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May 17, 2001
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India tells Enron to renegotiate Dabhol contract

India has told US energy company Enron Corp that it should renegotiate its contentious power purchase agreement with the Maharashtra state government, Finance Minister Yashwant Sinha said on Thursday.

"We have suggested to Enron that they should seriously renegotiate the power purchase agreement with the government of Maharashtra, because there are certain elements in that power purchase agreement which can undergo a change," Sinha said at a business luncheon in Hong Kong on Thursday.

Enron and India have been sparring for six months over payment defaults by the Maharashtra State Electricity Board for power purchased from Enron's Indian unit, Dabhol Power Company.

A Dabhol spokesman on Thursday declined to comment on Sinha's statement. He reiterated the company's previously stated position that it is ready for a dialogue to resolve all issues, but a renegotiation of the contract is not on offer.

DPC has already held a meeting with a Maharashtra government committee and is slated to meet them again on May 23.

"Since the purpose of the meeting is only to hear out the committee and understand their thoughts, we will not present any proposal," Dabhol said in a statement on May 3.

DPC is building the world's largest natural gas fired power plant on India's western coast. The 740 megawatt first phase of the facility began operating in 1999. The plant's generating capacity will triple to 2,184 MW when phase two is completed next month.

MSEB agreed in 1995 to buy all the power produced by the plant, but now says the power is too expensive, and is refusing to take the additional second-phase capacity. Its change of mind has sparked concern over the fate of the project.

DPC has already issued a notice of arbitration, and last month its board authorised management to terminate the contract. A vote on Thursday by lenders to the project is expected to endorse the board's decision, a source close to the matter told Reuters.

Sinha said he had no comment on the vote. He also declined to reveal the federal government's opinion of MSEB's refusal to buy the second-phase power.

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