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Enron invokes Union govt guarantee

US energy giant Enron Corp said on Tuesday that it has invoked the Indian government's guarantee to pay debts owed by a state utility, ratcheting up the political stakes in a high-profile dispute which has already cost India and Enron dearly.

Enron is owed Rs 790 million by the Maharashtra State Electricity Board, which supplies power to Bombay and elsewhere in India's most industrialised state. The bill has gone unpaid since November, and does not include an additional Rs 1.52 billion owed for December.

All the money owed is for electricity produced by a power plant built and largely owned by Enron, and supplied to the cash-strapped state electricity board.

Under an agreement with Enron, both the Maharashtra state and Union governments have guaranteed they will pay Enron's bills if the state utility defaults.

The move heightens the confrontation between Enron, the largest foreign investor in India's power sector, and the Maharashtra state government -- or between a foreign-owned enterprise and a regional government with a populist slant.

The federal government, desperate to attract more foreign investors to feed India's growing hunger for power, must now decide within 30 days whether to pay Enron, a Houston-based energy giant which has miffed many Indians for what is viewed as its abrasive business style.

The attention showered on the many problems experienced by Enron has caused other foreign companies to balk at investing in India.

Four foreign firms have already pulled out of power projects in India, citing bureaucratic and legal hassles, and analysts say the government would not like to antagonise Enron at this stage.

This is the first time that a foreign power company has taken the extreme step of invoking a central government guarantee to clear unpaid bills.

"We are disappointed that this decision had to be taken," Neil McGregor, the president of Enron's local power unit, said in a statement.

In its statement, Enron said its application to the federal government covered only the November bill of Rs 790 million.

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