Enron Seeks Arbitration to Settle India Power Plant Conflict

A U.S. consortium headed by Enron Corp. said Sunday that it has begun arbitration proceedings over the cancellation of a deal to build a $2.8-billion power plant, India’s biggest foreign investment project.

Dabhol Power Co., linking Enron and U.S. heavyweights General Electric Co. and Bechtel Group Inc., which together were building the plant, said it will seek damages if India’s western state of Maharashtra does not honor its contractual obligations.

Although state officials appeared in no mood for compromise, Dabhol said it “remains hopeful of reaching a mutually acceptable solution with the government of Maharashtra.”

Dabhol said it is “seeking a declaration that the government perform its contractual obligation or, alternatively, pay damages to DPC.”

The state government of Maharashtra, of which Bombay is the capital, Thursday unilaterally decided to scrap the 2,015-megawatt power plant being built by the Enron-led consortium, arguing that the cost of the project was too high and that the price of its electricity would be too high.

The government also said there had been no public tender for the project.

A Dabhol spokesperson did not indicate where an arbitration might take place, but legal sources said a panel may be appointed in London.

The Maharashtra government said it would reply today to the notice seeking arbitration.

India’s largest foreign investment project appears to have become embroiled in the political infighting ahead of national elections expected early next year.

L.K. Advani, president of the national opposition Bharatiya Janata Party, told a news conference in New Delhi on Saturday that the project looked like a sweetheart deal between a multinational and India’s Congress party, which rules at the national level.

The BJP and the regional Shiv Sena ousted the Congress government in Maharashtra in March and immediately ordered a review of the contract, which Advani says may have involved kickbacks.

Houston-based Enron says it has acted in full compliance with Indian laws and that it has a strong legal position. It said work is continuing at the project site.

Enron has said that about a third of the $920-million, 695-megawatt first phase of the natural gas-fired project has been completed. It has indicated that it may seek as much as $600 million in compensation and damages.

Dabhol said in its statement that it is “deeply disappointed” about the Maharashtra government’s decision to cancel the project, which is “one of the largest to be developed under India’s economic reform program.”

Khushwant Singh, one of India’s most popular syndicated newspaper columnists, Sunday attacked the decision to repudiate the contract, saying it would backfire on the country.

“The bigger loser will be India,” he said. “Today it is Enron, tomorrow it may be another foreign company. Who will want to do business with us?”