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Hopes alive for Enron India project, hurdles remain

A new owner could revive Enron Corp's idle $2.9-billion power plant in India, but the government must ensure the project will not face the same problems it did while under control of the now bankrupt US company, analysts say.

Enron must also secure a good price for its stake in the beleaguered project, mired in controversy long before the dramatic collapse of the Houston-based company.

Any subsequent owner will be looking to the government for new laws, tax breaks and lower interest rates which will help it cut the costs of its power, which was priced twice as high as from other sources.

Lenders, who have loaned nearly $1.9 billion to the project, had eight expressions of interest on the table by a Thursday deadline to take over Dabhol Power Co, which is 65-per cent owned by Enron, a source told Reuters.

The bids by Indian and foreign firms to buy the stake held by foreign investors in Dabhol marks the first step forward.

"I think we can have a good deal here," said R K Pachauri, an energy expert and former member of a government committee set up to negotiate with Enron in a dispute with a local utility.

It also raises hopes for other Indian power projects, which are struggling to access funds from financial institutions who have burnt their fingers with Dabhol, once showcased as the biggest foreign direct investment in India.

"First, the power sector was the flavour of the month for the institutions. Now they have a herd mentality and they are not looking at even the viable projects," said Harry Dhaul, director general of the Independent Power Producers Association of India.

The nearly complete 2,144-megawatt plant near Mumbai was shut down in June 2001 after a dispute with Maharashtra State Electricity Board that had contracted to buy all of its power.

The utility holds a 15-per cent stake in the project, while General Electric Co and Bechtel Corp hold 10 per cent each in Dabhol, apart from Enron's 65 per cent.

The potential bidders include British Gas, Royal Dutch/Shell, European oil major TotalFinaElf and French utility Gaz de France, all of whom have said they are interested in the project and the adjoining facility for importing liquefied natural gas.

Indian bidders include private power utilities BSES Ltd, Tata Power Company, state-run Gas Authority of India Ltd, the country's largest natural gas distributor, and Reliance.

FUNDAMENTAL PROBLEM

Analysts said the government had still not finalised a package to ensure that DPC, after its revival, is not plagued by the same problems which led to its closure: the high price of power which no buyer in India is willing to pay.

"Will somebody tell me who is going to buy Dabhol's power?" asked Dhaul.

The Maharashtra State Electricity Board found the power at least twice as expensive as that available from other sources.

Power ministry officials say they have recommended a series of steps to the finance ministry to make Dabhol's power cheaper.

These include sales tax relief and concessional import of liquefied natural gas that will fire the plant. That apart, lenders are also working at bringing down the interest charged on the loans.

Media reports suggest that some of the bidders have sought control over power distribution in some lucrative areas near Mumbai in Maharashtra, India's most industrialised state.

"We are working on a package which will offer substantial concessions to buyers and subsequently lower the cost of power," said P P Vora, chief of the Industrial Development Bank of India, lead creditor to the project.

He added lenders were looking for an assurance from the Maharashtra government that the power generated will be bought.

"We are trying to convince the government of Maharashtra that it needs the power that is being generated, if not now then five years later. Also we will try and negotiate for the power to be sold outside the state."

Pachauri said he expected these issues to be resolved. "Whoever buys the plant will have reasonable freedom to sell power. I think we are starting on a very different plane. I don't see a major problem in selling power really."

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