Enron Corp moves closer to pulling plug on India plant
Enron Corp moves closer to pulling plug on India plant
BOMBAY (Reuters): U.S. energy giant Enron Corp's Dabhol Power Company (DPC) on Saturday took a major step towards pulling the plug on a controversial power project in India that has cost both the company and the country dearly.
Dabhol, 65 percent owned by Houston-based Enron Corp, said it has issued a preliminary notice to terminate its contract to sell power to India's Maharashtra state.
"After months of working with the Maharashtra State Electricity Board (MSEB), and the governments of Maharashtra and India to find solutions, it is apparent that they are unwilling to honor their offtake commitments for the entire power station," a DPC statement said.
The move comes after months of wrangling between Dabhol and Maharashtra state over payment defaults by the state utility, MSEB, and is likely to further tarnish India's image as lousy place to set up power projects.
Four foreign companies have already pulled out and the plans of other local companies have either been scrapped or shoved into cold storage due to bureaucratic and legal delays.
If the termination takes effect, it will also cost India dearly as it will have to pay damages to Enron and other foreign lenders.
The Indian lenders stand to lose the most from the cancellation because their loans are not covered by any guarantee from the federal government unlike the overseas lenders whose loans are covered by a federal guarantee.
Enron is India's largest investor -- its 2,184 megawatt power plant on India's western coast was supposed to be the world's largest natural gas-fired project power project when fully completed.
The first phase of 740 MW is already up and running, while the second phase of 1,444 MW is scheduled to start generation next month.
The loss-making MSEB, which originally agreed to buy the entire capacity, has reneged on its commitment, forcing Dabhol to issue the termination.
A report in Press Trust of India on Saturday said the federal government will have to pay Dabhol 28.50 billion rupees ($607 million).
Quoting power ministry sources, the report said the amount will include one year's payment for electricity purchases and a termination fee of $300 million.
Senior government officials in New Delhi were not immediately available for comment.
But in Bombay, capital of Maharashtra state, the reaction was swift and strong.
"It was improper on Dabhol's part to issue the termination notice," state chief minister Vilasrao Deshmukh said. Anti-Enron activists were jubilant.
"This is best thing that could have happened to MSEB and Maharashtra. We only wish that MSEB had given the notice first," said Pradyumna Kaul, convenor of Enron Virodhi Sangarsh Samiti, an anti-Enron movement told Reuters.
The notice now begins the start of a six-month cooling period under the purchase agreement, during which the contracting parties are expected to try and resolve the dispute, failing which the termination will take effect.
DPC said it issued the termination notice after what it said were failures by the federal and state governments to honor their contractual commitments.
The statement added that DPC was still open to "constructive discussion on solutions" but added that a lasting and feasible solution was possible only if the parties contractually bound to purchase the power were willing to either buy it themselves or found other creditworthy buyers.