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Power Trading Corporation may help end Enron row

The Power Trading Corporation, a central agency, has raised hopes of a solution to a row over US energy giant Enron Corp's Dabhol project by indicating it is willing to become the project's main customer, an industry source said on Thursday.

But PTC has stipulated as a condition that the power plant's tariffs should be lowered, the source told Reuters. PTC wants Dabhol to slash its tariffs to Rs 2.5-2.7 per unit from over Rs 7.0, he added.

PTC was set up two years ago to trade in surplus power. As Dabhol's customer, PTC would gain access to a large capacity of electricity for distribution to India's power-deficient states.

Dabhol would be relieved as it would get a customer who is backed by the central government, instead of a cash-strapped local utility that has defaulted on payments.

Dabhol and Maharashtra State Electricity Board, which had agreed in 1995 to buy its entire output, are locked in a bitter row over payment defaults and high tariffs.

MSEB has reneged on its commitment to buy the output of 1,444 MW from Dabhol's second-phase, citing high rates and has served a notice to terminate its contract with the company. It also owes Dabhol $48 million in unpaid electricity bills.

The fight between Dabhol and MSEB has become a test case for foreign direct investment in India. The $2.9 billion plant is the biggest foreign direct investment in the country and the row has affected India's image among foreign investors.

SOLUTION NEEDED

Dabhol's first phase of 740 MW is up and running, and the second phase of 1,444 MW is 97 per cent complete. Analysts said finding a replacement for MSEB is important as Dabhol would not be able to operate the plant otherwise.

Dabhol, which is 65 per cent owned by Houston-based Enron, has defended its tariff structure and issued its own preliminary notice to terminate the power purchase agreement.

Enron Corp's chairman Dr Kenneth Lay, who visited India this week to discuss the controversy, impressed upon the government the need to solve the problem quickly.

"I think it is in everybody's best interest - the government of India, the government of the US, the investors, the government of Japan - we have many government financial entities involved in this project," he told reporters in New Delhi.

The industry source said PTC's move is part of the federal government's efforts to find a quick solution to the problem.

"They are afraid of the effect it (the controversy) may have on foreign direct investment," the source added.

THE OFFER

PTC's offer was made during recent informal discussions with Dabhol and central government officials and is not a formal proposal.

A Dabhol spokesman in Bombay said: "While a number of potential solutions were considered, it would be inappropriate to discuss any specific proposals."

PTC officials in New Delhi were not available for comment.

But Dabhol is believed to be discussing with lenders ways by which rates can be lowered without hurting the interests of equity shareholders.

The tariff of Dabhol's project is structured to include both the interest cost being borne by the company and the assured return on equity that the government guarantees to founders of power projects.

The central government is also exploring options of finding a buyer for Enron's stake in Dabhol if the US company decides to call it quits.

Though Enron has publicly denied any such move, media reports have speculated in recent days that the Houston-based major will soon walk out of the project.

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