made in the Statement of Claim to set out or to analyze the factual and legal issues which it raises. The Respondent has attempted to remedy this by setting out in more detail the events and issues giving rise to the dispute. The Respondent also reserves the right to reply to the Claimantsf case on the underlying dispute if and when they set it out in any detail and identify the evidence relied upon.
In particular, the chronology of the events leading up to the dispute is important. The Claimants, confusingly, do not distinguish between issues arising from late payment by MSEB of DPCfs undisputed bills (in particular the bills for October and November 2000), and MSEBfs refusal to pay DPCfs bills for December 2000 and January 2001 as a result of the commercial dispute as to entitlement to a rebate which had by then arisen.
This distinction is critical, because it is only after the commercial dispute arose following the events of 28 January 2001 that MSEB failed to settle a DPC invoice and GOM and GOI refused to make payment under their respective guarantees. Even more tellingly, even though the disputed bills for December 2000 and January 2001 remained unpaid, MSEB settled later invoices rendered by DPC.71
Until the disputed bills for December 2000 and January 2001 it was acknowledged by GOM and GOI that there was no basis for them not to pay DPC in response to demands under the guarantees. GOM also provided financial assistance to MSEB to ensure that payment in relation to undisputed invoices was made.72 These actions are completely incompatible with the Claimantsf case that in the aftermath of the 1999 elections MSEB colluded with GOM and MERC in a strategy "aimed at creating a situation where DPC would become desperate enough to renegotiate".73
Towards the end of 2000 MSEB was struggling to settle DPCfs monthly invoices on time. Even though (due to the merit order dispatch system) the consumption of power from Dabhol was low, the Capacity Charges (approximately US$20 million per month) remained a significant burden upon MSEB. MSEB faced liquidity problems because there was never a perfect match between payments to be made and payments to be collected. Payments had to be made by MSEB every month, whereas its receipts were periodical (bi-monthly, quarterly or half-yearly).74 This mismatch between receipts and payments had always been a feature that MSEB had to reckon with. 75
MSEB therefore faced difficulties in making payments to DPC, but these were not insurmountable.76 MSEB always paid DPCfs invoices. For the energy delivered by DPC that was admitted and acknowledged by MSEB, payments were never disputed.77 Sometimes payments to DPC were delayed, but in those cases the contractual interest to be paid by MSEB for making late payments was always paid in accordance with the terms of the PPA.78
MSEB was also entitled to receive rebates from GOM in respect of concessions which GOM had granted to specified groups of consumers. Under the terms of ERCA 1998, GOM could only grant successions if it also made the necessary reimbursement to MSEB.79 Although this secured the funds from GOM, they were only paid periodically and this again meant that, from time to time, MSEB was waiting upon such payments to discharge its on-going liabilities.
Appointment of Vinay Bansal as MSEB Chairman
In November 2000 Vinay Bansal was appointed Chairman of MSEB. The Claimants are right to describe him as a "no-nonsense disciplinarian". Under his stewardship MSEB adopted an uncompromising approach towards defaulting customers and introduced a programme of mass metering.80 At a stroke he improved MSEBfs liquidity position and boosted revenues generally.81 However, these improvements required some time to take effect and rectify MSEBfs financial position.
Mr Bansal sought to improve MSEBfs liquidity position by seeking an increase in tariff rates from MERC.82 Mr Bansal commissioned the preparation of this application seeking a 30% increase in tariffs, which was eventually filed with MERC on 15 March 2001.83 The application, when it was filed, included references to payments to be made to DPC under the PPA, contradicting the Claimantsf assertion that by this time MSEB (presumably meaning Mr Bansal himself) was involved in a conspiracy designed to extricate it from payment obligations to DPC.84
The problem the Claimants face is that their hypothesis, that GOM consciously starved MSEB of the funds necessary to satisfy payment obligations under the PPA,85 flies in the face of the facts.86 In particular it fails to explain why GOM appointed somebody of the stature of Mr Bansal to be Chairman of MSEB, who immediately implemented reforms which helped MSEB to continue to satisfy DPCfs invoices.
Late Payment of October/November 2000 Invoices
Even after Mr Bansalfs appointment there were frequently periods of particular financial stress, such as when the payments for October and November 2000 fell due. Mr Bansal refused to allow MSEB to send cheques to DPC until he was certain that MSEB had the requisite funds to honor those cheques.87 This was a change from the practice adopted by previous Chairmen of MSEB.88 The payments for October and November 2001 were made in full, albeit late (in which case interest was paid).89 Both invoices were settled following financial assistance from GOM,90 which is again hardly consistent with the Claimantsf view that after the 1999 elections GOM "stood poised" to attack the project.91
However, from early 2001 DPC adopted a more aggressive approach to the problem of late payments by MSEB. A pattern started to develop whereby DPC would make an early demand under the GOM Guarantee to put pressure on both MSEB and GOM to pay outstanding amounts under the relevant invoices.
The first of these demands under the GOM Guarantee was made by DPC on 25 January 2001 in respect of its November 2000 bill (which had fallen due for payment on 25 December 2000). Subsequently, on 5 February 2001, DPC made a demand under the GOM Guarantee in relation to an outstanding balance under the December 2000 bill (due for payment on 25 January 2001).
Also on 5 February 2001 DPC escalated matters further by making a demand under the GOI Guarantee in relation to the outstanding balance of the November 2000 bill. It is noticeable that DPCfs approach to late payment of its invoices hardened at this time 92(possibly as a result of the dispute that was evolving as a result of the incident on 28 January 2001 - see paragraphs [ ] below).
GOM did not immediately make payment in response to the demands under the GOM Guarantee. The Claimants allege that GOMfs failure to pay in relation to the December 2000 invoice was taken for political reasons.93 They support this proposition by referring to The Economic Times, 6 February 2001,94 which quotes Jayant Patil, then GOM Finance Minister. This is one of the key quotes relied upon by the Claimants and has been set out in the Statement of Claim. The Claimants quote Mr Patil as saying, "We have refused to honor our contractual obligations by choice". However, the extract cited in the Statement of Claim starts in mid-sentence, excluding words from the full quote which make it clear that Mr Patil was describing what Enron had said about the position of GOM. In fact, what Mr Patil was reported by The Economic Times to have said was, "These agencies have considered just Enronfs case in which we have refused to honor our contractual obligations by choicec". [emphasis added]95 It is clear from the full article that he was being asked to explain a threatened downgrade by credit rating agencies.
On 7 February 2001 a meeting took place in New Delhi between representatives of GOI (Ministry of Finance) and GOM. GOI had been asking for GOM to provide an explanation of developments in Dabhol since November 2000 when press reports first circulated about MSEBfs payment difficulties. At the meeting GOI took the view that MSEB and GOM had to reach a commercial solution with DPC on the outstanding invoices. GOM explained the background to MSEBfs difficulties and the issues raised by Phase II of the project coming on line later that year. It is notable that there was no discussion in the meeting of the shortfall incident on 28 January 2001, nor was there any suggestion that it might form the basis of a legal argument that might allow MSEB to escape from its obligations under the PPA. GOI and GOM were clear that at that time there was no basis for not honoring their respective guarantees on the basis of what the Claimants allege was a fabricated ruse designed for just that purpose. The focus of the meeting was on finding a practical solution to the problem caused by the invoking of the guarantees.
On 13 February 2001 MSEB settled the outstanding balance of the November 2000 bill (with financial assistance from GOM).96 On 23 February 2001 MSEB made part payment in relation to the December 2000 bill.97
The Godbole Committee
At this point it is convenient to make some reference to the energy review committee formed by GOM, since the committee was formed on 9 February 2001, as these events were unfolding.
The energy review committee (the "Godbole Committee") was set up under the chairmanship of Dr Madhav Godbole.98 Its terms of reference were to carry out an independent review of overall demand and supply of electrical power in Maharashtra, and subsequently these were extended to include negotiating with DPC, on behalf of GOM and MSEB, to seek a reduction in tariffs and capital costs associated with the project.99
The Godbole Committee was not formed in order to target DPC as suggested by the Claimants.100 It was a genuine attempt by GOM to get to grips with the state of its power sector and to ensure that its current policies for the future of the sector were sound.101
DPC readily participated in the meetings of the Godbole Committee. The main problem with Phase II of the project was that it was going to increase significantly the supply of power, but there was insufficient demand for this additional energy in Maharashtra. The only way to resolve this problem was to sell surplus power outside Maharashtra.102 This was seen by all parties, including DPC, as the most pragmatic way of making Phase II of the project a commercial success. DPC therefore had some interest in renegotiating the PPA tariffs in order to make its power more attractive to consumers outside Maharashtra. Unless the Dabhol projectfs electricity could be made more competitive, DPC faced the prospect of being unable to exploit its enhanced capacity when Phase II came into commercial service.103
In the event the Report of the Godbole Committee was highly critical of GOM, which would be surprising if the Committee has been set up by GOM on artificial grounds in order to force re-negotiation of the power project, as alleged by the Claimants.104
Whilst MSEB was striving to settle the outstanding balance of DPCfs invoices for October and November 2000, on 28 January 2001 the first so-called "shortfall incident" occurred. It was this and subsequent similar incidents which gave rise to the legal dispute between DPC and MSEB.
On 21 January 2001 heavy rains in Maharashtra caused a slump in the demand for electricity. This in turn caused dangerously high grid frequency which prompted the MSEB load dispatch center at Kalwa to instruct the Dabhol plant to shut down. 105
On 28 January 2001, at about midday, the Kalwa Load Dispatch Center was notified of a boiler tube leakage at MSEB Chandrapur 500 MW unit. Shortly afterwards the Chandrapur plant informed Kalwa that it would be shut down within two to three hours. The Chandrapur plant was withdrawn from service to the grid at 18.56 hours that day.
The previous day DPC had declared base load capacity for the Dabhol plant to be 657 MW for the entire day of 28 January. In order to compensate for the anticipated shortage of power resulting from the boiler tube leak at Chandrapur, MSEB required full power from the Dabhol plant. Accordingly at 15.00 hours on 28 January MSEB instructed DPC to ramp-up the Dabhol plant to full capacity by 18.00 hours (i.e. 3 hours after the instruction was received, in accordance with Schedule 6 of the PPA) and dispatch its fully declared base load capacity.
However, by 19.00 hours that day (i.e. 1 hour longer than the agreed 3-hour ramp-up period) DPC was only able to deliver 156 MW (adjusted to 154.68 MW for ambient temperature and frequency). That is to say only 23% of declared capacity.106
It is worth pausing here to note that it was a leaking boiler tube at a different plant which initially gave rise to the dispute between MSEB and DPC. The decisions to shut down the Chandrapur plant and to require the Dabhol plant to ramp-up were taken by the State Load Dispatch Center at Kalwa, without reference to MSEBfs head office in Bombay. Operational decisions were made by Technical officers of the Load Dispatch Center and were based upon factors such as demand and supply of power, voltage and grid frequency; not by Mr Bansal and certainly not by GOM politicians.107
As a result of this incident, by the end of 28 January 2001 the Dabhol plant had not been able to deliver sufficient power in response to a dispatch instruction and it therefore seemed that that there had been a very substantial mis-declaration of capacity by DPC.
