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Thursday, 21 December, 2000, 18:17 GMT
India casts doubt on Enron project
Electricity cables
The state government says the power price is too high
By Sanjeev Srivastava in Bombay

The government in the western Indian state of Maharashtra has said it is to review the second phase of a major power project by the US energy giant Enron.

The plant is on south of Bombay
According to the state chief minister, Vilasrao Deshmukh, the decision has been taken because the price of power supplied to the state electricity board by Enron is "too high".

The decision is likely to develop into a major controversy as foreign investors have already shown signs of impatience with the slow pace of infrastructure reform in India.

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.

Large scale

The $3.5bn Enron power project is perhaps the largest foreign investment project in India.

It is also one of the largest gas-based independent power projects in the world and has been set up by an Enron subsidiary, Dabhol Power Co, at the port of Dabhol , about 200 km south of Bombay.

The Indian subsidiary is 65% owned by Enron.

Its first phase of 740 Megawatts has been operational for more than six months and the second 1,444 Megawatt phase is to be commissioned by the middle of next year.


At the time it was signed in 1993 opposition parties and several NGOs opposed the project as a "sell out" to the state's interests and even alleged kickbacks in the deal.

But the project got the go-ahead despite opposition.

The contract with Enron was renegotiated after the rightwing Shiv Sena-BJP alliance came to power in Maharashtra in 1995.

The state chief minister now wants the project to be reviewed again - saying Enron is selling power to the state electricity board at almost eight Rupees per unit while Indian power producers are selling at the rate of about two Rupees per unit.

However, a spokesperson for Enron told the BBC that the average price of power per unit sold to the state government in the last year came to five Rupees and the cost will come down further once the Dabhol Power Co becomes a fully gas-based plant.

Scrapping the project will also not be easy.

Not only will it send the wrong signal to potential foreign investors, but the Indian Government may also end up paying huge sums of money because of the complex web of contract guarantees agreed with Enron.

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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
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