Enron, India utility dispute intensifies

Enron, India utility dispute intensifies

BOMBAY (Reuters): A dispute between U.S. energy giant Enron
Corp and an Indian utility has worsened ahead of a meeting on
Tuesday to discuss the fate of the controversial US$2.9 billion
project.

Analysts expect little progress at the meeting between Enron's
Dabhol Power Company and a committee set up by the western Indian
state of Maharashtra to renegotiate the power project's tariff.

The U.S. firm, which served a termination notice on May 19 of
its agreement to sell electricity to the state-run local utility,
has opposed the lower rates and has already said it considers the
Tuesday meeting as a courtesy call.

The Maharashtra State Electricity Board (MSEB) also served a
termination notice last Thursday saying Dabhol's plant could not
meet capacity targets within a specified period.

Last week, Dabhol returned a cheque for $39 million to the
MSEB and a Dabhol spokesman declined to comment on the issue.

But newspapers reported over the weekend that Enron had
returned the cheque because it was annoyed with MSEB's contention
the plant cannot ramp up to full capacity within three hours from
a cold start as stipulated in the agreement.

Dabhol has contested this claim saying its plant is not built
for such a purpose.

MSEB is the sole buyer of electricity from Dabhol under an
agreement.

The two sides have been sparring for more than six months over
the giant power project, being built in two phases. The first
phase of 740 MW is already up and running while the second of
1,444 MW is slated for commissioning next month.

MSEB, which has defaulted on past payments of $48 million, has
refused to buy power from the second phase stating it is too
costly and rates should be lower.

The row is seen as a test case of India's ability to attract
foreign investment in the power sector, which needs 100,000 MW
over the next 10 years to meet growing demand.

But its ability to solve the issue also depends on cooperation
among various political parties, which have been using the
controversy to attack each other.

On Sunday, Vilasrao Deshmukh, chief minister of Maharashtra,
criticized the federal government for not helping the state
resolve the issue quickly, the Press Trust of India (PTI) said.

"Despite several letters, the federal government has not
responded to the state's pleas to intervene in the matter," PTI
quoted Deshmukh as telling reporters after a party meet in
Bombay.

Maharashtra is ruled by a coalition headed by the opposition
Congress party.