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India

Indian legal woes vex foreign investors

INDIA: Lack of confidence in India's legal system could reduce enthusiasm for doing wind business on the sub-continent.

Germany-based wind turbine manufacturer Repower is fighting a case in Indian courts and a swift resolution looks doubtful in the wake of fellow German supplier Enercon's long legal battles there.

Such problems bode ill for India's ambitious renewable-energy aims, given that its wind energy know-how comes largely from Germany and other European countries. The Indian government's next two five-year plans, for 2012-17 and 2017-22, foresee 50GW of new renewables capacity in India. Wind is to account for 23GW.

In 2006, Repower licensed major Indian industrial group Essar to manufacture 1.5MW turbines and market them in South-east Asia. A year later, Repower was acquired by Indian wind turbine manufacturer Suzlon.

But last year, Repower terminated the agreement, saying Essar had not built a factory as required. Essar took legal action to uphold the agreement, but Repower won the first round after the Bombay High Court ruled in its favour.

Repower's CEO Andreas Nauen says: "Of course, we are happy with the court's decision in favour of Repower. Nevertheless, we are well aware that this is only a step forward in the first instance of the process." Essar senior vice-president of corporate affairs Manish Kedia says: "Essar will go in for an appeal in this matter."

Fellow German wind turbine developer Enercon has had its own share of woes in India since setting up a joint venture there in the mid-1990s. It says its decision to invest in the country "was a mistake in view of the blatant legal uncertainty". Amid an ongoing stream of court cases, attempts at out-of-court settlements and failed efforts to defend technology patents, the company is today trying to extricate itself from a joint venture that has long gone sour.

The company says it lost control of its 56% subsidiary Enercon India Limited (EIL) in 2007 when EIL managing director Yogesh Mehra was granted full power of attorney for all business activities by an incomplete board of directors - the German directors being absent - without informing Enercon.

The Indian side has a different view. Asked whether Enercon is excluded from commercial management of EIL although it is the majority stakeholder, Mehra says: "Of course not." Enercon appointed a joint managing director who, Mehra says, after serving a period of time chose to resign. Mehra adds that any suggestion that it has excluded Enercon from commercial management is false.

Stand-off

Enercon is finding it hard to fight its battle in Indian courts. The company was shaken when, during a trip to India in September 2008, its chief risk officer and auditor were threatened with arrest on the grounds of what Enercon lawyer Stefan Knottnerus-Meyer calls an "absurd accusation of founding a conspiratorial association with the aim of reducing the Mehra family's assets".

Accompanied by a representative from the German Embassy, the two were questioned by the Indian police's business criminal law department in Mumbai for several hours.

The two Enercon managers and all other managers threatened with prosecution are still prevented from travelling to India, stalling attempts to resolve the stand-off, says Enercon.

Germany's government has taken note but is taking a more positive stance. Tobias Pohl, a spokesman for Germany's federal economy ministry, says of Enercon: "By means of political support, the ministry backs the efforts of the company to find an acceptable solution.Despite the gravity of Enercon's experiences," he adds, "the ministry maintains its positive attitude to the involvement of German companies in India."

The possibility of legal conflict in India has clearly attracted attention in other German industrial sectors too. "Protracted law-enforcement procedures" was the first on the list of risks identified by the state-owned business association Germany Trade and Invest in its business analysis for India at the turn of the year.

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