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Enron sees new legal lever in Dabhol dispute

A recent decision by an Indian state regulatory commission could give Enron Corp a new legal lever to keep the panel from interfering in a long-running payment dispute over the $2.9 billion Dabhol power project, the company said Wednesday.

The Maharashtra Electricity Regulatory Commission asserted that it has jurisdiction over the fight between Enron's Dabhol Power Co and the Maharashtra State Electricity Board, the sole customer for the massive, now-idle 740 MW Dabhol power plant.

The Bombay high court is now considering whether MERC has the jurisdiction to intervene in the payment battle which has led Dabhol, 65-per cent owned by Houston-based Enron, to shutter the plant and default on loan payments.

Enron asserts that MERC has no jurisdiction and that the dispute with MSEB is best handled in international arbitration, as its power-buying contract lays out. The fight started when MSEB withheld $48 million in payments because it said Dabhol charges too high a rate for its electricity.

Enron points to the MERC's September 14 decision in which it said it does not have jurisdiction over power purchasing agreements executed before the panel's creation in 1999, unless there are changes in rates or any subsequent alterations. The Dabhol-MSEB deal was inked on December 8, 1993 and amended in 1995.

MERC's entry into the fight is a sign that the board is biased against Dabhol, Enron says.

"The recent reports that MERC may be taking different positions on questions relating to other independent power producers are troubling and we're hoping for a just and equitable resolution," Enron spokesman John Ambler said.

Along that same front, the Bombay high court on Thursday will interview the MERC's three commissioners to determine if they are biased against Enron. Dabhol's lawyers assert that commissioner Jayant Deo has made several earlier statements exhibiting bias, including a 1994 statement in which he dubbed the Dabhol PPA 'patently illegal'.

"We're very interested in the court's continuing consideration of questions relating to potential bias by the MERC commissioners," Ambler said. "The current disputes that are before the court are particularly significant because they'll demonstrate our ability to rely on the Indian judicial system for dispute resolution."

DABHOL PREFERS ARBITRATION

Enron would prefer to get its case to the International Court of Arbitration in London, which is where the contract says disputes between Dabhol and the MSEB are to be resolved. That option will lead to a faster resolution, Ambler said.

Enron in May issued a preliminary contract termination notice that put in place a six-month deadline for the two to work out their differences.

The cooling-off period expires November 19, and Enron would then be free to terminate the deal and trigger financial penalties against MSEB that could total between $4 billion an $6 billion. Then they would head to arbitration.

The Indian national government and the Maharashtra state government would be on the hook for those penalties, since they backed the Dabhol deal, which is the largest private foreign investment in India.

Enron wants out of India and has offered to sell the plant, which will eventually have another 1,444 MW of power, to the national government for cost. That would allow Enron, its fellow foreign investors and foreign lenders to recoup their investment.

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