Despite the appointment of an arbitrator by the Indian government and having invoked guarantees by national government and the state, US energy giant Enron seems no closer to resolving its pricing and payments dispute with the Maharashtra state electricity utility. As a result it has made the preliminary moves necessary towards ending its involvement in the Dabhol site, the world’s largest natural gas plant. Government officials now say that they cannot afford the electricity that Enron is generating from a naptha plant at the site (11 to 15 cents per kWh) compared to 4 cents for the older gas and coal plants.
Maharashtra state Electricity Board had paid it’s March bill to Enron’s subsidiary Dabhol Power a day after Enron said it might stop selling power to the utility. But it still owes 2.26 billion rupees for purchases in December and January. Enron had mobilised its threat by giving the Dabhol md permission to seek termination of the contract at any time.
The move has been seen as a first step by Enron in bailing out of India altogether following huge problems with its almost complete $2.9 billion power project in Dabhol and a bitter struggle with the Maharashtra utility over pricing and unpaid bills.
But the huge project has proved extremely unpopular and expensive. The 740 MW first phase of the project started operating in May 1999 and later this year the second phase will come on line, tripling output to 2.2 GW. This has forced both sides to toughen their positions, with the state finance minister openly stating his rejection of the deal with Enron. By next year the amount owed by the state electricity board will more than quadruple to over $1 billion a year under the 20 year contract.
Enron is not alone. Repeated litigation and delays in gaining government approvals have forced many international companies to move out of India altogether or move close to doing so; these include EDF, Daewoo, PowerGen and National Power. Each such event has reinforced the international community’s conviction that India, already a very low ranking recipient of foreign investment, is not a good place to invest.
