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Industry News

Enron Chief: Contracts Meaningless in India

LCG, Sept. 20, 2001--A letter signed by Enron Corp. Chairman Kenneth L. Lay and addressed to Indian Prime Minister Atal Bihari Vajpayee, warned that India may find it hard to attract foreign investors in the future, given Enron's problems with the Dabhol project, the Wall Street Journal reported this morning.

Lay had sharp words for the Indian prime minister.

"Our experience would indicate that contracts with governmental authorities in India really do not seem to represent anything more than a starting point for a later renegotiation, and are broken by Indian governmental authorities whenever and as often as they prove inconvenient or burdensome," he said in his letter.

Enron owns 65 percent of the Dabhol Power Project near Bombay in Maharashtra state on India's west coast. The Maharashtra State Electricity Board, a state-owned distribution utility, is the project's sole customer and has terminated its purchases from Dabhol, citing high power prices. The MSEB has also refused to pay for some of the power it has purchased.

In July, Enron said it wanted out of India and would sell its interest in Dabhol for what it had in it.

In his letter, Lay said: "Our proposals include the sale of our equity at the cost of our investment for approximately $1.2 billion, and the purchase of the offshore lenders' debt for approximately $1.1 billion," for a total cost of $2.3 billion. He added that "this amount strikes me as exceptionally reasonable when compared to the size of our legal claim," which Enron estimates to be between $4 billion and $5 billion.

In response to proposals by Indian financial institutions that Enron be offered $400 million for its investment in Dabhol, Lay said Enron would consider this to be "an act of expropriation" by the Indian government.

Lay warned that Enron's experience with the Dabhol project is likely to deter foreign investors from committing money to India in the future. "Contract-breaking by Indian governmental authorities has become a tactical device to be used wherever and as often as commercial and political circumstances may dictate ... no one should complain later if that causes severe prejudices to India's attempts to solicit foreign investment or capital," he said.

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