Indian state, Enron to revisit power deal

Vilasrao Deshmukh: 'The position is very unfortunate.'

In this story: A $48 million default Looking for lower cost, distribution Political force majeure RELATED SITES

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India (CNN) -- Enron's troubled power-supply deal with India's Maharashtra state will be renegotiated, the state's top official said Thursday.

"We are willing to find out some amicable solution," Maharashtra Chief Minister Vilasrao Deshmukh told CNN. "The position is very unfortunate."

The Indian government will send a representative to take part in the negotiations, Deshmukh said. Talks will start when interested parties return from a London meeting.

Maharashtra state is locked in a feud with Houston-based Enron over the $3 billion Dabhol Power Co. The western state includes India's business capital, Mumbai.

A $48 million default

The state electricity board has defaulted on payments of $48.3 million (2.23 billion rupees). That has caused the American power giant to consider selling its 65 percent ownership stake.

Enron's investment is the biggest in India by a non-Indian company.

Dabhol's board met Wednesday in London. Its directors authorized Dabhol Power Co. to issue a notice of termination to supply power to the government.

But the Maharashtra State Electricity Board also agreed on Wednesday to pay $28.6 million (1.34 billion rupees) for its March bill.

Deshmukh called approval of the termination notice "a very hasty decision." He said the parties have agreed to talks on a new power-purchase agreement.

At Enron's request, the Indian government will nominate an official to oversee the talks.

Looking for lower cost, distribution

The state, which owns 15 percent of the project, claims it is locked into buying too much power. It also insists the current cost of power, which has approached 8 rupees per kilowatt hour, is too steep.

Maharashtra does not want to terminate its deal with Enron. But it hopes to negotiate a lower price for power.

It also wants to redistribute power to other states, since Maharashtra cannot absorb Dabhol's full production.

"This whole matter could be discussed across the table," Deshmukh said. He says the government has made it clear it cannot afford its $20.3 million (950 million rupee) monthly payments.

A 740-megawatt power plant is already operating near Mumbai. Two additional 740-megawatt phases are slated to come online later this year.

Enron says the cost of power will drop sharply when the plant converts to liquified natural gas, starting in December.

Political force majeure

Enron is exploring the prospect of pulling out of its 65 percent stake. A notice of termination of the contract would be the first step toward scrapping its power-supply agreement.

Enron has already slapped the government with notice of a political force majeure, a step normally taken to dissolve business contracts that have been disrupted by a war or coup.

In turn, Maharashtra has penalized Enron for underperformance.

A spokesman said there was no announcement of a restructuring of ownership stakes out of the London meeting.

"It was a regular quarterly board meeting," said Jimmy Mogal, spokesman for Enron India.

Mogal said Enron had no comment on the renegotiations.

Maharashtra was originally supposed to buy another 15 percent of the project from Enron. But it reneged on the deal because of financial difficulties.

Enron said in January it was still looking for a buyer for that portion. It has reportedly hired investment bankers to shop a majority stake in the project.

But it is now likely to attempt to renegotiate first. Its pulling out would be an embarrassment to the Indian government, which early championed its power industry as a paragon of privatization.

U.S. companies General Electric and Bechtel each have a 10 percent ownership of the project.

Enron Corp
Maharashtra State

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