Indian agency enters Enron dispute

By CNN's Alex Frew McMillan in Hong Kong

MUMBAI, India -- Enron Chairman Kenneth Lay has left India without a deal to shore up its Dabhol Power Co. subsidiary.

But an Indian agency is now considering buying power from the project, keeping Enron in India and avoiding a major embarrassment for the Indian government.

India's power ministry has told its Power Trading Corp. (PTC) to look into purchasing the $3 billion Dabhol power plant's excess.

A six-month feud

Enron has been feuding with its partner, an Indian state, for more than six months.

Maharashtra state, which includes India's business capital, Mumbai, has defaulted on $48 million in payments to Dabhol. It also says it can't afford the electricity.

Houston-based Enron has been threatening to pull out of its 65 percent stake in the project. Its investment is the largest in India by an overseas company.

Both sides now say it is up to the Indian government to step in to solve the battle.

Lay looking to keep project alive

Lay left saying that Enron still wants to rescue the project.

"I did not want to leave the country this time without reaffirming my interest in, and support for, India," Lay said, in a statement on his visit. "I hope that we will be able to find a resolution to this problem."

Lay met with officials from Maharashtra on Tuesday. The state's electricity board owns 15 percent of the project and contracted to buy all its power.

A second phase of the plant has been mothballed after Enron and Maharashtra slapped each other with notices to cancel their power-purchase arrangement.

In an hour-long meeting, Maharashtra's chief minister, Vilasrao Deshmukh, told Lay that the state can't absorb the second phase of the project. He also demanded a reduction in the cost of power.

It and Enron need the Indian government's help finding other customers.

"It was amplified that it is absolutely essential for the GOI [Government of India] to step in," a spokesman for Dabhol said. "Everyone understood that need."

PTC looking for customers

Lay also met this week with India's power minister, Suresh Prabhu, and finance minister, Yashwant Sinha, as well as the project's bankers.

He said his discussions with Prabhu were "constructive" and he was optimistic about reaching a solution.

The Indian government has been distracted preparing for its upcoming summit with neighbor and Pakistan. But the ball is now firmly in its court.

The Power Trading Corp., an agency of the power ministry that sells power through India, is negotiating to buy the power.

"Nobody is keen to see this project shelved," a PTC spokesman said.

The agency would then sell it to other Indian states. But it would also need the power to be substantially cheaper before it finds any takers.

It is looking for customers and establishing the price it can pay.

The Indian government originally lauded the Indian electricity deregulation. It is worried about the chilling effect Enron's problems may have on investment.

India also faces an acute power shortage over the next decade.

Dabhol's President and CEO, Neil McGregor, quit on Tuesday after his contract ended. He said he stayed on for Lay's trip.

Dabhol Managing Director Wade Cline is taking on his duties.