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Another Step Toward Scraping India’s Largest Foreign Investment

June 28, 1995

NEW DELHI, India (AP) _ An Indian state controlled by a right-wing coalition has taken another step toward canceling the largest foreign investment in India, 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 Indian government, which introduced free-market reforms four years ago.

Financial analysts warned that if Maharashtra state scraps the deal, India’s efforts to attract badly needed investment in its outmoded infrastructure would be undermined, clouding the country’s long-term growth picture.

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

The reports quoted unidentified sources close to the committee saying the deal with the Dabhol Power Corp. consortium violates the Indian Electricity Act and the Electricity Distribution Act.

When it was formed, the committee said it would answer these questions: Why wasn’t the contract put up for competitive bidding? Why were clauses kept secret? Why are capital costs so high? Why will the state electricity board pay so much for the power?

The news reports about the panel’s recommendation couldn’t be confirmed Wednesday.

Enron issued a statement saying it had acted in compliance with U.S. and Indian laws on the project. The Houston-based company also said it hadn’t been contacted by the state government about the committee or its reported recommendation.

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

No official word on the committee report is expected from the state until its chief minister, Manohar Joshi, returns next week from a trip to Britain, Canada and the United States, where he has traveled to promote investment in Maharashtra.

It remains unclear when the government will make a final decision regarding the Enron project. The government of the extremist Shiv Sena party and the Hindu nationalist Bharatiya Janata Party reportedly is arguing over whether the Cabinet or state Assembly should make the decision.

But if the high-profile project, which already is being built, is canceled, analysts say that would torpedo foreign investor sentiment for the short-term and could cast serious doubt about India’s ability to draw the infrastructure investment it needs.

``The need to increase investment into infrastructure _ especially power _ is truly undeniable. It’s sad that politics is interfering,″ said Mahesh Vyas, executive director of the Centre for Monitoring the Indian Economy, an independent think tank in Bombay.

Mohan Alexander, an analyst at Lehman Brothers in Hong Kong, said: ``It’s definitely negative. Everything’s going to take much more time. You may not be able to attract the quality companies.″

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