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Enron pulls out of Kannur Power Project in Kerala

D Jose in Thiruvananthapuram

The Communist Party of India (Marxist) has finally succeeded in keeping away the US-based Enron International from Kerala.

The Communist-led government, which opposed the entry of multinationals into the state for political reasons, has forced Enron to back out from the Rs 14 billion Kannur Power Project Limited, promoted by KPP Nambiar and Associates.

A joint statement by KPPL chairman KPP Nambiar and Enron India CEO Sanjay Bhatnagar said that the partnership they entered into a couple of years ago, was being dissolved with mutual consent.

The agreement for equity participation and fuel supply was also terminated.

Interestingly, neither Enron nor KPPL consulted the state government before dissolving the partnership.

Official sources told rediff.com that KPPL, which had signed a memorandum of understanding with the Kerala State Electricity Board, had submitted a restructuring package to the board some time ago. The package might have been submitted in anticipation of Enron's backing out, said a source.

The package is mum on any new partner that is needed for executing the 513 mega-watt project. The revised package has brought down the cost by Rs 1 billion.

Nambiar is understood to have identified an alternate partner. He refused to divulge the details of the new partner. However, he said that the company would soon go for the financial closure of the project. He expressed hope that the project could be completed by middle of 2002.

Sources said that the Kerala government was not averse to the idea of reconsidering the project if KPPL brought in a new partner acceptable to the government.

They said the government had opposed Enron's participation as it was embroiled in several controversies with regard to the Dhabhol project in Maharashtra.

Kerala's power minister had clearly stated that it did not want the Kannur project to be entangled in controversies.

Enron, which was hopeful of starting the work on the project, was disappointed when the government refused to recommend it for final clearance by the Central Electricity Authority.

The government's letter submitted to the last CEA meeting was non-committal on the government support to the project. The CEA had postponed the clearance for want of a categorical recommendation from the Kerala government.

The project had ran into rough weather when the government wrote to KPPL that it would not recommend the project as long as Enron continued to be its foreign partner. The recommendation was vital for the CEA clearance.

KPPL and Enron were hopeful of steering the project as the central government had made state approval not mandatory for foreign investment up to Rs 15 billion in power projects a couple of years ago.

However, the state government clung on to the clause in respect of the CEA clearance and adopted an ambivalent stand, making it extremely difficult for the former to obtain the clearance.

The Kannur power project is crucial in the government's scheme to make Kerala self sufficient in power by the end of 2000. The Kayamkulam power project has already run into rough weather with the KSEB finding it difficult to meet the high cost of power.

The KSEB has already reduced its intake from the thermal power project being run by National Thermal Power Corporation. NTPC is already on the lookout for new consumers to utilise its entire generation capacity.

The KSEB had agreed to purchase the entire power from the project as Kerala was buying power from other states to meet its acute electricity shortage. The proposal to increase the capacity of the project from the present 350 MW to 2000 MW may not take off in light of the reluctance by the government to evacuate the entire power from the Kayamkulam project.

Business news

Kerala