Dabhol -- A Brief Legal Update

Gentlemen -

A few brief updates:

The hearing before the Bombay High Court regarding MERC jurisdiction is still
on for Monday. We are still not sure whether or not there will be anything
substantive discussed at the hearing. Gail Brownfeld and Christopher Walker
are flying to Bombay just in case. I just spoke with Jim McCartney and he is
planning to try to attend as well.

There was no unified "message" from the lenders at the conclusion of the
Singapore lenders meetings. Our Finance guys are pretty confident that the
offshore lenders will not cure the construction contract defaults this
month. The Indian banks may or may not cure. If no one cures, the
construction contracts will terminate in mid-June.

We received a copy of a very interesting letter from the Chairman of MSEB to
the India Central Electricity Authority and copied to GOM dated January 11,
2001 (less than three weeks before we were first accused of misdeclaring).
The Chairman states:

"The high price of Dabhol power today was perhaps not accurately anticipated.
. . .DPC Phase II trial runs are to commence shortly. . . .It is a fact that
we have not been able to fully absorb even DPC phase I power at 90% PLF. . .
.[O]nly on MSEB projections and certification DPC have invested a huge sum in
Phase II. Can we ask them to stop now? Poor off-takes of DPC power are not
just because of low demand, but also on account of the high price and the
poor financial condition of MSEB. We would be grateful for Government advice
in the matter."

It appears to me that the "advice" was to charge that DPC was misdeclaring
its availability and to demand huge offsets as a result.

Bruce