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Tuesday, 6 November, 2001, 14:34 GMT
Enron set to leave India
Dabhol plant
Enron is awaiting a response from to its proposal
By Sanjeev Srivastava in Bombay

The US energy giant Enron is set to exit from India's biggest foreign investment project in the western state of Maharashtra.

Enron's Indian subsidiary, Dabhol Power Company, has served a notice to transfer its assets to the Maharashtra state electricity board (MSEB).

Enron had signed a power purchase agreement with power utility MSEB eight years ago, under which a $3bn 2,182 Megawatt power plant was to be commissioned.

But the project ran into trouble nearly two years ago with the Indian authorities beginning to delay payments saying Enron's power tariff was too high.

End of the road

The notice served by Enron to MSEB formally sets in motion the process of calculating Dabhol's assets.

This is linked to the termination of the power purchase agreement signed between the Dabhol Power Company and MSEB.

India reading by candlelight
The project aimed to address India's power shortage
The notice also clears the way for a final termination notice to the Indian authorities, according to an Enron spokesman.

Enron can serve a final termination notice only after 19 November when a six-month deadline for resolving their payment dispute with MSEB ends.

Negotiating

Enron officials still maintain that they would prefer settling the dispute amicably through a negotiated purchase of their stake by the Indian Government or any other Indian financial institution.

Though Enron officials refuse to talk about the price they would be willing to sell their stake at, analysts say the US company is demanding about one billion dollars for its investments in India.

So far it has only got offers of about half that amount from Indian companies and financial institutions, but Enron is unwilling to sell its stake at a price lower than the cost.

In case no satisfactory offer comes from the Indian side, Enron will have little option but to go for international arbitration as their investments in the country were guaranteed by the Indian Government.

But arbitration proceedings can be a long and messy affair.

Analysts say both India and Enron have little to gain from a protracted legal battle.

The best way out could be a compromise by which Enron gets less than what it is demanding and more than what the Indians are presently offering.

See also:

24 Aug 01 | Business
Energy giant piles pressure on India
25 May 01 | Business
India's power crisis escalates
11 Jul 01 | South Asia
Energy giant appeals to India
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