State looks at Dabhol deal with Enron

NEW DELHI, India (CNN) -- Enron Corp.'s troubled investment in Dabhol Power Co. may be renegotiated.

The Maharashtra state government is forming an expert committee to recast the terms of its contract, Indian media reported on Tuesday.

Enron is thought to be keen to get out of its 65 percent stake in the $3 billion joint venture. The investment is the largest in India by a non-Indian company.

Dabhol's board meets on Wednesday in London, with all its stakeholders represented. Dabhol's lenders met Monday.

Enron is expected to explore a pullout, which would require lender backing.

State government default

Its main partner, the Maharashtra State Electricity Board, has defaulted on payments since October and now owes $48.3 million (2.23 billion rupees).

The electricity board owns a 15 percent stake in Dabhol. Under its original contract, it was supposed to buy another 15 percent from Enron. But it backed out on the deal, due to financial problems.

U.S. companies General Electric and Bechtel own the rest of Dabhol. Each holds 10 percent.

Maharashtra's chief minister and finance minister have now decided to set up a committee within a week to renegotiate the contract. The government is unhappy with the cost of power produced at the plant.

Because the Maharashtra government can't absorb all the plant's power, it will look at selling power to other states, according to India's Economic Times.

Enron's interest not guaranteed

It is unclear whether Enron can be drawn back to the table. A spokesman for Enron India said it had not received any renegotiation proposals.

When the company released earnings earlier this month, CEO Jeff Skilling said the company was reviewing the sale of assets such as Dabhol.

Enron India is still processing a government review of the Dabhol project, a 2,200 megawatt power plant that serves Maharashtra. The western state includes the key business city of Mumbai.

Enron said in January it was still looking for a buyer for the 15 percent share. In early April, it slapped the MSEB with a formal warning that it could withdraw from the project.

It has also called in two federal government guarantees. In return, the state government penalized Enron for underperformance.

Enron has now reportedly hired investment bankers to sell a majority stake in Dabhol. That would be an acutely embarrassing blow to the Indian government, which originally touted the Indian power industry's privatization.

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.