Under the terms of the PPA, the shortfall between declared capacity and the amount of power delivered triggered a liability on the part of DPC to pay a rebate to MSEB. DPC was contractually obliged to calculate the rebate and include it in its monthly invoice for January 2001.
However, DPC failed to give credit for any rebate in its January 2001 invoice (issued on 7 February 2001). When MSEB raised the issue in correspondence, DPC denied it was under any obligation to pay a rebate.108
DPC sought to dispute the rebate on the following grounds:
Both parties since June 1999 had been following an "agreed convention" to take account of the time needed to bring the plant to full load from cold or hot start, and MSEB had been issuing and revising dispatch instructions based on the actual plant characteristics;
The "agreed convention" was necessary because the start up and loading profile in Schedule 6 of the PPA did not reflect the actual start up and loading capability of the power plant; and
The actual capability of the power plant was well known to MSEB and MSEBfs dispatch instructions were inconsistent with the actual performance capability of the plant and contrary to dispatch procedures.
This argument appears to be a form of stopple by convention, and possibly DPC also relies upon some form of waiver or variation of the contract. Such arguments fail to take into account Clauses 22.1 and 22.2 of the PPA (no variation or waiver without written agreement signed by both parties). More importantly for the purposes of this dispute, they are necessarily arguments requiring factual evidence to support them. No such evidence has been produced.
The Escalating Dispute over Payment
On 7 February 2001 DPC rendered its invoice for January 2001 making no allowance for the rebate claimed by MSEB. Faced with DPCfs refusal to adjust its invoices, MSEB calculated adjustments for shortfall rebates against the outstanding bills for December 2000 and January 2001. MSEB calculated that DPC owed an outstanding balance of Rupees 1,426 million (about US$ 30 million). When it became clear that DPC would dispute the rebate claim, MSEB sought legal advice, and in the light of this advice it wrote to DPC on 28 February 2001 pressing for payment.109 DPC for its part maintained that no rebate was due and refused to pay this sum.110
At this point DPC took umbrage with MSEB daring to suggest that there might be a contractual entitlement to a rebate. The amount of the rebate was a very significant sum and it is not known what other economic pressures may have prompted Enron/DPC to act in the manner it did. DPC continued to refuse to pay the rebate claimed by MSEB, and proceeded to escalate the dispute by making a further demand on the GOI Guarantee on 7 March 2001 (in relation to the balance of the December 2000 invoice).
In the face of an increasingly belligerent opponent, each of the Indian parties had taken legal advice on their entitlement to withhold payment and took the decision to resist DPCfs demands (in relation only to the December 2000 and January 2001 invoices). MSEB had received clear legal advice that it had a strong argument to press for a rebate from DPC. Having received that advice MSEB can hardly be blamed for not caving in to DPC.
On 16 March 2001 a second meeting was held between GOI, GOM and MSEB. At that meeting Mr Bansal explained the dispute with DPC in respect of the rebate arising from the shortfall incident. GOM explained that it was not in its view obliged to make payment under its guarantee whilst this dispute between DPC and MSEB was unresolved. Again it is notable that at this stage, even though the rebate issue was in the open, there was no discussion as to whether it might entitle MSEB to rescind the PPA, let alone any discussion of legal action before MERC. Yet it is central to the Claimantsf case that all along there was a plan to use the ramp-up issue ruse in this way.
Following this meeting GOI received specific advice that it had no immediate obligation to pay under its guarantee.
In adopting this stance, neither GOM nor GOI was doing anything unusual or oppressive. It is an absolutely routine occurrence in commercial disputes for guarantors and sureties to compel the party making demand first to establish its claim against the primary obligor. This is particularly true where, as here, the primary obligor, MSEB, had good grounds not only for challenging DPCfs demands for payment but also for asserting its own very substantial counterclaim. The guarantees were not letters of credit and DPC was not entitled to treat them as such.
A Fundamental Problem with the Power Station
In parallel with this increasingly acrimonious dispute over payment obligations, the issue of the Dabhol plantfs inability to meet its agreed rapid ramp-up obligations so as to provide sufficient energy in response to MSEBfs dispatch instructions gradually assumed more significance.
The Operating Characteristics and Dynamic Parameters of the power station in relation to ramp-up capability had never been questioned or tested by MSEB before 28 January 2001.111 At no stage prior to the shortfall incident on 28 January 2001 had DPC disclosed to MSEB any information in respect of the capability of the power station suggesting that it was unable to achieve the ramp-up schedule specified in Exhibit 6 of the PPA.
After the first shortfall incident on 28 January, there were repeated occurrences of the Dabhol power plant failing to provide energy in accordance with its availability declarations. The second incident occurred on 13 February 2001 and the third on 29 March 2001. These incidents all occurred when the turbines of the power station were started from a cold start (i.e. when Schedule 6 required 100% ramp-up within 3 hours, at the end of which time the plantfs output had in fact reached, respectively, only [ ]%, and [ ]%).
In addition, on five further occasions DPC failed to deliver energy in accordance with dispatch instructions when the turbines were started from a hot start. These shortfall incidents occurred on 23 April 2001, 3 May 2001, 16 May and 17 May and 21 May 2001 (i.e. when Schedule 6 required 100% ramp-up within 1 hour, at the end of which time the plantfs output had in fact reached, respectively, only [ ]%, [ ]%, [ ]%, [ ]% and [ ]%).
The problem of DPC incorrectly declaring capacity was in itself a serious one, since it undermined the trust which was essential for the system to operate. As shortfall incidents occurred with greater regularity, MSEB found itself rapidly losing faith in DPCfs ability or willingness to provide accurate declarations whilst DPC was steadfastly refusing to adjust or moderate its approach. This in itself potentially made the PPA unworkable.
However, in addition to this there also appeared to be a fundamental problem with the power plant itself, in that it lacked a fast ramp-up capability and simply could not achieve what MSEB believed it was entitled to expect under the terms of its contract.
By its letter dated 14 February 2001, DPC admitted that the power plant did not conform to the Dynamic Parameters specified in the PPA and was incapable of meeting the ramp up capability in Schedule 6. This was a serious matter for MSEB.
The Importance of Fast Ramp Up
In order to put this problem into context, it is necessary to explain why a fast ramp-up capability was so important to MSEB.
Indiafs electricity grid is divided into five major zones to ensure the integrity of the transmission system. One of these zones is the "Western Region Grid", which comprises Maharashtra, Gujarat, Goa and Madhya Pradesh. The system operations are coordinated by Regional Electricity Boards through Regional Load Dispatch Centers.
Grid frequency can become dangerously low when there is a sudden increase in demand or a sudden reduction in supply (due for example to the tripping of one of the plants). Conversely frequency becomes dangerously high when there is a sudden drop in demand or excessive supply.
Sudden changes in frequency can cause stress and damage to the turbines in the system and can lead to grid collapse as successive power plants trip, unable to cope with the strain being placed on them.
Though infrequent,112 grid collapses cause enormous disruption when they occur. During the ensuing blackout, planes are unable to take off, hospitals and train services are affected, computer systems crash, domestic and industrial consumers across all four states (totaling [ ] million people) are in total darkness and crime increases.
Crucially these problems were exacerbated because once grid collapse occurred, before the Dabhol project there were no power stations in Maharashtra capable of ramping-up quickly in order to restore power. A 700 or 800 MW station with fast ramp-up capability would have halved the time taken to restore full capacity following a grid collapse.
Thus the fast start-up ability of gas based turbines had always been one of the attractions of a gas turbine combined cycle power station. As MSEB noted in an early February 1989 proposal for a 760 MW combined cycle station:
"Need for Gas Turbines: Combined Cycle Power Station
The . . . inherent quick start up ability of a Gas Turbine based power plant makes it an attractive stable source of start up power for large conventional steam power plant based grid system in case of grid failure and similar distress conditions."
A fast ramp-up capability would also have given MSEB added flexibility. That sort of flexibility was important in a plant that was expected to be in operation for many years into the future. This applied equally whether the plant was operating in "base load", "intermediate" or "peaking" mode.
MSEB took the view that the failure of the power plant to conform to the agreed specifications in the PPA not only breached the terms of the PPA, but was also inconsistent with pre-contract representations made by Enron and GE that the Dabhol power plant would have a fast ramp-up capability. This gave rise to the possibility that MSEB had been induced to enter into the PPA by a material misrepresentation, thereby potentially giving MSEB the right under Indian law to rescind the PPA.
MSEB relied upon a number of documents and statements constituting the alleged misrepresentation.
Enronfs April 1993 Project Report submitted to CEA stated:
Gas turbine combined-cycle plants have the added advantage of quick start up and loading. The gas turbine can be synchronized in about 20 minutes and ramped up to base load in another 35 minutes (ramp rate of 3% of base load power/minute). The entire combined cycle can be brought on-line in about 60 minutes with a warm start (shutdown for less than 12 hours) and in three hours with a cold start (shutdown for greater than 12hours). Similarly the combined cycle units can also be backed down rapidly . . .
Black start Capability & Start up Profile
. . . After the initiation of the start-up sequence, the two gas turbine generators can be synchronized in 20 minutes and base load at a ramp rate of 8% per minute in emergency situations. The time taken to bring the HRSG [Heat Recovery Steam Generation] and the steam turbine to full load operation depends on the initial state of the machine. If the HRSG and the steam turbine are started from cold conditions (shutdown for greater than 12 hours), then the time taken to bring a whole island to base load is about three hours (normal operation). On the other hand, if they are started warm (shutdown 0-12 hours), the island can be fully loaded in one hour (normal operation)" [Emphasis added].
The fast ramp-up requirement was included in the very first drafts of the PPA in early 1993. Draft 3 of the PPA dated 20 March 1993, Exhibits (iii) and (iv), set out curves showing that a generating output of 100% would be attained in 180 minutes and 60 minutes after a cold start and hot start respectively.
Draft 6.5 of the PPA dated 26 May 1993, Exhibit (ii.ii), showed the start up curve and loading profile from a cold start and represented that 100% of the power output would be attained 180 minutes after initiation. Exhibit (ii.ii) was retained un-amended in Drafts 7 onwards and was ultimately included in the PPA as executed. In the final version of the PPA it was included in Schedule 6, Part II.
On 10 November 1993 DPC wrote to the CEA with a number of attachments including a start-up curve representing that the power station would reach 100% generation within 180 minutes from a cold start.
Enronfs repeated assurances and the Schedule 6 curves provided comfort to MSEB that in future the effects of grid collapse in Maharashtra would be mitigated. GE had also made claims about the quick ramp-up ability of its turbines in its marketing literature of the time (and makes the same claims in its present-day brochures113). However, although GE experienced problems with its frame 9F gas turbines during the mid-1990s in relation to reliability, thermal stress and fatigue,114 these problems were not drawn to MSEBfs attention at the time of the amendments to the PPA in either 1996 or 1998.
