Enron preparing its exit from India

By CNN's Suhasini Haidar

NEW DELHI, India (CNN) -- U.S. energy group Enron is preparing its exit from India after a power deal in Maharashtra turned sour, despite a Supreme Court order freezing all actions until a hearing on the matter in January 2002.

The move comes as Houston-based Enron confirms discussions are taking place in the U.S. about a possible merger or takeover by its Texas rival, Dynegy.

On Monday, the Dabhol Power Company in Mumbai, an Enron subsidiary that supplied power to the Indian state of Maharashtra until their agreement collapsed some eight months ago, served an asset transfer notice to the Maharashtra State Electricity Board.

It is the next step in the termination of that agreement.

The notice will allow Enron to appoint an external valuer for the eventual sale of all its assets, including an LNG (liquefied natural gas) plant.

"This action follows more than two years of late payments and defaults in payments from the MSEB and a repudiation of the Power Purchase Agreement (between us)," Enron said a statement.

Final termination notice to follow

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Soon to follow, says Enron, is a final termination notice. The company decided to scupper its 65 percent interest in Dabhol and the $3 billion Dabhol power plant near Mumbai, after finding it impossible to get paid for power.

In the U.S., Enron confirmed Thursday it is talking to its power trading rival Dynegy about a possible merger.

That comes as Enron's stock and credit ratings plunge in the U.S., following the decision by the Securities and Exchange Commission to investigate deals related to former chief financial officer Andrew Fastow, who left the company last month.

In Mumbai, an Enron spokesman said this week the company was wrapping up its involvement there.

"It is now completely clear that no part of Enron will stay on in India," said Jimmy Mogul, Enron's spokesman. "We are running with only the minimal level of staff required to wrap up things here."

The Maharashtra State Electricity Board has objected to Enron taking any action, even issuing the notice, while a Supreme Court order has ordered a freeze on all actions until a hearing on the matter in January 2002.

Electricity Board maintains tariffs were too high

"Enron should desist from taking any steps which would alter the status quo ordered by the Supreme Court," an MSEB official said earlier this week.

The MSEB maintains that Enron's power tariffs were too high, and has refused to accept the agreement signed by the government of Maharashtra eight years ago.

With no visible new entrants in the Indian power sector, Enron's pullout may mean a vacuum in power generation.

According to the U.S. Energy Information Agency, India has a current shortfall of roughly 13,000 megawatts of electricity.

With most State-run electricity boards running into losses, there will now be an even greater demand for private players in the power sector.

Industry observers say some sort of agreement must be reached between the MSEB and Enron if India's government is interested in building investor confidence for future power projects.

Prime Minister A.B. Vajpayee on Friday visits the U.S., where many hope he will address concerns prospective investors have in the wake of the collapse of the Enron agreement.

Enron's unhappy foray is the largest American private investment in India.