India state rejects plan to resume idle Enron unit
Monday September 2, 1:50 pm ET
By Atul Prakash
(Recasts with government's rejection of proposal)
BOMBAY, Sept 2 (Reuters) - India's western Maharashtra state said on Monday a
proposal to resume buying power at a new rate from bankrupt Enron Corp's (Other
OTC:ENRNQ.PK - News) Indian unit was not acceptable, dashing hopes of an early
restart for the idle unit.
Chief Minister Vilasrao Deshmukh
said the government will have
further talks with term lender
Industrial Development Bank of
India (Bombay:IDBI.BO - News; IDBI)
to decide on the rate at which the
state will buy power from the unit
which has been shut for over a
year.
"We discussed IDBI's proposal and
the committee felt that the terms
were not acceptable," he told
reporters after a meeting of the
state government committee.
About 30 financial institutions led by
IDBI lent $1.9 billion to the project.
Under IDBI's formula, state utility Maharashtra State Electricity Board (MSEB), should
pay 2.86 rupees per unit for the power produced by Dabhol Power Company (DPC),
Deshmukh said.
DPC, in which Enron holds 65 percent equity, shut down its plant in May 2001 because
MSEB, its nearly bankrupt sole customer, stopped buying power, saying it was too
costly.
GE, which made the plant's turbines, and San Francisco-based contractor Bechtel
Corp, which built the plant, each own 10 percent. The remaining 15 percent is held by
MSEB.
Officials say the $2.9 billion power plant has deteriorated during the long shutdown.
The plant, once showcased as an Indian success story in attracting foreign investment,
is now controlled by DPC's lenders.
STATE OFFER REJECTED
In July, Maharashtra, one of India's most industrialised states and home to the financial
capital of Bombay, allowed MSEB to pay 2.25 rupees (4.64 cents) a unit for Dabhol's
power after it faced a shortfall of more than 1,000 MW of power.
But the offer was turned down by Indian lenders who said it was too low.
They said they needed 2.86 rupees per unit to make the plant viable, comprising 2.22
rupees per unit charge for naphtha, a key input, and another 0.64 rupees a unit for
fixed costs.
The 740 MW first stage of the plant began operating in 1999. The 1,444 MW second
phase was nearly complete when construction halted after the MSEB fell $240 million
behind in payments.
MSEB, which posted losses of more than three billion rupees ($61.9 million) in the year
to March, is reluctant to pay more.
"We have already said that we will incur losses at a rate of 2.25 rupees. Now the losses
would widen at the 2.86 rate," a senior MSEB official said.
"It's up to the state government whether it wants us to buy at this rate," he said. "If the
government goes ahead with a new pricing formula, it will have to find ways to
compensate our losses."
India's new power minister, Anant Geete, said last week the government was keen to
restart the Dabhol unit quickly.
"We are discussing the matter with the state government and hope to see some
solution in the next two months," he told reporters in New Delhi.
(With reporting by Jayashree Lengade) ($1 = 48.47 Indian rupees)
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