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Sunday, 20 May, 2001, 15:04 GMT 16:04 UK
Enron warns India
Electricity cables
The state government says the power price is too high
US energy giant Enron has taken a major step towards abandoning its controversial power project in India.

The $3.5bn gas-fired power plant is thought to be the largest foreign investment project in India.

Dabhol Power Company, Enron's 65% owned subsidiary, has issued a preliminary notice to terminate its contract to sell power to India's Maharashtra state.

If the contract is indeed terminated, India will be forced to pay substantial damages to Enron and other foreign lenders.

It will also serve as a deterrent to other foreign investors wanting to avoid such political tangles.

Slow pace of reforms

"After months of working with the Maharashtra State Electricity Board and the government to find solutions, it is apparent that they are unwilling to honour their offtake commitments for the entire power station," said a spokesman from Dabhol.

The moves comes after months of wrangling between Dabhol and state authorities over payment defaults by the state utility.

But the state authorities were quick to criticise the warning as "improper".

Enron was amongst the eight power projects - often referred to as "fast track" projects - cleared by the Indian government in the first flush of economic reforms in the early 1990s.

Four of those projects are already a non-starter with Cogentrix of US, China Light and Power, a French company and Daewoo of South Korea pulling out because of what they see as the slow pace of reforms.

Final chance

Following the warning, there is a six month cooling period during which the parties will try and resolve the dispute.

Dabhol indicated that it is still open to "constructive discussion on solutions" in the statement, but warned that a lasting and feasible solution was only possible if the parties contractually bound to purchase the power were willing to either buy it themselves or find other creditworthy buyers.

If no resolution is found, then the contract will be terminated.

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See also:

10 Dec 99 | South Asia
US firm quits power project
15 Sep 99 | South Asia
India boasts fast track economy
22 Oct 99 | South Asia
Analysis: Upping the pace of reform
06 Feb 01 | South Asia
Enron cashes in India power bill
12 Jan 01 | South Asia
Protest against India power project
08 Jan 01 | South Asia
Showdown looming over Enron project
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