Arbitration Tribunal Rules for Bechtel in India's Dabhol Power Project

MUMBAI AND NEW DELHI, INDIA, May 3, 2005 – An independent arbitration panel under the auspices of the ICC International Court of Arbitration in Paris has unanimously ruled that the Indian State of Maharashtra and two affiliate agencies expropriated a Bechtel affiliate’s interest in the Dabhol Power Company (DPC).  The tribunal ordered a final binding award of more than $125 million to Bechtel to compensate Bechtel for its original investment and for interest and costs associated with it.

Bechtel made the claim in the arbitration in accordance with its rights under the Dabhol Shareholder Agreement.  The action was taken by Energy Enterprises (Mauritius) Company, a Bechtel affiliate that owns 10 percent of the $3 billion Dabhol power plant.  The State of Maharashtra, through the Maharashtra Power Development Corporation, holds a 14 percent share in DPC and Capital India Power Mauritius I (CIPMI), a General Electric affiliate, holds a 10 percent share in DPC.

"The State of Maharashtra and its agencies have conducted a campaign to avoid their obligations under the Power Purchase Agreement (PPA) and related project agreements for Dabhol and have played a key role in blocking DPC and its shareholders from pursuing international arbitration to defend their legal rights," said Steve Dixon, Vice President of Bechtel Enterprises.  "Their willful misconduct is a clear violation of our Shareholder Agreement and we are gratified that the Tribunal has agreed with us."

In its ruling the Tribunal found that the State of Maharashtra (SOM) breached provisions of DPC project agreements and by these actions totally expropriated Bechtel's original investment in the Project and deprived it of its fundamental rights. 

The Tribunal stated:  "SOM, obviously unwilling to repeat the humiliation of the 1996 retreat in the face of an adverse international arbitration ruling, launched a new strategy with the aim, and, ultimately the effect, of disabling DPC itself from pursuing its remedies.  The attack came in the form of a series of internal corporate maneuvers plainly undertaken as a matter of policy by SOM and [the Maharashtra State Electricity Board], although necessarily carried out by their designee-shareholder, MPDCL."  Some of the egregious actions taken include: refusing to allow DPC to seek international arbitration, refusing to submit disputes to international arbitration, refusing to vote for properly nominated directors to DPC's board, refusing to appoint directors to DPC, challenging the rights of existing directors to represent DPC, trying to impede the shareholder arbitral proceedings, and disobeying U.S. court orders that govern the Shareholder Agreement.

"The shareholders of a corporation have the obligation to act responsibly and in the best interests of that corporation," added Dixon.  "By its coordinated actions, the State of Maharashtra and its agencies have attempted to render DPC worthless and unable to defend its legal rights.  These actions were intentional and not permissible under the Shareholder Agreement and more importantly, international law."

Bechtel has been pursuing the full recovery of its investment for more than four years while the plant has been shut down.  In 2003, another independent arbitral tribunal in the United States ruled unanimously in the company's favor, finding that its interests in DPC were illegally taken and ordering the Overseas Private Investment Corporation, a U.S. government agency, to pay $28.57 million in political risk insurance claims to Bechtel affiliates.

Affiliates of Bechtel Enterprises Holdings, Inc., domiciled in Mauritius and the Netherlands, have also filed two additional arbitration claims against the Government of India to recover damages to their investments in the Dabhol Power Company. The total value of these two additional claims could exceed US$6 billion, representing market value of the Dabhol Power Company specified in the original power purchase agreement signed by the Maharashtra State Electricity Board and guaranteed by the SOM and the Government of India.  The Mauritius arbitration proceeding is scheduled to be heard by an independent tribunal in London in July 2005, while the Netherlands proceeding is expected to be heard in mid 2006.

"We remain hopeful that we can reach a negotiated settlement on Dabhol and help the Government restart this much needed power generation facility," Dixon concluded.  "But if we do not receive fair treatment, we will continue to pursue all our legal options under international law and the bilateral investment treaties the Government of India has signed."

About Bechtel

Bechtel is one of the world's premier development, engineering, construction, and project management companies. It has completed more than 20,000 projects in 140 countries on all seven continents, including more than 300,000 megawatts of generating capacity in over 500 power stations. Bechtel helped construct both Phase I and Phase II of the Dabhol power facilities. Bechtel Enterprises Holdings, Inc. is Bechtel's financing, development and ownership company. Since 1990, Bechtel Enterprises has participated in arranging more than $28 billion in project financings. Bechtel Enterprises owns a 10% interest in the Dabhol Power Company.

The complete text of the ruling may be found on this link  (PDF: 1,789 KB).