Dabhol rejects Indian state's payment

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India (CNN) -- Enron subsidiary Dabhol Power Co. has rejected a $29 million payment from its Indian partner.

The company has been feuding with the Maharashtra State Electricity Board for months over the $3 billion Dabhol power plant near Mumbai. The MSEB owes the company $48 million in unpaid bills.

MSEB sent the company a check for 1.4 billion rupees late last week, as payment for April's power. But Dabhol, which is 65 percent owned by Houston-based power giant Enron Corp., returned the money in a letter sent on Friday.

Enron India managing director K. Wade Cline signed the letter. It explained Dabhol was not accepting payments from the MSEB, which owns 15 percent of the power project, until the board clarifies its position.

"The MSEB cannot have it both ways," the letter stated. Cline asked the MSEB to set out its position in writing to avoid any misunderstanding.

Tit for tat terminations

MSEB slapped Dabhol with a termination notice last Wednesday. The state power board claimed it was nullifying its power-purchase agreement because Dabhol had not lived up to contractual obligations.

Dabhol contests that. But the termination was a tit-for-tat step in a nasty feud. Dabhol had already issued its own preliminary termination notice to the electricity board.

It has also invoked political force majeure, a step typically used to cancel contracts during coups or wars. Enron has faulted both the state and Indian governments for not living up to their obligations.

The future of the 2,200 megawatt plant is now in doubt. A second phase for the plant, which serves westerly Maharashtra, including Mumbai, is slated to come online next month.

A committee set up to renegotiate the state's contract with Dabhol meets again on Tuesday, May 29. But Enron says it does not want to revisit its power-purchase agreement. Maharashtra claims its power board is locked into paying too much for more power than it needs.

There is mounting pressure on the Indian government to step in. It had refused to act until the state backed out of its deal with Enron, which it has now done.

India faces a huge power shortage over the next decade. But its local electricity boards are ill-equipped and ill-funded to provide power, particularly without outside help.

Enron's investment is the largest in India by a non-Indian company. After the pullout of four other power companies, the breakdown of the Dabhol development is an embarrassing setback. The government is trying to boost India's lackluster direct investment by overseas companies.

India may step in as state ends Enron deal

Enron
Mahrashtra State Electricity Board

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