MSEB has in various legal proceedings and in correspondence set out full particulars of its contractual claim against DPC arising from the plantfs failure to perform in accordance with the PPA.115 The Claimants have dismissed the contractual dispute as a "ruse" but have not, in their Statement of Claim, raised any substantial point as to the merits or bona fides of MSEBfs claim.
MSEBfs Decision to Rescind the PPA
DPCfs admission that the loading profile in Schedule 6 did not reflect the actual start-up and loading of the power station caused MSEB to consider its contractual rights under the PPA.
MSEB took legal advice which confirmed that MSEB was entitled to rescind the PPA on the grounds of misrepresentation.116 However, MSEB did not immediately seek to assert this right since Mr Bansal wished to preserve MSEBfs working relationship with MSEB.117
DPC continued to bombard MSEB (and also GOM and GOI) with legal notices and correspondence in an effort to force MSEB to concede the claim for rebates. On 7 April 2001 DPC served a notice of force major pursuant to the PPA. On 10 April it served a notice of arbitration on GOM pursuant to the State Support Agreements. On 11 April 2001 it made another demand on the GOI Guarantee (its third such demand, on this occasion in relation to the hotly disputed January 2001 invoice) and on the same day commenced arbitration proceedings against GOM under the GOM Guarantee. On 12 April 2001 DPC commenced arbitration proceedings against MSEB pursuant to the PPA.
On 23 April a third and final meeting took place between GOI, GOM and MSEB to discuss the on-going dispute with DPC. The parties were aware that at a meeting of the DPC Board scheduled for 25 April there was a possibility that the DPC Board might resolve to issue a preliminary termination notice ("PTN"). Despite this the GOM Chief Minister was of the view that GOM was not in favor of terminating the project, although there was a need to discuss the cost of the power going forward because of the difficulties which MSEB had absorbing the additional power from Phase II. GOM wanted GOIfs assistance with these discussions with DPC. Again it is notable that even at this late stage there was no discussion about the ramp-up issue being used as a pretext to rescind the PPA, as the Claimants allege. Nor was there any discussion about the use of MERC as a means of circumventing the arbitration provisions of the PPA and other agreements. In fact GOI wanted a message to be sent to DPC that the dispute should be settled amicably and that the disputed bills for December and January were to be settled under the relevant arbitration and conciliations proceedings.118
On 25 April 2001 DPC raised the stakes still further when its Board of Directors passed a resolution authorizing the company to issue a preliminary termination notice ("PTN"), the first step in the contractual procedure for terminating the PPA. On 19 May 2001 DPC served the PTN.
In the face of the power stationfs admitted inability to perform in accordance with pre-contract representations and the requirements of the contract, the prospect of successive shortfall incidents (each giving rise to a similar dispute with DPC), MSEBfs lack of faith in DPCfs capacity declarations and DPCfs uncompromising approach to the payment disputes, MSEB took legal advice on its entitlement to rescind the PPA. It also took advice on the correct forum for resolution of the disputes with DPC. On the basis of the advice from its legal counsel,119 MSEB finally decided to rescind the PPA.
On 19 May 2001 (the same day DPC served its PTN) Mr Bansal met the Chief Minister of Maharashtra to explain the action he intended to take.120 Mr Bansalfs decision was however made before he became aware of DPCfs service of a PTN.121 On 22 May 2001 MSEB passed Board resolutions resolving to rescind the PPA and refer its disputes with DPC to MERC. On 23 May Mr Bansal attended a GOM Cabinet meeting to explain the legal advice received by MSEB and his decision to rescind.122
MSEB by notice dated 23 May 2001 informed DPC that it was rescinding the PPA on the grounds of DPCfs misrepresentation.
MSEB also informed DPC that it was agreeable (without prejudice to its contention that it was entitled to rescind the PPA) to continue to purchase power and to make payments until the disputes between DPC and MSEB had been resolved by the appropriate authority.123 This offer by MSEB is particularly hard to reconcile with the Claimantsf assertion that rescission of the PPA was part of a grand design to starve DPC of funds.
Consistent with its hard line approach to the dispute, DPC refused to accept such payments and informed MSEB that it would no longer be permitted to draw power from the station.124
Even after the notice of rescission had been served, MSEB proffered payment to DPC in relation to undisputed monthly charges. On 25 May 2001 MSEB tried to make payment in relation to the April 2001 invoice.125 This cheque was returned by DPC.126 When MSEB tried to remit the payments directly to DPCfs bank account, the bank returned the funds on instructions from DPC.127
The Respondentfs witnesses will all confirm that the commercial and legal decision to rescind the PPA was made by Mr Bansal of MSEB, and it was neither prompted nor encouraged by GOM, let alone by GOI. He met with GOM Ministers to explain his actions and to make sure that they had no objections, since he was aware of GOMfs financial exposure under its guarantee. However, it is clear from Mr Bansalfs evidence that both the decision to rescind, and the decision to refer the disputes between MSEB and DPC to MERC, were made by him solely on the basis of the legal advice he had received. The Claimantsf allegation that MERC somehow played a role in these events and colluded with Mr Bansal in the preparation of MSEBfs petition has absolutely no basis and is denied.
As the Respondentfs witnesses will all confirm, throughout these events there was nothing which approaches any form of collusion or conspiracy between the various interested Indian parties. The idea that MSEB, GOM and GOI colluded together is completely contrary to both the facts and to the contemporaneous documentation. Although they were each monitoring the problem and exchanging some information, throughout the relevant events each of these bodies was seeking to protect its own particular interests. These interests sometimes converged, but just as frequently they diverged.
Even within GOI interests and responsibilities differed between different departments, ministries and the Government itself.128 The Dabhol project fell formally within the remit of the Ministry of Power, which was responsible for all matters relating to the provision of electrical power throughout India. However, because of the potential financial exposure resulting from the GOI Guarantee, the Ministry of Finance (which had responsibility for authorizing any payment) was also heavily involved and played an increasingly influential role in formulating GOI policy towards the project. The practical result of this was that the decision making process at national government level was sometimes slower than normal, as information had to be circulated and comments sought from different people in different departments. The different interests and responsibilities of these departments within GOI, and how they interacted with each other, has been explained in more detail in the witness statement of [Anna Roy] served on behalf of the Respondent.
In fact what the documents reveal is that for a great deal of the time GOI was not kept informed by GOM. When GOI first raised the issue in October 2000 they did not receive a response until February 2001. Thereafter the GOI position was that GOM and MSEB should reach a commercial solution with DPC and played absolutely no part in either MSEBfs conduct of the dispute or the decision to rescind the PPA.129
This is also the case with GOM. GOM did not formulate MSEBfs position in the contractual dispute, but was simply kept informed by Mr Bansal whenever he felt it appropriate to do so.
The suggestion that all of these parties, whose acts have been attributed to India by the Claimants, somehow came together and hatched a complex and sophisticated plot to expropriate DPCfs assets by the creation of a series of events and fabrication of a commercial dispute is entirely incorrect. Not only is there no evidence to support this allegation, but all of the evidence as to the conduct of the parties is diametrically opposed to it.130
Events Post Rescission 2001-03
In paragraphs 60-80 of the Statement of Claim the Claimants make a series of allegations in support of a central proposition that GOI in conjunction with GOM, MERC, MSEB, Bombay High Court, Delhi High Court, Company Law Board and the Supreme Court of India, acted in concert to deprive or attempt to deprive DPC of its legal rights and remedies.
Following service of the notice of rescission by MSEB, various sets of legal proceedings were commenced by DPC in a number of jurisdictions. The complexity of the ensuing litigation inevitably makes the task of succinctly describing the key events difficult. The Respondent has endeavored to do so without becoming embroiled in excessive detail.
However, it is necessary to describe these events in more detail than the Claimants have done in their Statement of Claim. This is because over-simplification of this aspect of the factual history makes it hard to attain a proper understanding of the reason for each piece of litigation and the interests each party was seeking to protect. By brushing over these issues the Claimants seek to confuse the actions of different entities, including MSEB, the IFIs, MPDCL, GOM and GOI, each with widely differing interests, and effectively treat them all as part of a concerted plan to deprive DPC of its contractual rights under the PPA and associated contracts. As the Respondent has clearly demonstrated, there was no such concerted plan, and any such concerted plan would have been totally inconsistent with the way matters developed: it is thus not at all surprising that the Claimants have submitted absolutely no evidence to support their allegations.
By way of introduction it is necessary to distinguish between the arbitration proceedings commenced by DPC, and associated legal proceedings in India. It is also necessary to note that what no court or tribunal in India has yet done is finally to determine DPCfs contractual rights and that the stay orders in relation to the arbitrations are all interim stay orders.
There are four arbitration proceedings commenced by DPC that are pending. These are as follows:
DPC v MSEB (arising out of the PPA),131 initiated by DPC on 12 April 2001; currently provisionally stayed by MERC in circumstances detailed below (the interim stay having been confirmed in the Indian Supreme Court with DPCfs consent);
DPC v GOM (arising out of the GOM guarantee),132 initiated by DPC on 10 April 2001; currently provisionally stayed by order of the Bombay High Court dated 30 April 2003;
DPC v GOM (arising out of the State Support and Supplemental State Support Agreements),133 initiated by DPC on 10 April 2001; currently provisionally stayed by order of the Bombay High Court dated 30 April 2003; and
DPC v GOI (Arising out of the GOI Guarantee),134 initiated by DPC on 4 September 2001; currently provisionally stayed by order of the Delhi High Court dated 18 June 2003.
At the heart of the four arbitrations is the underlying PPA dispute between MSEB and DPC. As explained above, performance of the GOM/GOI Guarantees and State Support Agreements, and therefore the operation of their arbitration clauses, depends upon the result of that underlying dispute. Most of the Indian proceedings have therefore concentrated on the single question of whether MERCfs statutory jurisdiction under ERCA 1998 should prevail over a contractual agreement to arbitrate between DPC and MSEB in the PPA. No final determination on this question has been made. Moreover, as already noted, the project could nevertheless have continued to operate on a "without prejudice" basis pending the final determination of the dispute, as suggested by MSEB, but DPC rejected this offer.
There are three main strands to the legal proceedings in India. Firstly, there are proceedings relating to the jurisdiction of MERC (which have directly or indirectly given rise to the stays to the above arbitrations). Secondly, there are separate and distinct proceedings commenced by the IFIs. Thirdly, there are MPDCLfs proceedings before the Company Law Board which concern issues of DPCfs corporate governance.135
It is important to consider the proceedings in the Indian courts individually, in their proper context and in the light of DPCfs conduct at the relevant time.
As a general observation, DPC at all times had legal representation and participated fully in the judicial process. In some of the Indian proceedings DPC prevailed in its requests for relief; in some it consented to interim orders; and in some it failed. The Indian courtsf or tribunalsf actions are not in breach of international law merely because and to the extent that they happen to have found against DPC.
