'Constructive' talks in Enron dispute

The plant is India's biggest direct foreign investment

By Sanjeev Srivastava in Bombay

The Indian subsidiary of US-based Enron corporation has met with officials from the state of Maharashtra to try to resolve a long-running power dispute.

The two sides - the Dabhol Power Corporation (DPC) and the Maharashtra State Government renegotiation panel - say the meeting was held in a "cordial and constructive" atmosphere.

Madhav Godbole: Understand each other better

Although the next date of the meeting has not been decided, panel chairman Madhav Godbole told journalists that the talks had allowed "both sides to understand and appreciate each other's concerns better".

The managing director of Enron's Indian operations, K Wade Cline, also described the deliberations as "good".

With the Maharashtra state electricity board issuing a notice to Enron last week scrapping the 1993 power purchase agreement, the fate of the controversial $3bn power project hangs in balance.

The board blamed Enron for not meeting its contractual obligations as listed in the power purchase agreement.

Tariff 'renegotiation'

At the heart of the dispute between the two sides is the tariff charged by the company which Indian authorities say is nearly three times more expensive than that of local power producers.

Enron are blamed for charging too much

The two sides have agreed in principle to discuss and even renegotiate the thorny issue of tariff structure, according to officials who attended the talks.

The two sides are also understood to have agreed to explore the possibility of finding a third party to buy the surplus power generated by the DPC.

Price changes

The third party can only be another power-hungry Indian state - and Enron would have to reach an agreement with them through the federal government in Delhi.

Indian Power Minister Suresh Prabhu is reported to have told officials in Delhi that unless the DPC lowers its tariff, the government could not expect other states to buy power from Enron - given that the rate was too expensive for the country's most prosperous state, Maharashtra.

In another development, SK Chakravarty, managing director of The Industrial Development Bank of India - one of the principal Indian lenders to the Enron project - told journalists that he has been given to understand by DPC officials that they were willing to cut their tariff by 10%.

This would happen once the second phase of the power project gets commissioned in June.

The cost per unit will drop by another 10% once the plant switches to liquefied natural gas as fuel later this year, according to Mr Chakravarty.