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Lending rate-cut may lower tariff, says Enron

The Indian unit of US energy giant Enron Corp said that a proposed cut in lending rates by a key financial institution will help it to reduce the cost of power it sells to the Maharashtra government.

"We fully expect to pass on the resulting cost reductions to the Maharashtra State Electricity Board," a spokesman for Dabhol Power Company, which is 65 per cent owned by Enron, said.

India's leading financial institution Industrial Development Bank of India recently agreed to lower the rates on its loans to the project to 16.5 per cent from 21.0 per cent -- but has not set a date for its implementation.

Seventy per cent of the project's $1.9 billion cost is being funded through debt. It was not immediately clear what was IDBI's commitment.

The project, which was reinstated five years ago after much political wrangling, came under the spotlight recently when a key ally of the ruling state government demanded a complete review.

It said the project produces costly power putting burden on the state's electricity board which is the sole buyer.

"We recognise that there are immediate concerns about the tariff and are pleased that the IDBI has accepted our proposal to lower the loan rates," the spokesman said.

Phase one of the 2,184-mw project is up and running with the second phase expected to be ready next year.

The investment is the largest by a foreign power company in India since liberalisation began in 1992.

Enron says the tariff would become cheaper next year when it switches to cheaper liquefied natural gas fuel from naphtha.

"In fact, it has long been our endeavour with various stake holders and officials of governments to help resolve these issues in way that are in the best interests of consumers and investors," the spokesman added.

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