Vol 3, PW 14 (04 Aug 99) Midstream & Downstream

It should have been Enrons second big foray into the power sector after Dabhol: a 513-MW combined cycle power project at Kannur in Kerala, in alliance with one of the states leading industrial families, the KPP Nambiar Group.

But it wasnt to be, and today Kannur Power Projects Ltd is in deep trouble. Sanjay Bhatnagar, Enrons India manager, has for the first time publicly announced Enron may walk away from the project: "The review of the project is currently in progress.

We may decide to withdraw from it once the review is completed". To blame is a combination of factors, first among them the hostility to Enron shown by the local Communist-run administration of Kerala.

The Nambiars, meanwhile, have already begun looking for a new partner to acquire part or all of Enrons 74% stake. British Petroleum (BP), this report learns, has turned down an approach, preferring instead to concentrate on a Fuel Supply Agreement.

Larsen & Toubro is reportedly interested, but theres little to suggest it has the financial muscle to assume its share of a project tentatively valued at $380m. Worse, a local technical adviser with close links to the project admits to this report there is very little chance it will materialise.

He points to the fact that the Kerala government is against the Kannur project because Kerala is fast reaching a stage where it may have too much electricity. He reveals that present installed capacity in Kerala is about 1,000-MW.

Available capacity (allowing for lower capacity utilisation) is about 600-MW, with demand at around 7-800 MW, and rising at no more than 6-7% a year. Kerala, despite having the highest literacy rate in India, is not an industrialised state.

Other projects favoured by local authorities are:- *The 300-MW Kayamkulam project of National Thermal Power Corporation *The 160-MW project of Mumbai-based BSES *The 120-MW Kasargod project of Kerala State Electricity Board *The 110-MW of DLPC All the above projects - so the argument goes - have much more attractive tariffs than the Nambiars Kannur project. Besides, Kerala has much hydel generation potential during the four monsoon months.

Hydel power generation can be made available to the state at a low price of about half a rupee per unit.