Business and Finance - Asia

                Enron's Dabhol Issues Notice To Indian Client on Payments

                By DANIEL PEARL
                Staff Reporter of THE WALL STREET JOURNAL

                BOMBAY, India -- Enron Corp.'s Indian power
                project has given the state of Maharashtra a
                notice amounting to a threat to cut off electricity,
                raising the stakes in a closely watched dispute
                over the bills from India's first big private power
                plant.

                Enron-controlled Dabhol Power Co. declared a
                "political force majeure," saying recent
                government actions could harm the company's
                ability to "perform obligations." The step is
                typically used to dissolve a contract after a war, a
                coup or a similar radical event. In this case, the
                declaration may be more of a pressure tactic, as
                the state government moves to renegotiate a
                five-year-old contract for the plant's second
                phase, scheduled to start producing power within
                a few months.

                                 A spokesman for Dabhol, which
                                 also includes Bechtel Corp. and
                                 General Electric Co. as junior
                                 shareholders, said Monday that
                                 the notice was an effort to
                                 protect the $3 billion project's
                                 lenders, who "have expressed
                                 concern" about the project's
                                 difficulties getting payments. He
                                 declined to elaborate.

                                 The cash-strapped Maharashtra
                                 State Electricity Board, Dabhol's
                                 only customer, has failed to
                                 make payments since December.
                A federal government guarantee backs the
                payments, but the government has withheld two
                months of payments, amounting to $48 million,
                citing a claim against the gas-fired plant for
                taking two hours longer than promised to restart
                after shutdowns. The Dabhol spokesman said the
                Indian government agreed Monday to send the
                December payment dispute to a mediation panel.

                Vinay Bansal, chairman of the state electricity
                board, said he disagrees with the force majeure
                declaration. Mr. Bansal said Dabhol's notice cites
                recent statements by Maharashtra's top official
                questioning the need for the project's second
                phase, and pronouncements by the federal
                government that it wouldn't pay Dabhol until the
                shutdown dispute is resolved. The notice, he said,
                also cites the state government's creation of a
                panel to review, and possibly renegotiate, the
                Dabhol contract. The panel is scheduled to release
                its conclusions on Dabhol Tuesday.

                The notice from Dabhol doesn't spell out what
                action the power company might take. Cutting off
                power would have limited effect, because the
                electricity board has already reduced its
                purchases from Dabhol to a bare minimum, letting
                the 740-megawatt plant produce at 30% of
                capacity. The electricity board blames Dabhol's
                high electricity rates, saying it has to buy from
                cheaper sources first. Enron says the rates would
                be lower if the plant produced at 90% capacity as
                envisioned when the contract for the first phase
                was reached in 1993.

                The Congress Party controlled the state
                government in 1993. Another government, led by
                the Shiv Sena Party, renegotiated the Dabhol deal
                in 1996, and in the process approved the second
                phase, which would add an additional 1,444
                megawatts of capacity. A new Congress-led
                government is leading the effort to renegotiate
                the second phase of the deal, under which the
                state covers the plant's fixed costs regardless of
                how much electricity it buys.

                Write to Daniel Pearl at danny.pearl@wsj.com .