Showdown looming over Enron project

The state electricity board is scaling down demand

By Sanjeev Srivastava in Bombay

A showdown is looming between the Maharashtra authorities and the US energy giant Enron over a major power project.

The state electricity board is scaling down demand for power produced by the Dabhol Power Corporation, an Enron subsidiary, on the grounds that it is "too expensive".

But Enron officials are talking about invoking the letter of credit and the state government guarantee in order to recover its dues from the Maharashtra state electricity board.

Lack of funds

The board has not paid Enron's bills since October 2000 and the arrears now total 42.2 billion rupees ($91.7m).

A meeting of the financial institutions who lent money to the Dabhol project is taking place in New York later this week to decide whether the letter of credit and the guarantee and counter-guarantee be cashed.

State government

The chief secretary of the Maharashtra government , Arun Bongirwar, told the BBC that the government had directed the state electricity board to settle the issue with Enron "at the earliest".

State electricity board officials apparently just don't have the money to do so.

A request for an additional 13bn rupees per month has already been rejected by the state government.

Power from Enron - at an average price of 4.80 rupees per unit last year - which is the most expensive for the state electricity board. MSEB gets power from other suppliers at an average rate of about two rupees per unit.

Set up 200 kms south of Bombay , the $3.5bn Enron power project is the largest foreign investment project in India.

It is also the only one of the so-called eight "fast track power projects" given a go-ahead by the Indian Government in early and mid-1990s which got off the ground and actually became operational.