Dabhol idle as state stops buying from Enron

In this story: Talks break apart Both sides keen on government help Rejected check Meeting ended without any proposals RELATED STORIES

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India - The Indian state feuding with Enron Corp. has stopped taking power from the Dabhol power plant.

As Dabhol's only customer, that leaves the plant idle. It had stopped generating Wednesday, though the plant was staffed as normal.

The electricity board of Maharashtra state sent a letter to Enron saying it would not buy any more power as of noon Tuesday.

"We had no choice but to stop buying power from yesterday 12 noon, and we did that," Maharashtra State Electricity Board chairman Vinay Bansal told CNN.

The board had offered to keep paying for power under protest, he said. But Enron returned its payments. That forced MSEB to stop buying power at all until the legal wrangling is resolved, he said.

"Through negotiations we shall also try to resolve it," Bansal said. "The plant is there. We would like it to be put to productive use."

Talks break apart

Talks aimed at resolving the battle over the $3 billion Dabhol Power Co. development also ended without progress Tuesday. The Indian government has so far refused to step in to solve the problem.

Indian power minister Suresh Prabhu said the government's National Thermal Power Corp. would not buy the power to sell to other states.

"How can central utilities buy power from [Dabhol] and sell it elsewhere when it is not possible for the Maharashtra government to buy it," Prabhu said, according to the Economic Times.

Both sides keen on government help

Both Enron and the state, which includes India's business capital, Mumbai, have asked the Indian government to step in to resolve the dispute.

Houston-based Enron owns 65 percent of the Dabhol project, making it the biggest investment in India by a non-Indian company.

Its partner, the electricity board, owns 15 percent. MSEB owes $48 million for past power bills, but claims the power is too expensive and says it cannot absorb it all.

A second phase of the 2,184 megawatt plant, which would be India's biggest, was slated to come online June 7.

But that deadline will be pushed back, and the future of the project is in doubt.

How long the plant is idle is a matter of guesswork, Bansal said.

"That is dependent on negotiations and further developments and court orders, any of which may proceed," he said.

Rejected check

Both Maharashtra and Enron have slapped each other with notices to pull out of their power-purchase agreement.

Maharashtra says it is nullifying the contract because Dabhol has failed to live up to specifications, particularly about the plant's ramp-up speed.

Dabhol calls that a smokescreen and is seeing out a six-month cooling off period before it can issue a final termination notice.

Late last week, Maharashtra also sent Dabhol a check for $29 million (1.4 billion rupees) for April's power bill. Dabhol sent the money back, asking the state to clarify its position.

"The MSEB cannot have it both ways," Enron India managing director K. Wade Cline wrote in a letter, by trying to nullify the contract and still accepting power.

MSEB then tried to deposit the money in Dabhol's bank account, under protest. But the bank returned the money in two hours. MSEB refuses to pay without lodging its protest and has now decided not to take any more power.

Meeting ended without any proposals

Cline, who attended Tuesday's talks aimed at recasting the state's deal, said it was a "good meeting." But the talks broke without any proposals and without a date to reconvene.

Bansal said the board still hopes to resolve the dispute by negotiating lower power costs. Dabhol says it sees no reason to revisit the power-purchase agreement.

India faces an acute power shortage over the next decade. But its state electricity boards are essentially bankrupt and do not have the money to build plants on their own.

Experts say the deadlock over the Dabhol plant will put overseas companies off investing in India. Four have already pulled out.

India and China have the fastest-growing economies in Asia. But India's overseas investment lags far behind China's. Companies that are keen to open operations there are often put off by the vast amount of red tape involved.

Dabhol rejects Indian state's payment
India may step in as state ends Enron deal
India refuses to enter dispute
Enron mulls damages as talks collapse

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.