Proceedings Relating to the Jurisdiction of MERC
When MSEB made the decision to rescind the PPA, it resolved at the same time to submit the dispute between itself and DPC to MERC. This was not because MSEB believed it would receive more favorable treatment from MERC, as alleged by the Claimants, but because it had received unequivocal legal advice that an application had to be made to MERC in order to resolve a dispute relating to tariffs and legal rights and obligations under a PPA.136
MSEB commenced proceedings before MERC on 25 May 2001137 seeking inter alia declarations that:
the PPA was validly avoided/rescinded by MSEB on 23 May 2001 and that the PPA was not binding on MSEB; and
DPCfs notice of political force majeure dated 7 April 2001 and the PTN dated 19 May 2001 were illegal, null and void and of no legal effect.
MSEB also claimed from DPC:
Rupees 4,580 million (US$[ ]) in damages arising from shortfall incidents together with interest; and
Rupees 12 billion (US$[ ]) towards the payment of excess capacity charges paid by MSEB to DPC in respect of the period May 1999 to April 2001 together with interest.
MSEB asked MERC to make appropriate directions in respect of the purchase of power from the Dabhol power station and to determine the level of reasonable compensation in respect of energy supplied by DPC to MSEB. MSEB also sought a permanent injunction restraining DPC from taking any steps or measures pursuant to the notice of arbitration dated 12 April 2001, the notice of political force majeure, the PTN or any of the escrow agreements.
At the hearing on 29 May 2001 DPCfs counsel appeared to contest MERCfs jurisdiction and to apply for the dispute to be referred to London arbitration under the Indian Arbitration Act 1996. At that hearing DPCfs counsel asked for a two week adjournment to consider the legal position and to consult DPCfs shareholders and lenders. In response to this request for an adjournment MSEBfs counsel, not unnaturally, asked for interim relief to preserve the status quo until the issue of jurisdiction could be resolved (DPCfs counsel refused to give an undertaking that the status quo would be maintained during the two week adjournment). In these circumstances MERC exercised its powers under the ERCA 1998 and made an interim order as requested by MSEB only in relation to the arbitration proceedings and the escrow agreement.
This is the only order that has been made by MERC - an interim order preserving the position between the parties for two weeks.
What MERC did not do was finally to decide the question of its own jurisdiction or of MSEBfs entitlement to the remedies it was seeking. MERC has never ruled on its own jurisdiction. It took a prima facie view only on the issue of jurisdiction, but this is not remarkable because it had at that time only heard from MSEBfs counsel; it had not heard from DPCfs counsel, who asked for time to consult and take instructions.
The actions of MERC are absolutely central to the Claimantsf case on alleged violations of the Agreement. Mr Wollem says that MERC declared that "the PPAfs arbitration provisions ecannot have any force whatsoeverf."138 He says that the MERC order "eviscerated"139 the arbitration provisions of the PPA. The Statement of Claim alleges that, "In short order, MSEB and MERC effectively nullified the PPA, DPCfs most important economic asset".140 This hearing is central to the Claimantsf case, and yet what is said about it in the Claimantsf evidence is simply wrong. The Claimants have also ignored the fact that this was merely an interim order of very limited duration - two weeks only. Thereafter MERC was effectively bypassed by DPCfs actions. DPC could have asked MERC to rule on the issue of its own jurisdiction and then, if so advised, lodged an appeal. Instead, DPC chose to appeal MERCfs interim order. There is no basis on which the actions of MERC can possibly amount to a breach of the Agreement; it is a complete red herring, which makes the denigration of MERC by the Claimants all the more unfortunate.
On 12 June 2001 DPC appealed to the Bombay High Court under Article 226 of the Constitution141 seeking an order that MERC did not have jurisdiction to determine a dispute between MSEB and DPC arising out of the PPA. At the hearing on [date] 2001 DPCfs counsel asked for time to take instructions and by consent MERC was directed to adjourn its proceedings until further order.
On 26 June 2001 the Bombay High Court directed MERC to decide the issue of its own jurisdiction within six weeks. This order was stayed for two weeks at the request of DPC to enable DPC to consider appealing to the Supreme Court, but the interim relief previously granted by MERC was continued.
On 2 July 2001 the Bombay High Court extended the stay for a further two weeks after hearing counsel for both parties. On 23 July 2001, DPCfs counsel asked for an extension of the stay, which was granted until 10 August 2001.
DPC, by a Special Leave Petition142 , appealed to the Supreme Court of India from Bombay High Courtfs order of 26 June 2001. This appeal was heard and decided on 6 August 2001. After hearing counsel for both parties the Supreme Court held that the High Court (not MERC itself) should decide all issues relating to MERCfs jurisdiction. MERC was directed not to make further orders until the High Court had finally determined the jurisdiction question. The Supreme Court also directed that until jurisdictional issues had been resolved, the arbitration proceedings commenced by DPC should remain stayed.
By order dated 5 March 2002 the Bombay High Court decided the issue of MERCfs jurisdiction, holding that MERC had jurisdiction to consider MSEBfs petition. DPC duly appealed again to the Supreme Court143 and on 5 May 2003 another consent order was agreed which prevented MERC making further orders upon MSEBfs application and continued the stay of arbitration proceedings until the Supreme Court had had an opportunity to dispose of DPCfs appeal.
The Supreme Court is due to decide DPCfs appeal on [has any date been fixed?]. Until the decision of the Supreme Court has been published the arbitration proceedings remain subject to the interim stay. However, the stay was made with the consent of DPC and it is therefore difficult to see how the Claimants can possibly complain now about the alleged consequences of that stay.
The Claimants also complain about the Indian courts preventing DPC from drawing on a letter of credit issued in favor of DPC by Canara Bank144 (the "Canara Bank L/C").145 This litigation also forms part of the strand of cases relating to or dependent upon the issue of MERCfs jurisdiction.
On 11 September 2001, in the proceedings commenced by DPC in Bombay High Court,146 MSEB applied147 to restrain Bank of America, DPCfs assignee, from invoking the Canara Bank L/C in respect of DPCfs bill for April 2001. This was the same bill which MSEB had attempted to pay in May 2001, when DPC had refused to accept MSEBfs cheque.148 Since MSEB was now claiming a substantial refund from DPC in the petition before MERC and MERC had granted a stay of the escrow, MSEB naturally sought to prevent DPC from obtaining the benefit of further payments under the PPA by another route.
The Bombay High Court granted MSEB an interim injunction for two days, and after a hearing on 14 September 2001 the High Court149 decided against MSEB. However, it restrained Canara Bank from making payment for a further week to enable MSEB to consider making an appeal to the Supreme Court. This is a fairly standard practice. In fact, normally the stay is for three weeks.150 On this occasion MSEB appealed to the Supreme Court.151
On 1 March 2002, the Supreme Court heard the parties and by consent ordered that all questions regarding the enforceability of the Canara Bank L/C were to be kept open and that the parties would be entitled to adopt appropriate proceedings regarding them after the final disposal of DPCfs petition to the Bombay High Court to determine MERCfs jurisdiction. The Supreme Court also ordered by consent that the Canara Bank L/C should not be enforced until 6 weeks after the disposal of DPCfs petition.
It is clear from this order that whilst DPC willingly agreed to the order, the Claimants conceal that fact from this Tribunal. In their attempt to convey the impression of a grand conspiracy the Claimants merely state that the High Courtfs order was confirmed by "the since-retired Chief Justice of the Indian Supreme Court"152 with a footnote that "The retired Chief Justice was subsequently appointed by the IFIs as their party-appointed arbitrator in the arbitration proceedings brought against the IFIs by the offshore lenders to the Project for breaches of the Inter creditor Agreement." In fact the consent order was made by a Bench consisting of three justices of the Supreme Court, which did not need to consider the merits of the underlying dispute. In any event, the mere fact of the appointment of a retired judge as an arbitrator by IFIs in a subsequent arbitration is a woefully inadequate basis for innuendo about impropriety. It is not unusual in countries like the UK and USA for retired Judges to accept appointments as arbitrators.
DPCfs Arbitrations against GOM and GOI
The arbitrations commenced by DPC against GOM and GOI under their respective guarantees and the State Support Agreements were not being progressed when DPCfs Board stopped functioning.153 In February/March 2002 Link laters, who had previously been acting on behalf of DPC in both the GOI Guarantee arbitrations, as well as the proceedings between DPC and GOM and between DPC and MSEB, had ceased to act for DPC on account of their inability to obtain instructions from DPC following Enronfs bankruptcy towards the end of 2001.
After holding a meeting on 4 June 2002 in the USA, the Claimants appointed an additional director to DPCfs Board of Directors to make up a quorum so that the Board could attempt to revive these arbitration proceedings. MPDCL strongly objected to the violation of its rights as a minority shareholder of DPC and commenced proceedings in India which are described in further detail in paragraph [ ] below.
As part of MPDCLfs proceedings against DPC in the Bombay High Court challenging the Boardfs quorum and authority, the High Court directed that DPCfs Board of Directors should not meet or function until 5 June 2003.154 It further ordered that DPC could not prosecute the existing claims referred to arbitration nor would it be entitled to initiate or prosecute further arbitrations against MPDCL, MSEB or GOM.
The order was extended on 5 June and 7 July 2003 until the resolution of the appeals by Bombay High Court and since then on [date] by the Supreme Court pending the resolution of MPDCLfs appeal to the Supreme Court.
GOI believed that the disputes between MSEB and DPC needed to be resolved before the disputes in relation to the GOI Guarantee. GOI therefore applied to the Delhi High Court for an interim stay of the guarantee arbitration proceedings, and this interim stay was granted by the Delhi High Court on 18 June 2003. In any event, in light of the interim orders passed and still effective in the MPDCL proceedings, DPCfs Board was unable to act effectively to proceed with the arbitration against GOI.
Indian Financial Institutions
The Claimants make three main complaints against the IFIs. These are that the IFIs:
obtained an injunction from the Bombay High Court to restrain DPC from serving a Final Termination Notice.155
applied to the Bombay High Court to have a receiver appointed over DPCfs assets;156 and
made efforts to orchestrate a sale of DPC to an Indian buyer in late 2001.157
There were two sets of proceedings commenced by the IFIs. In the first the IFIs sought relief from the Bombay High Court aimed at re-starting Phase I and an order restraining DPC from giving a Final Notice of Termination.158 In the second the IFIs sought an order to have a receiver appointed to protect and preserve DPCfs assets.159
Order to Restrain DPC from issuing a Final Notice of Termination
The PTNs were served by DPC without the IFIsf consent on 19 May 2001. The IFIsf role in the project, their interests (as distinct from those of MSEB, GOM and GOI) have been explained in paragraph [ ]. The IFIs160 believed that the uncompromising stand taken by DPC and MSEB ignored the interests of the IFIs (who had the largest exposure in the project), and that MSEB and DPC had put the security of the Secured Creditors in jeopardy. The IFIs believed that unless the disputes between DPC and MSEB could be resolved there was no realistic possibility of MSEB accepting a transfer of the Operating Assets pursuant to the termination mechanism contained in the PPA because MSEB had avoided the contract containing that mechanism.
