India refuses to step into Enron dispute

In this story: Talks collapse Wednesday Enron attending as a courtesy Lack of support from India RELATED STORIES, SITES

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India (CNN) -- Talks aimed at resolving Enron's troubled Dabhol power plant development in India will resume May 29.

But the Indian government refuses to step in to resolve the dispute. Without its help, Enron is still set to pull out of India.

It would likely claim a termination fee of $300 million and billions of dollars in damages.

Talks collapse Wednesday

The on-again, off-again talks with Maharashtra state and the Indian government collapsed Wednesday.

Madhav Godbole, the chairman of a committee set up by the state to renegotiate its power-purchase agreement with Houston-based Enron, resigned amid political bickering, then retracted his resignation.

Enron has a 65 percent stake in its Dabhol subsidiary. Maharashtra state owns 15 percent of the project, through its electricity board.

But the board has backed out on a contract to purchase all the power, claiming it is too expensive. It owes $45 million in unpaid bills.

Critics say Enron is a profiteering multinational that locked in a sweet deal, with guaranteed profits. They say the Indian public ultimately loses out.

The state is also at a disadvantage from the decline in the Indian rupee. Enron's returns are guaranteed in dollars.

Enron attending as a courtesy

The state formed the Godbole committee in early May to recast its agreement with Enron. It gave it a month to come up with a new pitch, though such deadlines are often pushed back.

Enron executives were scheduled to attend Wednesday's session, which was cancelled. That left the future of the $3 billion project floundering.

Those talks are now back on. Godbole retracted his resignation later Wednesday, after Vilasrao Deshmukh, the chief minister of Maharashtra state, which includes Mumbai, refused to accept it.

But whether they can resolve the drawn-out saga of Enron's investment, the largest in India by an overseas company, is far from certain.

Enron says it is attending the talks purely as a courtesy. It refuses to recast its contract. It also says it wants cooperation from the Indian and local governments in getting Maharashtra to live up to its commitments.

Lack of support from India

The power giant has been disappointed with a lack of support from the Indian government, which was to play a key role in helping the Dabhol plant sell power to other Indian states.

Both Enron and Maharashtra want to see that happen. But it requires the help of India's National Thermal Power Corp.

The Indian government wants to keep its distance. It will not step in until Maharashtra walks out of the project, The Economic Times reported on Thursday.

"We will step in with our suggestions only when the state government has taken a final decision on whether to go ahead or scrap the project," power ministry officials told the Times.

India's power minister, Suresh Prabhu, told CNN that India would help Dabhol sell its power if it could find willing buyers.

But the India government has taken a back-seat role so far. Dabhol faulted the government for not bothering to send a representative to the initial talks with Maharashtra, as promised.

Dabhol issued a preliminary termination notice, the first step to canceling its contract, on Saturday. The state electricity board is reportedly issuing a tit-for-state termination notice.

India faces a drastic power shortage over the next decade. Its economy is one of the fastest-growing in Asia.

But analysts say its local power boards are essentially bankrupt and unable to build plants or meet demand.

India has also struggled to attract overseas investment. Companies are often put off by a huge amount of red tape, and four companies have already scrapped Indian projects. Observers fear an even greater chilling effect if Enron pulls out.

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Enron
Maharashtra State Electricity Board

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