Enron blasts India as unworkable

By Alex Frew McMillan CNN Hong Kong

MUMBAI, India (CNN) -- Enron Corp. estimates the total tab for its failed power-plant project in India is $5 billion.

That's the bill that India and Enron's customer, an Indian state, would owe if the Dabhol project goes to arbitration, the company told India's prime minister this week.

The Houston-based energy giant has also slammed India, where it says government contracts are made to be broken.

Enron Chairman and CEO Kenneth Lay sent a letter, dated September 14, to Indian Prime Minister Atal Behari Vajpayee outlining what he feels are impossible working conditions for overseas companies dealing with India.

"Our experience would indicate that contracts with governmental authorities in India really do not seem to represent anything more than a starting point for a later renegotiation, and are broken by Indian governmental authorities whenever and as often as they prove inconvenient or burdensome," Lay stated.

Judicial probe to look into origins of deal

Indian authorities responded by ordering on Wednesday a judicial probe into the origins and legalities of the Dabhol project.

It will examine whether the original terms and licenses of the project were valid and take another look at what Enron originally submitted on the deal.

Enron called that decision "unfortunate" and "improper." India shouldn't use its powers to pressure Enron, the company stated.

The probe "will serve no purpose other than to further delay the resolution of outstanding issues," the company claimed.

Largest overseas investor wants out

Enron is the largest overseas investor in India. But it now wants out of its 65 percent stake in the $3 billion Dabhol Power Co.

The power station was originally championed as a symbol of privatization and of India's future. It now stands idle. A second phase of the plant was near completion but is now on hold, indefinitely.


Critics say Enron struck a deal that hurts Indian people by putting too high a price on the company's power and its profits

Critics say the fiasco around Dabhol encapsulates the dangers of doing business in India. Others claim Enron is a profiteering multinational that struck an unworkable deal.

The power plant's only customer, the state of Maharashtra, has backed out of its legal agreement to buy all the power. Maharashtra, which includes Indian's main commercial center, Mumbai, says it can't absorb the electricity and faults it as far too expensive.

The Indian government has also reneged on an agreement to guarantee the state's bills. Enron is already pressing for those to be paid in arbitration in London, after talks in India failed.

Lay hinted that Enron's experience will cause the country to lose out on overseas investment. It is already losing that race with China.

"Contract-breaking by Indian governmental authorities has become a tactical device to be used wherever and as often as commercial and political circumstances may dictate," he wrote.

He added that "no one should complain later if that causes severe prejudices to India's attempts to solicit foreign investment or capital."

Sides still far apart

The company submitted various proposals for dealing with Dabhol to India on August 2, including a buyout. But it has been frustrated by the lack of response.

"Little progress has so far been made," Enron noted in a statement Tuesday on the talks.

Bank and government officials have said they want a quick end to the debacle. But the sides have "no proximity to reaching a fair and reasonable solution," Enron feels.

The energy giant is willing to go to international arbitration for the whole project if necessary, it said. But it is looking for a buyout that's acceptable.

In his letter, Lay noted that the company and its partners have proposed a price of around $1.2 billion, with the government also taking on the project's overseas debt of around $1.1 billion.

That $2.3 billion total cost is less than half the sum that Enron and its partners are entitled to press for.

"This amount strikes me as exceptionally reasonable when compared to the size of our legal claim," Lay wrote in the letter.

An unacceptable deal

The company says it is basically looking to get out "at cost," giving up any future profits.

Construction company Bechtel and conglomerate General Electric each own 10 percent of the Dabhol project. They are also searching for an exit from their investments. Maharashtra owns the remaining 15 percent.

Dabhol's Indian lenders, which hold about two-thirds of its debt, have suggested the overseas owners should accept $400 million for their equity stake in Dabhol.

Enron called that deal "unacceptable, since it constitutes just one-third of [the] costs incurred by Enron, GE and Bechtel."

Enron has offered to stick around to complete Dabhol, if India will foot the bill. But Lay noted that the project continues to wrack up costs while the sides fight.

"The cost to complete the project has already increased by several hundred million dollars as a result of the suspension of construction," he wrote. "The project incurs additional interest costs alone of approximately $500,000 for each day of delay."

India's Tata group, the country's biggest conglomerate, has again expressed interest in buying Enron's share of Dabhol.

Its Tata Power Co. subsidiary has submitted a proposal to the Indian government and says it is now waiting for a formal offer from Enron. Managing director Adi Engineer has said Dabhol is a "national treasure."

But it hasn't yet said what the treasure is worth. Ratan Tata, the head of the business empire, has promised shareholders that the group will only step in if the price makes sense.