In a project such as this, the real security for the secured creditors was not merely physical assets, but also an operating asset generating cash flow. The IFIsf interest was therefore in an interim restart of power production and preservation of the option of selling the project to a third party. In order to preserve this option it was essential to the IFIs that DPC should not issue a Final Termination Notice under the PPA. The IFIs were advised that if a Termination Notice were to be issued under Section 2.2 of Schedule 11 of the PPA, then they could not enforce their security.161 For DPC to have issued a Final Termination Notice, and allowed the project to remain in a non-operational and ever-deteriorating state pending the resolution of the MSEB/DPC disputes, would have amounted to a breach by DPC of its duties as a mortgagor under Indian law. The IFIs, as secured creditors, were entitled to take steps to preserve and protect their security, including the PPA.
As at 9 November or 18 November 2001, when DPC might have been entitled to issue the Final Termination Notice, the secured creditors had not given consent for DPC to issue a Final Termination Notice.162
Against this background, on 9 November 2001 the Bombay High Court was approached by the IFIs (IDBI and others)163 for interim relief. The Respondents in that case included DPC and MSEB. The IFIs applied for an order restraining DPC from issuing a Final Termination Notice, and directing both DPC and MSEB to re-start the operation of Phase I of the Project (whether on the terms of the disputed PPA or otherwise). In these proceedings the IFIs challenged both the action of DPC to terminate the PPA and the rescission of the PPA by MSEB.
On 9 November 2001 after hearing all the parties, the High Court granted part of the interim relief sought by the IFIs restraining DPC from issuing the Final Termination Notice,164 pending the determination by an appropriate forum of the validity of the PPA. However, even without this interim order, it is doubtful whether DPC could have served a Final Termination Notice. OPIC had a unilateral right to approve the service of such a notice, which it was apparently withholding165 at the time. In doing this OPIC was no doubt acting in its own best commercial interests, but it means that the order obtained by the IFIs was by no means the only reason for DPCfs failure to serve a Final Termination Notice .166
Contrary to the Claimantsf suggestion167 that the IFIsf action amounted to expropriation, the application by the IFIs preserved DPCfs right to issue a Final Termination Notice if the MSEB/ DPC disputes could be resolved before any restructuring was achieved.168
Whilst MSEB filed an affidavit on 7 January 2002 opposing the jurisdiction of the Bombay High Court to grant the relief requested by IFIs (on the ground that only MERC had jurisdiction to grant any relief for restart of the plant),169 no substantial attempts have been made by DPC to vacate the injunction restraining it from issuing the Termination Notice for a period of over two and half years.
The IFI actions preserved their security and collateral and were permitted under Section 4.05 of the
Inter creditor Agreement.
Appointment of a Receiver
On 16 October 2001 Enron reported losses of US$638 million between July and September 2001 and announced a US$1.2 billion reduction in shareholder equity.170 On 8 November 2001 Enron revised its financial statements for five years showing a loss of US$586 million rather than the massive profits claimed in the original statements.171 On 2 December 2001 Enron filed for Chapter 11 bankruptcy protection and on 9 January 2002 the US Justice Department confirmed that it had begun a criminal investigation of Enron.172 On 10 January 2002 Arthur Andersen, Enronfs auditors (who calculated the value of the Transfer Amount for DPC) admitted that they had destroyed Enron documents173 .
Against this background of uncertainty regarding DPCfs major shareholder, on 1 January 2002 the IFIs received an anonymous letter alleging that DPC had unlawfully removed vital E-Chips, CDs and manuals from the plant without the consent of the IFIs.174 Without these items, the plant could not be operated.175
On 3 January 2002 DPC admitted that it had removed components "for safe keeping" and that it had taken documents to London for the purposes of the London arbitration.176
On 1 February 2002 the Industrial Development Bank of India ("IDBI") wrote to DPC asking them to provide details about the removed components and records, grant access to lenders whenever required, and provide an inventory to the Secured Creditors.177 These documents and components are still not available to the Secured Creditors.
At this time essential maintenance work at the site had almost ceased and urgent preparation needed to be carried out in advance of the coming monsoon season. If left without protection the project would have deteriorated and decreased in value. There was also a risk of trespass, vandalism, theft and environmental damage.
On 19 and 20 March 2002 Enron Mauritius, Enron India Holdings Ltd and Overseas Power Production C.V. filed voluntary petitions for bankruptcy under Chapter 11 of the US Bankruptcy Code. There was consequently a serious risk that the project would get caught in the US bankruptcy proceedings, causing prejudice to the interests of secured creditors.
There was a large number of unsecured creditors of DPC who had either initiated legal action or were in a position to do so. In particular various Bechtel and Enron group companies filed a suit in the New York Supreme Court seeking payments from DPC under various project construction, services and supply contracts totaling US$55 million plus interest. DPC also defaulted on payment under letters of credit issued by Standard Chartered Bank ("SCB"), causing SCB to serve notices of default and claim payment of US$47 million from DPC. The total outstanding unsecured claims against DPC were over US$107 million.
DPC wrote to all of its lenders on 13 March 2002 threatening that unless it was provided with further funds, it would be forced to close down its commercial office and site operation by 25 March 2002. Understandably the IFIs were unwilling to advance further funds to a project that might be caught up in bankruptcy proceedings in New York but also were concerned about the protection of their security by maintaining and preserving the assets despite DPCfs abandonment thereof.
IDBI and other IFIs started proceedings in the Bombay High Court on 21 March 2002178 against DPC and MSEB for various declarations and orders for the preservation and protection of their security.
On 8 April 2003 the IFIsf proceedings against DPC and MSEB came before the Bombay High Court for a hearing and by consent of the parties the High Court appointed a court receiver over DPCfs assets with powers to take necessary steps and to furnish a report to the court on the requirements for re-starting Phase I of the project. The receiver was also allowed to discuss and negotiate terms for ad hoc purchase of power by MSEB.
Under Indian law a receiver is an officer of the court and acts on the orders of the court appointing him. The receiver does not act at the behest of any of the parties to the proceedings. The assets held by the receiver are deemed to be in the possession of the court.
The receiver took possession of DPCfs plant and property at the project site in Dabhol in April 2002. The Receiver has appointed maintenance contractors an the IFIs have appointed security agency so that DPCfs assets are being protected and preserved.
Although DPC and the Offshore sponsors were made parties to proceedings commenced by the IFIs,179 they did not appear before the Receiver to recommend any steps for preservation or to object to the preservation activities of the contractor appointed by the Receiver. The IFIs are incurring a substantial cost in the maintenance and preservation activities as DPCfs accounts in India did not have sufficient funds to contribute to these.
IFIsf attempts to restructure the project
The IFIs have been involved in various attempts to find new sponsors to take the place of the existing DPC shareholders. Their attempts in this respect have not been kept secret from DPC. In fact, informal talks were held with the DPC and Enron representatives who expressed a desire to exit from the project. The Claimants do not explain, in their Statement of Claim, how the IFIsf or GOIfs efforts to try to restructure the project are in breach of any of Indiafs international obligations.
At the end of July 2001 Kenneth Lay, Enronfs CEO, formally announced Enronfs intention to sell its equity stake in DPC. On 3 August 2001 DPC confirmed the intention of the Investors to divest themselves of their holdings in DPC.
The Indian Ministry of Finance established a committee with representatives of each of the IFIs, the CEA and the Ministry of Petroleum & Natural Gas. MSEB declined to participate because of a potential conflict of interest with the GOI and IFIs. The committee held two meetings and prepared a road-map for (a) locating a new project sponsor; (b) identifying potential parties for off-take of power from Phase II of the project; and (c) suggesting measures to reduce tariff levels.180
As Enronfs share price (and therefore its bargaining position) weakened, DPC began to delay the sale process. In November 2001 DPC wrote to the IFIs to postpone a due diligence process. The IFIs wrote to DPC setting out the efforts made by them since July 2001 to identify an amicable solution and expressing surprise at DPCfs delaying tactics.
Thereafter, there were meetings with all lenders and sponsors including the Claimants on 13-14 December 2001 and 17-24 January 2002. At the first of these meetings it was decided that immediate steps would be taken by DPC and the Investors (i.e. Enron and the Claimants) to finalise and execute a confidentiality agreement with potential bidders as a pre-requisite for conducting the due diligence.
Any due diligence exercise required the cooperation of DPCfs shareholders (including the Claimants) to set up a data room, prepare an Information Memorandum and arrange site visits etc. DPC had a major role to play in the whole process. Instead it tried to thwart the proposed restructuring by failing to cooperate.
Proceedings Before the Company Law Board
The Claimants allege that in 2002 MPDCL instigated a series of measures designed to frustrate DPCfs ability to function as a corporate entity and frustrating the Claimantsf ability to exercise their rights as shareholders.181 These allegations are incorrect.
The measures complained of were:
MPDCLfs nominated member of DPCfs Board of Directors resigned;
MPDCL brought an action before the Company Law Board ("CLB") challenging the composition of DPCfs Board;
MPDCL refused to nominate a member of the Board of Directors and insisted on appointing two members;
MPDCL continued unwarranted legal challenge to the September 2002 meeting of DPCfs Board of Directors;
MPDCL acted in the interests of GOM, its parent, and against its own interests as DPCfs shareholder by seeking to prevent DPC from pursuing arbitrations against MSEB and GOM.
Again, even if the acts of MPDCL can be attributed to India under international law, the matters referred to above do not amount to acts of expropriation, unfair treatment or otherwise breach the term of the Agreement. However, the Respondent will briefly describe the main events in this strand of litigation and the role each of the parties.
As at March 2002 DPC had twelve directors. Seven were nominated by Enron Mauritius, and one each by the Claimants, MPDCL and two IFIs (IDBI and ICICI). On 19 March 2002 Enron Mauritius was joined in the Enron bankruptcy proceedings in New York. As a result all of Enron Mauritiusf nominees resigned as directors of DPC. On 9 May 2002 the Mauritius Supreme Court appointed joint provisional liquidators for Enron Mauritius.182 Around 5 April 2002 the two IFIsf nominees also resigned from DPCfs Board. DPCfs solicitors also resigned. DPCfs accounts and balance sheet were not finalized on time. For all practical purposes DPC had become defunct. DPC also faced large liabilities and claims under various contracts, as well as proceedings for customs and tax evasion.
It was in these circumstances that MPDCLfs nominee director, Mr Budhiraja, also resigned on 2 May 2002. It was a perfectly normal concern for a director of a company in financial difficulties to resign in order to avoid personal liability for DPCfs acts and omissions, and it is difficult to see how the Claimants can complain about this. Also, from 8 April 2002 the Court Receiver had taken possession of the assets of DPC. The project was at a standstill for the time being and no power was being drawn.
Accordingly, by 2 May 2002 DPCfs Board consisted of only the two directors nominated by the Claimants, namely Donald Strummer and Richard Allison. On 4 June 2002 these two remaining directors held a Board meeting at San Francisco, USA. At the meeting on 4 June 2002, Capital India replaced its nominee Mr Allison with Mr Kevin P Walsh. Peter C Freeman was appointed as a ethirdf director to hold office until the next AGM. This was done with a view to making up a quorum of three.
