Enron files for arbitration with India

Critics have portrayed Enron as a profiteering multinational charging Indians too much for power

By CNN's Alex Frew McMillan
in Hong Kong

MUMBAI, India (CNN) -- Energy giant Enron has filed an arbitration claim against the Indian government in its bitter dispute over Dabhol Power Co.

It is also playing hardball with the Indian government, refusing to accept anything but a full buyout of its stake.

The Indian government has so far refused to budge and has not replied to Enron's request to be bought out.

Houston-based Enron is the biggest overseas investor in the country, thanks to its 65 percent stake in the $2.9 billion Dabhol power plant.

But the project has fallen apart. Enron Chairman and CEO Kenneth Lay says the company "wants out" of the project.

The power station's only customer, the Indian state of Maharashtra, owes more than $48 million in unpaid bills and has stopped taking power.

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Maharashtra, which includes India's chief business center, Mumbai, says that the power is too expensive and that the state cannot absorb it all.

Enron has been negotiating with the Indian government to develop an exit strategy. It has submitted a formal proposal outlining options.

Talks with Maharashtra didn't go anywhere. The discussions with India have so far also failed to yield fruit, though the government has been making conciliatory noises.

Meantime, Enron is pressing for back payment of its bills. A spokesman for Enron in India says the company sent an arbitration notice for the December bill to the government on Tuesday.

Looking for 100 percent of investment

India has guaranteed Maharashtra's payments. With the state refusing to pay, Enron first tried two days of conciliatory talks. Now that those have failed, Enron has filed for arbitration in London.

It is heading down the same route for the January bill. The December payment is for around $22 million (1.02 billion rupee).

India is refusing to honor the guarantee, Enron stated, at the advice of the local government.

To expedite an exit from the project, Enron has said it will give up any hope of future profits. But it insists that the Indian government pay 100 percent of the cost of its investment.

Construction company Bechtel and conglomerate General Electric each also own 10 percent of Dabhol and want the same terms. Maharashtra owns 15 percent of the project through its power board.

For now, the Dabhol plant stands idle. A second phase, which was near completion, has been put on hold.

Enron has said it will stick around to complete the project as part of a buyout. But that would cost another $230 million.

GE's problems with its Dabhol stake have prompted it to rethink its investments in India. It is routing funding due for India to other developing markets, the Times of India reports.

The Dabhol fiasco has had a chilling effect on investment in India. The country can ill afford the dispute, at a time it is losing a competition with China for overseas money.

India also faces an acute power shortage over the next 10 years.