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Irate Enron likely to pull out of power project in Kerala

George Iype in Thiruvananthapuram

Enron Corporation is planning to pull out of the Kannur 513 mega-watt liquefied natural gas power project in northern Kerala as the ruling Left Democratic Front government has insisted that the project costs be reduced by a whopping Rs 1.61 billion.

Enron holds the majority stake in Kannur Power Project Limited. Through KPPL, the United States-based company hoped to enter the south Indian electricity market, after the commissioning of its controversial Dabhol power project in Maharashtra.

The Rs 16 billion KPPL has been floated by Koretech, a Mauritius-registered company owned by Kerala-based K P P Nambiar and Associates.

While Koretech has 26 per cent stake in KPPL, Enron International holds 63 per cent equity and Enron India has 11 per cent equity holding in Kerala's first-ever private power company.

As per the KPPL plan, Enron will source liquefied natural gas from the company's own fields in Qatar in the Gulf and import it to Kerala to generate 513 MW of power.

But like the Dabhol power project in Maharashtra, the ambitious KPPL also got into a troublesome start. The ruling Communist Party of India-Marxist has insisted that either the project be scrapped or the project costs be drastically slashed.

Forced by the Communist hardliners' demand, the Left-front government headed by Chief Minister E K Nayanar has proposed that KPPL's project cost be trimmed by at least Rs 1.61 billion.

But top officials disclosed that Enron has rejected the government proposal, as the company claims that any reduction in the project costs will actually translate into lower revenues and considerable shrinkage of the end tariff by 70 paise per electricity unit.

While Koretech and Enron officials are negotiating with the government to settle the issue, officials said if Enron withdraws from KPPL, the project will most probably fall through. K P P Nambiar and Associates is also said to be scouting for a new partner for the project in the event of Enron pulling out of KPPL.

To ensure that Koretech does not go ahead with Enron as the KPPL partner, the Nayanar government has also launched an investigation into why Koretech has been floated and registered in Mauritius with a meagre capital of only US $ 400.

However, sources said the Left government is in favour of the project provided that Koretech removes Enron as the joint venture partner in KPPL and comes forward with a new partner.

Ever since KPPL was floated, the Left parties in the state have opposed Enron Corporation promoting any power project in Kerala for two reasons. First, since controversy over the Dabhol power project shook the Congress and the Bharatiya Janata Party governments in Maharashtra, the Kerala government does not want to be nagged by a similar controversy.

Second, the CPI-M is now one of the major litigants against the redesigned Dabhol project. "How can we welcome Enron into Kerala, while we have been fighting the company in Maharashtra for years now?" a CPI-M leader told Rediff On The NeT.

He said the state government and the CPI-M's Politburo have discussed the Kannur project thoroughly in the past six months. "The project can now be saved only if Enron and Koretech agree to the government proposal for a cost reduction," he added.

The state government argues that its approach to KPPL is strictly through the guidelines set by the Central Electricity Authority in KPPL.

In fact, when the CEA cleared KPPL way back in 1995, the promoters --Koretech and Enron -- were told to reduce the costs. Again in 1998, when the CEA gave the final techno-economic clearance to KPPL, the promoters were told to reduce costs at least by Rs 350 million.

Business news

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