Enron starts Dabhol talks

Enron has hit hard times with its majority stake in $3 billion Dabhol Power

In this story: Enron looking for an out Timeline may be extended Local media: Enron execs leaving RELATED STORIES

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India -- Enron started talks Friday to resolve its troubled investment in India.

But its negotiators left a committee discussing the future of Dabhol Power Co. agreeing only to reconvene May 23.

The Indian government is also taking part in the talks. India's power minister, Suresh Prabhu, said he was confident talks would move forward.

"We are hopeful there will be a negotiated solution to this vexed problem," Prabhu told CNN.

Enron looking for an out

Houston-based power giant Enron is considering selling or even scrapping its 65 percent stake in the $3 billion Dabhol Power Co.

Enron's investment in Dabhol is the biggest in India by a non-Indian company. But it has been troubled almost from the start.

Its partner, Maharashtra state, has defaulted on millions of dollars in payments. The Maharashtra State Electricity Board owns a 15 percent stake in the project.

The state, which includes India's business capital, Mumbai, complains it is locked into paying too much for power. It also says it can't absorb all the plant's power, as Indian law requires.

Timeline may be extended

Maharashtra has organized a nine-member committee aimed at recasting the terms of its contract. It has set a 30-day timeline for the talks, though a source close to the talks said that deadline will likely be extended.

At Enron's request, the Indian government also sent a representative to the talks.

Enron India managing director K. Wade Cline is leading the American company's negotiating team. But a spokesman told CNN that the company is attending the government's committee "as a matter of courtesy."

Enron's team left after two hours Friday and will return May 23. The company was not expected to make an announcement about Dabhol, and Cline told reporters he had no comment.

Local media: Enron execs leaving

Local media reports in India suggest that Enron has started pulling out its executives.

The Economic Times said Friday it would complete moving all its executives to other countries "within a month or two," if they did not accept voluntary retirement.

The children of Enron executives have reportedly been pulled out of the American School in Mumbai because their families were being moved to Singapore.

The state government is pushing for lower tariffs for power. One analyst said it raises less selling the power to clients than it has to pay Enron to generate the power.

Enron says the cost of the electricity will drop when the plant converts to liquefied natural gas, starting in December.

Only one-third of the power project is running. Two more stages of the 2,200 megawatt power project are due for completion later this year. Those are in doubt unless a new arrangement is reached.

Enron started looking for a buyer for part of its stake after the state electricity board backed out on a deal to buy another 15 percent from it.

U.S. companies General Electric and Bechtel each own a 10 percent stake. But such arrangements, set up so the companies can supply parts for the project, typically have an escape clause for an early out.

Enron is now thought to be keen to sell all of its interest. But it has struggled to find buyers. Instead, analysts expect it to look to renegotiate the power-purchase arrangement.

In April, the company slapped the state with a "political force majeure," a step normally taken to dissolve business deals after coups and similar unrest. Dabhol's board has also authorized it to terminate the contract.

The Indian government's role is likely to be key. Both Enron and Maharashtra would like to see the Dabhol power plant sell excess power to other states.

But Indian law prevents such arrangements. The central government has so far resisted calls for it to let Dabhol sell power to other states, through the state-owned National Thermal Power Corp.

Prabhu said the issue really hinged around Dabhol finding any takers for its power.

"If there are willing buyers we will get around this situation," Prabhu said. "We'll definitely facilitate that as long as there is a willing buyer.

Enron talks in India start this week
State looks at Dabhol deal with Enron

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