Annexure C
MAHARASHTRA STATE ELECTRICITY BOARD
Prakashgad. Bandra (East). Mumbai-400 051.
Tel.: (P) 6443740 (0) 6422211 Fax: (P) 6428511
E-mail: chairman@msebindia.com

Hongkong Bank Building. Fort, Mumbai-400 001.
Tel~: (P) 2619400 (0) 2619100 0 Fax: (0) 2619699

Ref: CH/DPC/531 23rd May 2001.

TO
Mr. K. Wade Cline,
Managing Director,
Dabhol Power Company,
Wockhardt Towers,
East Wing, Level 4,
Bandra-Kurla Complex,
Bandra (East),
Mumbal 400 051.

Dear Sir,

Re: Power Purchase Agreement dated 8.12.1993.

We refer to the Power purchase Agreement (PPA) dated 8th December,1993
entered into between us relating to a baseload, combined-cycle power station to be constructed by you near Dabhol. The agreement was amended on 2ndFebruary, 1995, 26th July 1996 and by an addendum dated 9th December, 1998.

At all material times, you represented to us that you would build, construct, own, maintain and operate a state-of-the art power station with a Nominal -Baseload Capacity of 670 MW, having a start UP and loading Profile that would reach full load within 18o minutes from a cold start. You represented that the Power Plant would have certain Operating Characteristics and Dynamic parameters. One of the key characteristics and parameters Of the Power Station to be constructed in phase-Iof the project was that from a cold start the Power Plant Would have the Capacity to ramp-up to 100% load within a Period of 180 minutes. Relying upon the Said express representations made by you in respect of the Operating Characteristics and Dynamic , parameters of Power Station relating to attaining full generation from a cold start; we consented to the PPA. Since commissioning of the plant in May, 1999, You have been billing us for Capacity payments on the Rated Baseload Capacity for each Availability period.

Until January, 2001, the Operating Characteristics and Dynamjc Parametors of the Power Station in respect Of the ramp -up capacity in a cold start had never come into question and at no Stage you disclosed -to us any information in respect of the capability of the Dabhol Power Station being materially different from the contract parameters mentioned in the PPA.

On 28th January, 2001, to meet our urgent requirement we instructed you to deliver your fully declared baseload of 657 MW within 3 (three) hours. You, however, failed to deliver the energy required by us and committed breach of die PPA. You committed
similar defaults on 13th February, 2001 and 29th March, 2001. In view of the said defaults, we became entitled to rebate as provided 'in the PPA in respect of each of the three occasions and claimed the same from you. You, however, failed and neglected to compute the rebate or adjust the rebate in the billing statement or to pay the same to us. In the letters addressed to us after 28th January, 2001, you have admitted that your power plant does not conform to the PPA and is not capable of meeting the contractual terms in respect. of the crucial Operating Characteristics and Dynamic Parameters. In particular, you have acknowledged and admitted that the actual performance and capability of the Power Station does not conform. to the start up and loading profile curves in Exhibit II-2 of Schedule 6 of the PPA.

It is thus clear that you had made material misrepresentations and our consent to the PPA was caused, inter alia, by the representation on your part in respect of the capacity and capability of the Power Station. In the circumstances, we are advised that the aforesaid Power Purchase Agreement is void and /or is voidable at our option.

We have shown utmost restraint and have given more than sufficient opportunities, to resolve the issues amicably. Instead of co-operating in the matter, you have embarked on campaign to create confusion and to obfuscate the issues, which has involved, inter alia in wrongfully withholding rebate payments, pressurising, us to make payment that are not due, invoking guarantee issued by the Government of Maharashtra and Govt. of India, invoking arbitration , declaring Political Force Majeure without justification, wrongly seeking to activate the escrow an-arrangement without being entitled to do so and issuing Preliminary Termination Notices on false and frivolous grounds. In the circumstances we are now convinced that your conduct is not bonafide and. as such we are constraintd to avoid/ rescind the PPA with immediate effect.

Without prejudice to the rescission of the PPA as aforesaid, and all our rights and contentions relating thereto, please note that we are agreeable to continue the present arrangement of purchase of power and payment till the disputes are resolved by the appropriate forum, so as to minimise loss and inconvenience. For such supply we are prepared to make payments to you as provided for -under the PPA, but such paymen would be subject to adjustments on the basis of determination of reasonable compensation and quantum meruit by a competent forum.

Thanking you,

Yours faithfully,
(Vinay Bansal)
Chairman.