Not only was the meeting held outside India but no notice of the meeting was given to MPDCL. Although no notice was necessary to be given as per the formal procedure, there being no nominee of MPDCL on the Board of Directors, given the circumstances in which DPCfs Board of Directors had stopped functioning and the fact that DPC was an unlimited liability Indian company (i.e. a quasi partnership), the Claimants ought to have informed MPDCL that such a meeting was going to take place.
The first MPDCL learnt of the meeting was when it received an intimation from its parent, MSEB, that DPCfs Board of Directors had started functioning. DPC had attempted to re-start the arbitration proceedings it had commenced against GOM. GOM informed MSEB that DPCfs Board was active again. MPDCL was given a copy of DPCfs letter of 7 June 2002 [by whom] in which DPC claimed to have three duly constituted directors. MPDCL then wrote to DPC on 3 July 2002 asking for details of Board agenda, any resolutions passed and minutes of the Board meeting and sent a reminder to DPC on 17 July 2002.
On 16 July 2002 MPDCL asked M/s RSM & Co., DPCfs statutory auditors for the Financial Year 2001-2002, the current status of finalization of DPCfs accounts. On 19 July 2002 M/s RSM & Co. informed them that DPC had not made available the accounts and relevant records for 2001-2002.
On 19 July 2002 MPDCL wrote to the Receiver of DPCfs assets asking if the change in the Boardfs composition had been brought to the Receiverfs notice.
Having had no response from Mr Donald Strummer to its faxes of 3 and 17 July, MPDCL not unnaturally believed that its rights as a minority shareholder had been violated. MPDCL then commenced an action before the Company Law Board ("CLB") under Section 397 of the Indian Companies Act 1956.183 The relief's sought included inter alia a perpetual injunction restraining DPC and its Board of Directors from altering the composition of the Board without the CLBfs leave and various injunctions restraining Messrs Walsh and Freeman from representing DPC, and a declaration challenging any actions taken at a Board meeting without proper quorum.
Then DPC wrote to MPDCL on 30 July 2002 attaching a copy of the minutes of the meeting held on 4 June 2002. MPDCL was asked if it wished to nominate a director to the Board and the excuse for the delay in informing was the lack of secretarial staff to give assistance.
Mr Freeman could not have been appointed as a director under the Articles of Association of DPC; only a nominee of a shareholder could be so appointed and the Claimants had appointed their own two nominees.184 Mr Freeman was also given executive powers.185 As Mr Freemanfs appointment was void abolition, the meeting on 4 June would not have had a proper quorum to transact any business.
On 22 August 2002 the CLB in New Delhi passed an interim order that an Annual General Meeting of DPC should be convened on 9 September 2002 for the purpose of Board elections, and that at the AGM, MPDCL had to elect directors of DPC and transact other business such as adoption of accounts and appointment of auditors.186
MPDCL appealed to the Bombay High Court against the CLBfs interim order under Section 10F of the Indian Companies Act 1956. On 9 September 2002 the Bombay High Court observed that, as at that date, DPC was a defunct company and was not carrying on any business activities and that the CLBfs interim order did not spell out any issues in law. It confirmed CLBfs interim order to hold the AGM for DPC and directed that the Board of Directors would not function until a decision was given by the CLB on 13 September 2002 or shortly afterwards.187
DPCfs AGM was thus held on 9 September 2002. The Claimants nominated a director each (Mr Strummer and Mr Walsh). IDBI nominated one director and the Claimants together also nominated Mr Freeman as a director.
MPDCL proposed to appoint two directors. The Claimants opposed this and neither of MPDCLfs nominees was appointed. MPDCL had a bona fide belief that it was entitled to nominate two directors under the Articles of Association.188 Enron Mauritius and MPDCL were the only shareholders with a fractional holdings of 66.85% and 14.15% respectively. As Enron Mauritius did not nominate a candidate, MPDCL believed that it was entitled to nominate a person in addition to one director for its 10% shareholding. MPDCL believed that the three shareholders of DPC including Enron Mauritius opposed the second nomination by MPDCL in breach of their obligations to vote in accordance with the Articles.189
On 11 September 2002 MPDCL filed an appeal before a Division Bench of the Bombay High Court against the CLBfs order and that of the Bombay High Court. Whilst these proceedings were pending, Enron Mauritius appointed four of its nominees as directors to DPCfs Board.
On 20 September 2002 Linklaters wrote to the arbitration tribunal in GOM arbitration that they were once again instructed to represent DPC.
On 24 September 2002 GOMfs solicitors wrote to Linklaters asking for their authority to act, since the appointments to the DPCfs Board of Directors were being questioned in the Bombay High Court. On 26 September 2002 Linklaters served their Statement of Claim and stated that they had authority to represent DPC.
On 27 September 2002, in the Division Bench of the High Court, MPDCL objected to the filing of the Statement of Claim by DPC the previous day as being in breach of the High Courtfs interim order of 9 October 2002. The Division Bench of the High Court then passed an order that no further pleadings should be filed by DPC until further orders were passed in the proceedings and that pleadings already filed before the arbitration tribunal should not be acted on until further orders from the Bench.
On 10 October 2002 MPDCL received a letter from Mr Strummer enclosing a copy of a letter of 8 October 2002 from Enron Mauritius appointing four directors to DPCfs Board; out of these four, two were employees of the Claimants. This did not set out the time or attendance at the Board meeting of Enron Mauritius.
On 30 October 2002 a Division Bench of the Bombay High Court allowed MPDCL to add the additional four directors as respondents to its petition and directed the CLB to hear and decide MPDCLfs petition within eight weeks. The interim orders made on 9 and 27 September 2002 to restrain DPCfs Board from functioning were continued.
On 17 and 18 February 2003 the CLB heard MPDCLfs petition and made its order on 2 April 2003.190 By this order the decisions taken at the meeting on 4 June 2002 were held to be null and void and the appointment of Mr Freeman as a director on 9 September 2002 was held to be valid. Despite the Claimantsf allegations that the Indian courts do not provide a level playing field, it was DPC and not MPDCL which was largely successful before the CLB. The CLB allowed MPDCL to nominate its second director on equitable grounds191 so that Messrs Strummer, Walsh, Freeman, Ramamurthy, Mago and Budhiaraja were deemed to be elected as directors at the AGM of 9 September 2002. The Board of Directors as constituted was asked to consider the nominations of Enron Mauritiusf four nominees to the Board.
On 30 April 2003 MPDCL filed an appeal to the Bombay High Court,192 as did the directors of DPC.193 The High Court passed interim orders admitting the appeals and DPC was permitted to defend litigations. A non-exclusive list of litigations pending against DPC was prepared. DPC was directed not to prosecute the existing claims and not to proceed with arbitrations, including the arbitrations against MPDCL,194 MSEB and GOM. These orders were further extended pending the resolution of the appeals.195
The Bombay High Court dismissed MPDCLfs challenges both to the June and September 2002 meetings on 2 September 2003,196 but MPDCL was allowed three weeks stay in order to enable it to consider appeal to the Supreme Court. This again shows that there is no substance to the allegations of partiality levelled by the Claimants against the Indian judiciary.
On 11 September 2003 MPDCL lodged an appeal197 in the Supreme Court. Pending the consideration of the admission of this appeal, an interim order was made continuing the status quo.198 MPDCLfs appeal to the Supreme Court is still pending. In the mean time, DPC commenced fresh arbitration proceedings against MSEB under the PPA and this has been stayed by consent of MSEB and DPC.
The Claimants boldly assert that "there is no doubt that MPDCL was acting in the interests of the GOMc in seeking to prevent DPC from pursuing arbitrations against MSEB and the GOM". The only evidence produced to support this contention, which appears to be part of the Claimantsf over-arching conspiracy theory, is GOMfs letter of 16 October 2002 to Linklaters.199 It is clear that the correspondence took place in the context of defending the supply of information by GOM to MPDCL in connection with DPCfs Board of Directors. The letter has a limited value.200 On 25 October 2002 the Bombay High Court heard MPDCL and DPC before directing that in the matters before it, it was necessary that the "stand of the State of Maharashtra becomes known to this Cour.". On 30 October 2002, GOMfs counsel appeared before the High Court as per the order dated 25 October 2002 but was instructed not to make a statement. Had MPDCLfs petition been coordinated by GOM, it would have taken the opportunity to address its own concerns to the High Court.
Even if there were some truth in this assertion (which is denied) it would be difficult to see where it would get the Claimants. The litigation conducted by MPDCL relating to matters of DPCfs corporate governance is hardly the subject matter of an investment protection treaty claim, whatever the ultimate motives of MPDCL might have been. In addition, as the CLB observed, DPCfs shareholders all wore two hats in this strand of litigation: in case of the Claimants, they were shareholders of DPC as well as contractors to and creditors of DPC201 ; in case of MPDCL, they were shareholders of DPC as well as a wholly owned subsidiary of MSEB, a customer of DPC. Any alleged conflict of interest applies as much to the Claimants as it does to MPDCL.
The Claimants conclude their narrative with a section headed "Cumulative Impact of Indiafs Actions on DPC and Claimantsf Investments"202 . This heading encapsulates what is wrong with the Claimantsf approach, both generally and with particular reference to the litigation in the Indian courts.
The Claimants have deliberately confused the actions of a variety of Indian institutions and organs, some of them litigants and some of them judicial bodies. The Claimants then look at the "cumulative impact" of an unconnected and disparate variety of actions, events and occurrences involving these different organs over a period of time, and seek to argue that the Respondent should be held to account for that cumulative effect under international law. This is the wrong approach and should be firmly rejected.
Instead, the Tribunal should look carefully at each of the institutions in question, and seek to determine what precisely it did and why. The various strands of litigation should be looked at separately and the reasons and motives of the parties identified. When doing this, it should be borne in mind that MSEB, the IFIfs and MPDCL were all litigants. As the tribunal in Waste Management, Inc -v-
Untitled Mexican States, observed, "it is not unusual for litigants to be difficult and obstructive" to their opponents. However "a litigant cannot commit a denial of justice unless its improper strategies are endorsed and acted on by the court, or unless the law gives it some extraordinary privilege which leads to a lack of due process".203
check whether the resolutions passed on 4 June meeting had agreed to admit the amounts due to the contractor i.e. GE/Bechtel companies in the NY proceedings
Paragraphs 79-80 of the Statement of Claim.
See Waste Management, Inc. -v- United Mexican States ICSID Case No. ARB (AF)/00/3, paragraph 131.
1 Paragraph 82 of the Statement of Claim.
2 The Respondent has been unable to confirm the present status of either Claimant since this information is not readily available for Mauritius companies, and reserves its position in relation to the existence and good standing of the two Claimant companies and their title to bring this claim as "investors" under the Agreement.
3 Enronfs 80% interest in DPC was subsequently diluted as a result of equity contributions made by Maharashtra Power Development Corporation Limited, a wholly owned subsidiary of the Maharashtra State Electricity Board, and now stands at 65.85% (see paragraph [2.124] below).
4 See Exhibit [ ], a diagram showing the corporate structure relating to GE, Enron and Bechtel interests in the project.
5 See paragraphs 74, 81, 85, 91, 94, 97 and 101 of Mr Nagarvalafs witness statement; paragraph 43 of Mr Walshfs witness statement; and paragraphs 6, 19, 32 and 34 of Mr Woolen's witness statement.
