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US power firm to exit India over payment woes

US gas and power major Public Service Enterprise Group Inc said on Monday it had decided to exit its Indian power plants as state-run utilities had failed to honour their commercial contracts.

PSEG, which holds equity in two Indian power plants, joins a series of foreign firms that have fled India's troubled power sector which is facing chronic shortages because of large-scale power theft, inefficient utilities, and an uncertain investment climate.

US energy trader Mirant Corp and CMS Energy have also announced they will exit the country, while AES Corp said it found the business climate stifling.

Enron Corp's nearly complete $2.9-billion Indian plant has been lying idle for more than a year after a payments dispute with Maharashtra State Electricity Board, which had contracted to buy all the power from the plant.

B Vanchi, managing director of PSEG's fully-owned Indian unit, PSEG India, told Reuters the company's decision to sell its stakes in both its power plants stemmed from disputes over power charges and payments with the utilities purchasing power.

"Our reasons for leaving and issues we have encountered here are no different from what others have faced before exiting and basically revolve around the lack of sanctity of contracts, which appear to be signed more for questioning than for executing," he said.

Vanchi said the company was in talks with several potential buyers and would sell out only if it got a good price.

"We are not just walking out of the country and are not making a distress sale of assets. We will leave only when we realise an appropriate return on our investments," he said.

PSEG currently owns a 74-per cent stake in the 220-megawatt naphtha-fired Tanir Bavi plant in south-western Karnataka state and holds 20 per cent of the equity in the 330-MW naphtha-based Pillaiperumalnallur unit in Tamil Nadu.

The company, which is the main operator at the two generating plants, has invested about $100 million in them.

PSEG is currently owed over Rs 4 billion by the two state-owned utilities that buy its power.

PSEG's Indian plant sale was part of a one-time charge announced by the company last week, when it announced a second-quarter net loss of $264 million, compared to a profit a year ago including charges of $380 million.

V P Baligar, managing director of the state-owned Karnataka Power Transmission Corporation Ltd told Reuters in Bangalore his firm was contesting the payments demanded by the Tanir Bavi plant.

"The issue is set to come before arbitrators," he said.

India's unlisted energy group GMR owns the remaining 26 per cent stake in Tanir Bavi, while Japan's Marubeni Corp and US-based El Paso Energy own 26 per cent each in the PPN project. Indian hospitals group Apollo holds the remaining 28 per cent.

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