COLOMBO, Sri Lanka — The once-hostile Hindu nationalist government in Bombay did an about-face Monday and gave its blessing to a slimmed-down version of India's single largest foreign investment project: a multi-megawatt power plant to be built by Enron Corp. of Houston.
The fate of the plant, which the Shiv Sena-Bharatiya Janata party coalition ordered scrapped in August after defeating the country's ruling Congress party in state elections in Maharashtra, has been monitored by many multinationals that are thinking of sinking money into India to cash in on its economic reforms.
"Enron is the only project people are talking about. It's the test," said Shekhar Hattangadi, a Bombay journalist who is cowriting a book on India's investment-hungry power sector.
On Aug. 3, although an Enron subsidiary had signed a contract for the plant with Maharashtra's former government and begun construction at the site 100 miles south of Bombay, the state's new leaders ordered a halt, citing concerns over costs, potential environmental damage and the possibility of kickbacks and inflated construction costs.
In remarks that chilled the investment climate through-out India, Chief Minister Manohar Joshi of the Shiv Sena said the deal for the plant was "against the interests of Maharashtra and its people." Joshi's coalition partner, the BJP, India's leading opposition party, campaigned on a promise to eradicate the planned plant, located amid farmland along the Arabian Sea.
On Monday, Joshi told a packed news conference in Bombay that after months of negotiations with Enron, America's largest purchaser and marketer of natural gas, his government had decided to approve a version of the project that he said will save Maharashtra hundreds of millions of dollars as well as safeguard the environment.
Joshi said the total cost for building the Dabhol plant is to be cut by the current rupee equivalent of $750 million, to $1.8 billion. The price of power sold to the state electricity board will also be reduced by 22.5%, from the original 2.40 rupees per kilowatt-hour to 1.86 rupees, or about 5.3 cents, Joshi said, when both phases of the facility come on line.
Knowledgeable observers said factors other than reduced costs also played a part in the decision made Monday by Joshi and his Cabinet. Maharashtra, India's industrial and economic dynamo, is critically short of the electricity it needs for further development. Its government has also been facing a potentially costly arbitration suit brought by Enron for breach of contract.
In Houston, Enron's chairman and chief executive, Kenneth L. Lay, said he is pleased with the decision to give approval to the plant, adding that he wanted to see details before declaring the deal finalized.
"We hope that the final approvals can be obtained quickly in order to bring this project back on line as soon as possible," Lay said in a statement. "While it would be inappropriate for us to speculate on any conditions until they are reviewed and considered in their entirety, and the extent to which they compare to the recommendations of the Maharashtra state government-appointed expert committee, we are certainly willing to consider recommendations that provide for a mutually satisfactory project . . . "
The panel that Lay referred to had recommended a slightly higher electricity tariff [1.89 rupees] than that announced by Joshi. An Enron official who asked not to be named told Reuters, "I think we could probably live with 1.86 rupees, but we will have to talk to our lawyers and see best how we can do it."
Indian business groups, many of whose members are courting foreign capital and know-how, were less guarded in their reaction. Though overdue, final approval of the Dabhol project sends "very strong and positive signals that foreign investment is welcome," the Confederation of Indian Industry said.
At pains to explain why he and his ministers had changed their minds, Joshi ticked off to reporters a long list of concessions to which he said Enron had agreed. For starters, the plant, originally 2,015 megawatts, will now be built to generate an additional 201 megawatts, he said. He said Dabhol's turbines will be fired with domestically refined naphtha instead of the liquefied natural gas that Enron originally wanted to import from a facility it owns in Qatar. That alone, Joshi said, will save India $17 million in foreign exchange.
The Maharashra State Electricity Board will purchase a 30% equity share in the venture, now owned by Enron and two other U.S. corporations, General Electric Co. and Bechtel Group Inc., the chief minister said.
Analysts on Monday evening were still poring over the figures announced by Joshi to determine how much Enron actually gave up in the renegotiations it requested Aug. 31. But the coalition's chief foe, former Chief Minister Sharad Pawar of Congress, said the approval given Dabhol vindicated his government's signature of the original contract.
One of the eight "fast-track" power projects intended to boost India's woefully inadequate electricity production, Enron's is the only one where construction actually began. So the coalition's move scrapping the wholly U.S. venture multiplied concerns that populist politics and India's sometimes prickly sense of nationalism were threatening efforts launched in 1991 to create a more market-driven economy.
"When you talk about foreign investment, 5 times out of 10 people ask, 'What's happened about Enron?' " a diplomat at the U.S. Embassy in New Delhi said.