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Another Step Toward Scrapping India’s Largest Foreign Investment

June 28, 1995

NEW DELHI, India (AP) _ Local authorities are considering canceling India’s largest foreign investment, a power plant in the western state of Maharashtra, newspapers reported Wednesday.

The outcome of the case involving a U.S. consortium led by Enron Development Corp. is being watched closely by investors and the federal government, which introduced free-market reforms four years ago.

Financial analysts warned that if Maharashtra scraps the deal, India’s efforts to attract sorely needed investment in its outmoded infrastructure would be undermined.

The Times of India and The Economic Times said a panel set up by Maharashtra’s newly elected government has recommended abandoning the consortium’s $2.9 billion, 2,015-megawatt power project.

The reports quoted unidentified sources close to the committee as saying that the deal with the Dabhol Power Corp. group violates Indian law.

The panel had said it would address why the contract was not put up for competitive bidding, clauses were kept secret, capital costs were high and the state electricity board would pay so much for power.

The news reports could not be confirmed Wednesday.

Enron issued a statement saying it had complied with U.S. and Indian laws. The Houston-based company said the state government had not contacted it about the committee or the reported recommendation.

Phiroze J. Nagarvala, vice president of Bechtel Enterprises Inc., a member of the consortium that also includes General Electric Capital Corp., hadn’t received the report either. He said he remained hopeful about the project.

It was unclear when the government would make a final decision.