Enron talks in India start this week

Vilasrao Deshmukh says the local government wants an "amicable solution" to its problems with Enron

In this story: Enron sticks around Indian government's role is key RELATED STORIES

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India (CNN) -- Talks aimed at pinning down new terms for Enron's troubled power venture in India will start Friday.

But the Houston-based power giant does not guarantee it will accept a reframed deal for its Dabhol Power Co. subsidiary.

Enron's 65 percent stake in the $3 billion Dabhol Power development near Mumbai is India's largest investment by an overseas company. But it has been troubled almost from the start.

Its 15 percent partner, the Maharashtra State Electricity Board, has defaulted on $48 million in payments. The state government complains the terms of its deal are too harsh.

The interested parties will send representatives to talks on May 11. A nine-member group known as the Godbole committee will have a 30-day deadline to conclude talks with Enron when it convenes.

At Enron's request, the Indian government will send an official to take part in the talks. Local media reports suggest the government will send Harish Salve, the solicitor general, though his participation has yet to be confirmed.

Enron sticks around

Enron had threatened to terminate its agreement with Maharashtra state and pull out of the project. But Enron chairman Kenneth Lay reportedly cast the deciding vote to stick by the investment for now when its board met last week.

Dabhol, which is officially an Enron subsidiary, has confirmed Enron will attend the talks. But it stated that was a "matter of courtesy."

Maharashtra's chief minister, Vilasrao Deshmukh, says the state is keen to recast the terms. He recently told CNN that the "whole position is very unfortunate" and that he is keen to find "an amicable solution."

Deshmukh said the cost of Dabhol power is too expensive and often runs a costly 7 rupees per kilowatt hour. He also said the westerly state, which includes India's business capital, Mumbai, cannot absorb all the electricity.

Enron says the power will get cheaper when the plant converts to liquefied natural gas, starting in December.

Indian government's role is key

The Indian government's role in the talks will be vital. Maharashtra officials hope to sell excess power to other states via the state-owned National Thermal Power Corp.

But Indian law does not allow third-party power sales. The government has so far said it will not let NTPC buy the extra capacity.

Both Enron and the state government would like to see India ease that stance.

The Indian government, which championed the power industry's deregulation, is very keen to keep Enron in India. Two more stages of the 2,200 megawatt power plant are due later this year.

Enron is also likely to stick around, after seeing a development in Pakistan fail. But the company wants to see what the local government has to offer before it commits to renegotiations.

An Enron official said the company will listen to what the Maharashtra state government and its electricity board have to propose.

"We'd like to attend the first meeting and see how it goes," said Jimmy Mogal, spokesman for Enron India.

It has not yet decided whom it will send to the talks. Dabhol's other owners, 10 percent stakeholders General Electric and Bechtel, will also be represented.

Enron also insists it has not committed to a new deal.

"Since the purpose of our meeting is to hear out the Committee and understand their thoughts, we will not present any proposals," Enron declared in a public statement.

"While we have constantly maintained that we are open to maintaining a dialogue towards resolving issues, this meeting should in no manner be construed as an open offer from DPC [Dabhol Power Co.] to renegotiate the terms of the contract," Enron stated.

Enron says the findings of a recent report from the Maharashtra state government on Dabhol's problems do not represent an "acceptable basis" for negotiations.

Indian state, Enron to revisit power deal
State looks at Dabhol deal with Enron

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