Essar Power Ltd.

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The $500 million, 515-MW power plant at Hazira was developed in two stages by the Essar Power Ltd., a subsidiary of the Essar Group (India). The first 330-MW (3x110-MW) of the combined-cycle plant was commissioned in July 1996, of which 300-MW is to be added to the Gujarat power grid. The second 215-MW became operational in June 1997 and was being used on a captive basis by Essar Steel. In July 1999, Essar Group sold Essar Power Ltd. to Marathon Power Co. (US) in a deal worth $170 million. Marathon Power has signed an MoU to acquire 100% equity of Essar Power. Initial funding was arranged in September 1993 with loans from the Industrial Development Bank of India (IDBI) and the Industrial Credit & Investment Corp of India (ICICI). These loans were guaranteed by US EXIM. The project ran into financial difficulties in late 1996 as Essar Power Ltd. was unable to pay a short-term loan from the Bank of India and had to use short-term borrowings to finance the project. These difficulties arose due to delays in reaching power purchase and fuel supply agreements. The Hazira plant became operational in June 1997. A PPA was finally signed with the Gujarat State Electricity Board (GSEB) in 1997. However, the Indian Oil Corporation (IOC) was unwilling to supply fuel oil, which led to a shut down of two out of the three 110-MW units. A temporary agreement had the GSEB paying Essar Group's fuel supply bill for two months, in return power supplied to GSEB. The 1999 divestment to Marathon Co. is part of conditions laid down by the financial institutions to bail out Essar Steel. The plans for expanding the capacity by 500 MW are underway but financial closure has not been reached (as of Dec. 2000). This second phase envisages an investment of US$ 342.8 million. In October 2000, Essar Steel said it would divest 42% equity in the project. In second quarter 2001, the Industrial Development Bank of India threatened to recall its loans to Essar Power because of failure to pay $32 million due in March 1998. In fourth quarter 2001, expansions plans were put on hold due to an uncertain business climate. None None