950804

Lawyers mull options

after Enron deal axed

BOMBAY: US multinational Enron Corp focused on legal options on Friday after the government in the western state of Maharashtra unilaterally cancelled its $2.8 billion power project, India's single largest foreign investment.

Enron, and its U.S. partners in the project, General Electric and Bechtel, are expected to file for damages of several hundred million dollars once it has clarified its legal options, legal sources said.

Enron officials, still reeling from the shock that the Maharashtra government had gone ahead with its threat to scrap the project, said they were awaiting a formal notification from the government the planned 2,015 megawatt plant had been axed.

"We haven't yet been served any official document which says that the project has been scrapped," said a spokeswoman of the Dabhol Power Company formed by Enron and its partners.

She said the company would not make any formal statement on its position until it received legal clearance.

"We have acquired a copy of the chief minister's statement and given it to our legal department," the spokeswoman said.

On Thursday, Maharashtra chief minister Manohar Joshi told the state assembly the Enron project would be cancelled because the costs were too high and it had not been put out for tender.

Legal experts said unravelling the deal may be complex and messy. The Dabhol Power Company has contracts with 150 suppliers, each of which have their own legal implications.

Enron says it has acted in full compliance with Indian laws, but Maharashtra government chiefs say they are in no mood to renegotiate the deal, which became embroiled in inter-party politics in India's most industrialised state.

A rightwing Hindu alliance of the Shiv Sena party and the Bharatiya Janata Party (BJP) took power in Maharashtra earlier this year, ousting the previous state government headed by Prime Minister P.V. Narasimha Rao's Congress party.

The previous government had okayed the deal.

The announcement appeared to have been deliberately timed for when Rao, who initiated India's far-reaching economic reforms, was out of the country on a visit to Malaysia.

The U.S. company said in a statement on Thursday it had very strong legal defences available to it, but did not elaborate.

In the past, Enron has said the government may be liable for up to $600 million worth of work already completed at the project site, but state officials say much less has been spent and the level of compensation could be reduced through negotiations.

A court case involving the Indian legal system could be a long, drawn-out affair. India's Economic Times newspaper said on Friday the company may try to seek arbitration in London.

The widely-circulated Indian Express newspaper said scrapping the project was the right decision, adding that costs in the contract had been padded, and the rate of return was abnormally high.

But given the country's chronic electric power shortage, the Economic Times suggested caution.

"Even now," it said in an editorial, "the Maharashtra government should explore the possibility of recasting the project on mutually acceptable terms. It will make the political point it wants to make, and at the same time, spare the people of Maharashtra and India an enormous financial burden."-Reuter