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.