During his visit to India this week, Kenneth Lay, Chairman of US Energy and trading group Enron Corporation, reaffirmed his support for India but insisted contract obligations owed to its Dabhol Power Company (DPC) subsidiary must be met. During meetings with senior politicians, officials and businessmen, Lay appeared keen to find a solution to the dispute over the $33 million project.
Lay said he was hopeful of a solution to the dispute, in which Enron accuses the state-run power utility of defaulting on payments. The utility denies that it defaulted and accuses the DPC, of charging exorbitant prices.
The second phase of Enron’s liquefied natural gas power plant was scheduled for completion at the end of the year at Dabhol, 335 kilometres (210 miles) south of Bombay.
“The whole idea is to resolve the problem,” Lay said, “It’s a very large project and the country badly needs power. Once the LNG project comes up, power will be much cheaper.”
Shortly after his reported comments, a Maharashtra State investigation was launched into the dispute between the state’s utility company and Enron Corp. over the purchase of electricity, news reports said. A judge will investigate various aspects of the agreement between the DPC and the Maharashtra State Electricity Board, Press Trust of India quoted state Chief Minister Vilasrao Deshmukh as saying the terms of the probe would be decided within a month.
Enron in mid-May issued a notice to the state utility, warning it to stop defaulting on payments and threatening to halt work on the new power plant, the biggest-ever foreign investment in India. The utility countered by demanding that Enron offset overdue December and January bills of $48 million with a $85.31 million fine it levied on the power company for not being able to supply power when required.
Separately, Enron’s announcement that its second quarter net income had risen 40 per cent was well received on Wall Street. Net income excluding non-recurring items rose from $289 million last time to $404 million , while earnings a share increased from 34 cents to 45 cents. Analysts had expected earnings a share of about 42 cents.
Jeff Skilling, Enron president and chief executive officer, attributed the increase in profits to a strong performance in the group’s core wholesale and retail energy business. Delivered energy volumes increased by 58 per cent to 74 000 bn British thermal units a day and there was an 89 per cent rise in new retail energy services contracts to $7.2 bn.
However, Mr Skilling said the group’s broadband services business was continuing to experience difficult trading conditions. The division’s losses before interest and tax deepened from $8 million in the corresponding period a year ago to $102 million, reflecting lower revenues but comparable operating expenses.