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Maharashtra says it has no money to pay Enron for power

The Maharashtra government said on Monday it had no money to pay for electricity produced by US giant Enron Power Corp at its power station.

The state's electricity board, MSEB, has defaulted on payments worth Rs 2.6 billion ($61 million) for October and November, while a bill of Rs 1.6 billion for December becomes due later this month.

"The MSEB does not have money to pay Enron and we do not have money to bail them out," state energy minister Padamsinh Patil said in Bombay.

He said the state would set up a panel in the next two or three days to review and renegotiate the deal with Enron.

An Enron spokesman said "talks are on" to resolve the situation.

"We have informed everybody of the situation and are hoping it will be resolved," the spokesman said.

The two-phase, $3-billion project for a 2,164-megawatt power station in the port town of Dabhol was first signed with Enron subsidiary Dabhol Power Co in 1993.

It remains the single largest US investment project in India.

Local newspapers on Monday quoted Enron's India chief K Wade Cline as warning that the company would have to invoke bank guarantees if MSEB did not pay up.

The state government as well as the federal government have given sovereign counter guarantees for payments due to Enron from MSEB.

Cline met with state government officials last week.

"I did not want the Maharashtra government or anybody concerned to be surprised when we invoke the letters of credit and recover part of the money due to us," Cline told a newspaper.

"We will follow it up by invoking the state counter guarantee and then finally the centre's counter guarantee," he said.

Major lenders to the Dabhol project were due to meet in New York on Tuesday to discuss the issue and decide on whether to fund the second part.

"Panic buttons need not be pressed yet, but the situation is very serious," Cline said.

Maharashtra's Congress party-led coalition government has been pushed into a corner over the Enron issue, as its leftist allies have demanded the scrapping of the power purchase agreement with the US giant.

The project is divided into two phases. The first phase, which uses naphtha as fuel began commercial operation in 1999, while construction is ongoing for the natural gas-based second phase.

Reports said that the crisis over payments by MSEB had cast a cloud over the second part of the project.

"If we don't get paid, then our lenders are saying that they won't fund phase-II," Cline told a business daily.

"About 80 per cent of the construction (of phase two) is complete and 95 per cent of the machinery is on site. It would be a major disaster if the project is suspended now," he said.

Maharashtra Chief Minister Vilasrao Deshmukh said the government was being billed almost Rs 8.00 per kilowatt hour for the electricity produced by Enron.

The state's previous government, which renegotiated the project in December 1995, had been told that the cost would be Rs 1.86 per kilowatt hour.

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