6 See in particular paragraph [ ] below in relation to the quote in paragraph 52 of the Statement of Claim.
7 Paragraph 46 of the Statement of Claim.
9 See Exhibit [ ], List of Errors in Statement of Claim.
10 See paragraph [ ] of Mr Bansalfs witness statement and Exhibit [ ].
11 The Tribunal should also be aware that GE and Bechtel or their group companies have acquired Enron Mauritius Company (65.85% shareholder of DPC) and commenced a separate arbitration under an Indo-Dutch bilateral investment treaty seeking US$4.27 billion for the loss of Enronfs "investment" in the project. This claim has been acquired by GE and Bechtel for payment of just US$20 million. See Exhibit [ ], settlement dated 8 April 2004 filed in Enronfs bankruptcy.
12 As at March 2003 it had an installed capacity of 12,053 MW.
13 By the Electricity Laws (Amendment) Act 1991 and Notification dated 15 October 1991 issued by the Ministry of Power.
14 Resolution dated 22 October 1991 issued by the Ministry of Power.
15 By Notification dated 29 October 1991.
16 On 18/19 January 1994, 22 August 1994, 12 January 1995, 6 November 1995, 26 February 1997, 17 April 1997, 23 May 1997, 6 June 1997, 9 March 1997 and 8 June 1998.
17 See Exhibit [ ], Linklaters letter dated 4 September 1992. See also Claimantsf Exhibit 61, section headed "framework for restructuring".
18 See paragraphs 18-20 of Mr Lalfs witness statement.
19 ERCA 1998, S.22(1)
20 ERCA 1998, S.22(2)
21 Maharashtra was in fact one of the last States to establish an ERC, and did so only after a the Bombay High Court compelled it to do so; see Exhibit [Mahad case document]
22 This power was conferred when GOM referred a dispute between BSES, Tata Power and MSEB to MERC.
23 Paragraph 37 of the Statement of Claim
25 See for instance paragraph 55 of the Statement of Claim and paragraphs 74, 83, 85 and 86 of Mr Nagarvalafs witness statement.
26 See paragraph [ ] below.
27 See further paragraphs [2.106-7] below.
28 See further regarding OPIC and the arbitration award made against it in favour of the Claimants at paragraphs [7.70] below.
29 See further at paragraphs [ ] below and paragraphs [ ] of Mr Haldeafs witness statement.
30 Enron is currently under investigation by the US Justice Department for alleged breaches of the Foreign Corrupt Practices Act in connection with power projects in Guatemala, Dominican Republic and Nigeria. Enronfs activities in relation to the power plant in Guatemala have already been subject to a damning report by the US Senate - See Exhibit [ ]. The bipartisan Senate Finance Committee report stated that "Enron benefited from taxpayer support and multilateral organization support to extend its international reach, including the Guatemalan power project with its questionable payments".
31 Rebecca Mark, CEO of Enron International, alone received US$54,000,000 (fifty four million United States Dollars) in bonuses for her work in securing the financing of the project; see Exhibit [ ] Article Dow Jones Newswires 18 March 2002.
32 Waste Management, Inc -v- United Mexican States, ICSID Case No. ARB (AF)/00/3, at p.1002, paragraph 177.
33 The gas turbines are the machines that actually convert mechanical energy (which drives the rotation of the turbines) into electrical energy. The electricity generated is then connected to the transmission and distribution system (power transmission lines) to consumers. There are two GE gas turbines in each of the three blocks of the power station, and they provided the stationfs principal generating capability.
34 The size of the power station was dictated by Enronfs desire to establish a foothold in the market for LNG, since an LNG supply train would only be practicable if a sufficiently large power station could be established to consume the LNG. See Claimantsf Exhibit 62, Harvard Business Review Paper, p8.
35 Enron Mauritiusf 80% shareholding was diluted to 50% in  when Maharashtra Power Development Corporation Limited ("MPDCL") acquired a 30% shareholding in DPC. However, MPDCL declined to contribute towards Phase II of the project and MPDCLfs shareholding was therefore reduced to 14.15% whilst that of Enron Mauritius increased to 65.85%. This 65.85% is the stake presently held by Enron Mauritius. See further at paragraph [2.124] below.
36 See Exhibit [ ], World Bank report. The World Bank also cautioned that The project was not the most economic choice for base load power generation compared to Indian coal and local gas; the unique features and risks of the LNG-based project offset LNGfs environmental benefits over coal; Enronfs proposal would require high rates of dispatch, preventing the operational flexibility of a combined cycle plant; the project would add more capacity than was required to meet projected load growth in 1998 and would result in uneconomic dispatch; and substantial adjustment in electricity tariffs would be necessary to enable the costs of the project to be recovered.
37 Paragraph 55 of the Statement of Claim.
38 Paragraph 57 of the Statement of Claim.
39 "Black Start" was defined in the PPA as "the ability of the Power Plant to start up and energize a part of the MSEB System without the import of Active Energy from the MSEB System".
40 See Claimantsf Exhibit 16, the PPA, p1 preamble.
41 Phase II of the project was of critical importance to Enron, since it was only with Phase II that the power station would be large enough to justify the use of LNG - see Claimantsf Exhibit 62, p8.
42 PPA, cl 10
43 PPA, cl 7.3 and Sch 8 at [x]
44 PPA, cl 10.1 and Sch 9 at [x]
45 PPA, cl 8.4(b) and 10.2 at [x]
46 See Exhibit [ ], letter from Rebecca Mark to [ ].
47 PPA, cl 10.3 and Sch 8 at [x]
48 Draft Heads of Terms dated 27 August 1992.
49 Note prepared by MSEB for meeting of Task Force to be held on 19 April 1993.
50 See letter from DPC to MSEB dated 27 December 2000 and enclosed explanatory note.
51 See further at paragraphs [ ] below.
52 PPA, cl 22.1 and 22.2.
53 When this guarantee was discussed and negotiated, it was clear that it would be neither unconditional nor payable on demand. See Exhibit [ ], DPCfs fax dated 24 March 1995: "The only guarantee to the project given byc(GOI) is a performance guarantee. The guarantee assures that if the project performs as per the Power Purchase Agreement and delivers electricity to MSEB and both MSEB andc(GOM) are unable to pay DPC for the power produced then the GOI will pay DPC the amount owed to it. The Dabhol project has been given a performance guarantee by the GOI. There is a difference between a sovereign and a performance guarantee. In a sovereign guarantee, the Government directly guarantees the debt obligations of the project."
54 See further regarding the OPIC award in paragraph [7.70] below.
55 Claimantsf Exhibit 54
56 In this respect, see Waste Management, Inc -v- United Mexican States, ICSID Case No.
ARB (AF)/00/3, p999, paragraph 161, regarding the significance of statements made "in the heat of public debate". See also paragraph [6.70] below.
57 See Exhibit [ ], article from The New York Times dated [ ].
58 Linda Powers, an Enron executive, made a notorious statement in 1995 concerning the expenditure of US$20 million "to educate Indians in capitalism". This statement to a US Senate Committee may have been quoted out of context by the Indian press, but it was popularly believed to refer to the bribery of Indian officials to secure favorable contract terms and clearances for the project.
59 Paragraph 86 of Mr Nagarvalafs witness statement.
60 Paragraph 17 of the Statement of Claim.
61 Public interest litigation is litigation in the interest of the public in general, or a defined section of the public. This litigation allows any citizen of India or a consumer or social action group to petition the courts for a legal remedy on behalf of the public or a section of the public, even though the petitioner himself/itself is not the directly affected party and, under the conventional principles of locus standi, would not be permitted to bring a petition.
62 Ref to comment made by Enron about courts
63 The renegotiation took place in response to an offer from Enron. See Exhibit [ ], letter from Rebecca Mark dated 18 August 1995.
64 See for instance paragraphs 42, 43, 56, 60, 113, 126 of the Statement of Claim.
65 Paragraph 43 of the Statement of Claim.
66 Despite the events of 1995/6, it should also be noted that the Investors opted, and obtained a commitment from MSEB, to proceed with Phase II of the project, thereby tripling the size of the project.
67 See paragraphs [ ] below.
68 The project was financed on the basis of non-recourse or limited recourse to the Investors, so that the Claimants and Enron had taken an extremely limited risk in relation to it.
69 Paragraph 45 of the Statement of Claim.
70 See paragraphs [ ] of Mr Lalfs witness statement.
71 See paragraph 82 of Mr Bansalfs witness statement. Even as late as 25 May 2001, MSEB continued to make payment to DPC in respect of undisputed amounts, see Exhibits [ ]. DPC actually refused to accept such payments and MSEBfs cheques were returned. See Exhibit [ ].
72 See paragraphs 42 and 54 of Mr Lalfs witness statement and paragraphs 65 and 68 of Mr Bansalfs witness statement.
73 Paragraph 78 of Mr Nagarvalafs witness statement.
74 See paragraph 33 of Mr Bansalfs witness statement.
76 See for instance paragraphs 50, 51 and 57 of Mr Bansalfs witness statement.
77 See paragraph 34 of Mr Bansalfs witness statement.
79 ERCA 1998, Section 26(5).
80 See paragraphs 35-38 and 45 of Mr Bansalfs witness statement.
81 See paragraph 36 of Mr Bansalfs witness statement.
82 See paragraph 42 of Mr Bansalfs witness statement.
83 See paragraph 43 of Mr Bansalfs witness statement and Claimantsf Exhibit 113.
84 See for instance paragraph 74 of Mr Nagarvalafs witness statement.
85 See paragraph 55 of Mr Nagarvalafs witness statement.
86 In fact GOM continued to assist MSEB with loans from its contingency funds to overcome problems of liquidity. See paragraphs 65 and 68 of Mr Bansalfs witness statement and paragraph 54 of Mr Lalfs witness statement.
87 See paragraph 56 of Mr Bansalfs witness statement.
88 See paragraph 55 of Mr Nagarvalafs witness statement.
89 See paragraph 56 of Mr Bansalfs witness statement.
90 See paragraphs 42 and 54 of Mr Lalfs witness statement, and paragraphs 65 and 68 of Mr Bansalfs witness statement.
91 Paragraph 46 of the Statement of Claim.
92 See paragraph 79 of Mr Bansalfs witness statement.
93 See paragraph 52 of the Statement of Claim and paragraph 69 of Mr Nagarvalafs witness statement.
94 Paragraph 52 of the Statement of Claim.
95 In any event, see the comments made in Waste Management, Inc -v- United Mexican States, p999, paragraph 161, regarding "statementscmade by local politicianscin the heat of public debate." This extract is set out in full in Chapter VI below, paragraph [6.70]
96 See paragraph 54 of Mr Lalfs witness statement.
97 See Exhibit [ ],
98 Former Union Home Secretary.
99 See paragraph 60 of Mr Lalfs witness statement.
100 Paragraph 56 of the Statement of Claim.
101 See paragraph 61 of Mr Lalfs witness statement.
102 This is why GOI needed to be involved in any talks relating to the renegotiation of tariffs.
103 See paragraphs 88 and 89 of Mr Bansalfs witness statement and paragraph 62 of Mr Lalfs witness statement.
104 See Exhibit [ ], Report of the Godbole Committee. The Godbole Committee also set up a committee of enquiry targeting GOM officers as a result of the lack of transparency during the negotiations with DPC relating to the PPA.
105 A safe range of frequencies for the grid is specified in the Grid Code. If the frequency is excessively high or low, remedial action has to be taken to either reduce or increase the frequency as appropriate in order to prevent grid collapse.
106 See paragraphs 70-74 of Mr Bansalfs witness statement.
107 See paragraph 31 of Mr Bansalfs witness statement. The State Load Dispatch Center reports to the Regional Load Dispatch Center for the Western grid, which comprises five States including Maharashtra.
108 See paragraphs 75-76 of Mr Bansalfs witness statement and Exhibits [relevant correspondence]
109 See paragraphs 80 and 81 of Mr Bansalfs witness statement and Exhibit [ ], the legal advice MSEB received from Gagrat & Co.
110 See Exhibits [relevant correspondence]
111 See paragraph 81 of Mr Bansalfs witness statement.
112 Between 1983 and 1993 there were five total and ten partial grid collapses [need to confirm this figure]
113 Currently GE proclaims that "Fast starting and loading is a characteristic of STAG combined cycle generation systems, enabling them to operate in mid-range, daily start peaking service and base load. STAG systems can typically achieve full load within one hour during hot start and within three hours during a cold start." Exhibit [ ].
114 See Exhibits [ ], Advanced Fossil Fuel Technologies for UK Power Industries [exhibit here articles & material identified by Ian Rodgers on]
115 See Exhibit [ ], MSEBfs petition to MERC.
116 See paragraph 99 of Mr Bansalfs witness statement.
117 See paragraph 100 of Mr Bansalfs witness statement.
118 See paragraphs [ ] of Mr Lalfs witness statement and paragraphs [ ] of Ms. Royfs witness statement.
119 See paragraph 99 of Mr Bansalfs witness statement.
120 See paragraph 118 of Mr Bansalfs witness statement.
121 See paragraph 125 of Mr Bansalfs witness statement.
122 See paragraph 122 of Mr Bansalfs witness statement.
123 See paragraph 123 of Mr Bansalfs witness statement and Claimantsf Exhibit [ ].
124 By letter dated 25 May 2001
125 See Exhibit [ ].
126 See Exhibit [ ].
127 See paragraph 82 of Mr Bansalfs witness statement and Exhibit [ ].
128 See paragraphs [ ] of Ms Royfs witness statement.
129 See paragraphs [ ] of Ms Royfs witness statement.
130 From the few Enron/DPC documents that the Respondent has been able to obtain, it is clear that the analysis of events now advanced by the Claimants was not shared by either DPC or Enron during the period in question. For instance, DPC informed OPIC in a letter dated 2 August 2001 that there were "ongoing efforts to reach an amicable resolution" with MSEB, and that DPC "continues to work cordially with MSEB, as it has for nearly two years, assisting them with tariff issues associated with reform of the electricity sector". This simply underlines the fact that the Claimants, as minority shareholders in DPC, were not closely involved in, and possibly explains their current lack of understanding of, the events of 2001.
131 See Claimantsf Exhibit 126, Notice of Arbitration dated 12 April 2001.
132 See Claimantsf Exhibit 125, Notice of Arbitration dated 10 April 2001.
133 See Claimantsf Exhibits 123 and 124, Notices of Arbitration dated 10 April 2001 under the State Support Agreement and the Supplemental State Support Agreement.
134 See Claimantsf Exhibit , Notice of Arbitration dated 4 September 2001. The Notice of Conciliation was dated 4 April 2001 (Claimantsf Exhibit 119).
135 See Exhibit [ ] summarizing these strands diagrammatically.
136 See paragraphs 115-6 of Mr Bansalfs witness statement.
137 Case No. 3 of 2001
138 See paragraph 17 of Mr Wollenfs witness statement.
140 Paragraph 62 of the Statement of Claim.
141 Article 226 of the Indian Constitution provides an extra-ordinary remedy to the citizens to approach the High Courts of India, in cases where there is a contravention of fundamental rights of citizen/states/legal rights of companies or where Tribunals exceed their jurisdiction conferred on them by law while adjudicating on matters before them.
142 Special Leave Petition (Civil) No. 12200/2001, Civil Appeal No 5041 of 2001
143 Civil Appeal No 7096/2003.
144 The letter of credit was to secure one monthfs payments by MSEB under the PPA.
145 paragraph 66 of the Statement of Claim
146 (Writ Petition No 1205 of 2001 ? see paragraph ? above)
147 Notice of Motion 284 of 2001
148 See paragraphs [ ] above and paragraph 82 of Mr Bansalfs witness statement.
149 Justices Mr A P Shah and Mr s A Bobde.
150 On 26 June 2001 the Bombay High Court stayed its order directing MERC to decide the issue of its jurisdiction within six weeks. This was a two weeksf stay granted to DPC to enable it to appeal to the Supreme Court.
151 MSEB v DPC Special Leave Petition to appeal (Civil) No. 16375/2001.
152 Para 66 of the Statement of Claim.
153 This was in light of Enronfs bankruptcy, the resignation of all its directors from the Board of Directors and the appointment of Receiver by the Bombay High Court on [ ].
154 The order mentions that the parties agreed that no reasons be recorded for passing the order although this was not a consent order.
155 Para 110 of the Statement of Claim.
156 See para 73 of the Statement of Claim.
157 See para 72 of the Statement of Claim.
158 Suit No. 3955 of 2001
159 Suit No. 875 of 2002
160 IDBI, IFCI, ICICI and SBI, but not Canara Bank.
161 Issue of Final Termination Notice would oblige DPC to sell the Project and MSEB to buy the Operating Assets, thereby depriving the Secured Creditors of their right to enforce security. See paragraph [ ] of Aloke Dasguptafs witness statement.
162 It was not until April 2003 (nearly two years since DPC first requested consent for issue of final Termination Notice) that the Phase I Banks and OPIC consented to issue of final Termination Notice. Therefore, in any event DPC was not entitled to give a Termination Notice or to claim any Termination Payment at least until April 2003.
163 Suit No. 3955 of 2001; Notice of Motion No. 2860 of 2001.
164 whilst preserving DPCfs right to do so in the event of such a determination or if the restraining order was lifted.
165 See Exhibit [ ] (OPIC Award).
166 See further in relation to the OPIC award in paragraph [7.70] below.
167 paragraph 110 of the Statement of Claim.
168 Since the Phase I Banks and OPIC did not consent to the issue of a final Termination Notice at any time prior to April 2003, if this right had not been preserved by the IFIs application to the court, it would have lapsed under paragraph 2.3(d) ) of Schedule 11 to the PPA.
169 See Exhibit ----
170 The reduction in company value related to partnerships set up and run by chief financial officer Andrew Fastow who was sacked on 24 October 2001. See Exhibit --- BBC Rise and Fall of Enron chronology. On 22nd October 2004 the US Securities and Exchange Commission opened an inquiry into a possible conflict of interest related to the Enron's dealings with the partnerships set up by Mr Fastow.
171 See Exhibit --- BBC Rise and Fall of Enron Chronology
172 See Exhibit --- BBC Rise and Fall of Enron Chronology
173 See Exhibit --- BBC Rise and Fall of Enron Chronology
174 Ex 206, p13
175 Section VI of Ex 206, Industrial Dev. Bank of India v. Dabhol Power Co., Suit No. 875 of 2002, Pet (Bombay H.C. Mar 19, 2002)
176 Ex206, p13
177 Ex206, p14
178 Suit No 875 of 2002.
179 Suit 875 of 2002
180 Claimantsf Exhibit 173 ?
181 Paragraphs 74-78 and 104 the Statement of Claim.
182 See Exhibit ---- CLBfs order of 2 April 2003.
183 Company Petition No. of 200.
184 See Exhibit ----
185 See Exhibit ----; Mr freeman was made Manager Special Affairs.
186 See Exhibit ---- CLBfs order of 22 August 2002 in Company Petition No. 45/2002.
187 Claimantsf Exhibit 218.
188 Article 10.2 provided inter alia : "If at any time fewer than 10 candidates have been nominated as provided in the preceding two sentences or elected, the members whose voting power has not been taken into account in making a nomination under the preceding two sentences shall, by a majority vote of the voting power not so taken into account nominate a candidate (s) so that 10 shareholder directors in the aggregate are in office." See Exhibit ----.
189 Article 10.3; See Exhibit ----
190 See Exhibit ---- in Company Petition No. 45 of 2002 and Company Appeal No. 60 of 2003.
191 In terms of DPCfs Articles no non-shareholder director could be appointed other than the nominees of the Financial Institutions. Mr Freemanfs election by majority in the meeting held on 9 September was upheld by the CLB but at the same time considering the fact that DPC was a closely held company, the other three shareholders should have treated MPDCL "in a more equitable manner". As the other shareholders approved the additional candidature of Mr Freeman jointly proposed by the claimants, the claimants should have approved the second nominee of MPDCL as one non-shareholder directorship was available on the Board. Not doing so could be considered to be an act of oppression against MPDCL. The CLB therefore held that one of MPDCLfs nominees would be deemed to have been elected as a shareholder director under Article 10.2 and the other as a non-shareholder director under Article 10.13.
192 MPDCL v DPC Appeal (Lodge) No. 4 of 2003 - [We have not seen a copy of this]
193 MPDCL v DPC Appeal (Lodge) No. 6 of 2003 - [We have not seen a copy of this]
194 On [ ] GE and Bechtel commenced an arbitration against MPDCL under the Shareholders Agreement. After the Bombay High Court granted a stay, Bechtel alone has been progressing it. The final hearing in this arbitration has recently taken place, in MPDCLfs absence.
195 On 5 June 2003 all these interim orders were extended until 7 July 2003. On 7 July the orders were extended until the resolution of the appeals.
197 Appeal (Lodging) No 798 of 2003, subsequently numbered as Appeal No. 1067 of 2003.
198 Order of 16 September 2003.
199 paragraph 104 of the Statement of Claim, and paragraph 91 of Mr Nagarvalafs witness statement.
200 [The quote in paragraph 77 of Statement of Claim and paragraph 32 of Woollen - cannot find it in Ex 212 - where did it appear?]
201 check whether the resolutions passed on 4 June meeting had agreed to admit the amounts due to the contractor i.e. GE/Bechtel companies in the NY proceedings
202 Paragraphs 79-80 of the Statement of Claim.
1 check whether the resolutions passed on 4 June meeting had agreed to admit the amounts due to the contractor i.e. GE/Bechtel companies in the NY proceedings
1 Paragraphs 79-80 of the Statement of Claim.
1 See Waste Management, Inc. -v- United Mexican States ICSID Case No. ARB (AF)/00/3, paragraph 131.
203 See Waste Management, Inc. -v- United Mexican States ICSID Case No. ARB (AF)/00/3, paragraph 131.