enron - dahbol power project

8/21/2019 Enron - Dahbol Power Project

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Ethics

Group B 15


2/9

Evolution of Dabhol Project

Pioneering project, thus policies and approvalsare still evolving.

Decision to enter market based on

attractiveness of the marketwesternizedlegal code, widespread use of English anddemocracy

Source gas unreliable thus LNG chosen Gulf countries chosen to supply LNG

Simultaneous construction of modern port


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CHRONOLOGY

Feb 1992 Investigating Indian power sector after an advertisement was placed

for a 200MW plant near Delhi. Discussions with the World Bank and a

meeting with governments power secretary S.Rajgopal

may 1992 Enron invited Rajgopal to Houston, to talk to Mark and Lay about

private power business. They said youneed pioneers we will be path

breakers and set the precedent

June 1992 Enron team visited Delhi as a potential site. But Delhi state authority

appeared unenthusiastic. According to Enron Rajgopal guided them

towards Maharashtra State Electricity Board(MSEB).

Phase 1: generate 695MW without LNG supplies and burn distillate

fuel sourced locally.

Phase 2: introduce additional 1320MW and would entail building rest

of the plant

June 1992 Enron and MSEB signed MoU with sparse details except cap on the

ultimate price of power at 7.3 cents per KwH.


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June-oct 1992 Lawyers were hired to begin drafting the documents of the risk

sharing relationships of Enron, Bechtel and GE as builders ,

owners and operators and MSEB as purchaser. It was MSEBs

first contract.

Oct 1992 Enron presented their proposal to the Foreign Investment

Promotion Board(FIPB) with Rajgopal as the guiding force.

Dec 1992 FIPB approved the project. Rajgopal promoted from power

secretary to cabinet secretary. The World Bank said that Dabhol

plant would create years of excess capacity, proving anexpensive alternative to coal. Sutton challenged the bad press

generated by the report by stressing the environmental benefits

of the project. Lobbying at the World Bank headquarters, Enron

and MSEB strategized demand/cost analysis to present to the

bank.

Jan 1993 Bombay witnessed widespread communal rioting. Subsequentterrorist bombings of BSE and various commercial centres

forced the new chief minister to take office.


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Feb 1993 The GOM objected to the projected 26.52% return to equity holders

because previous projects had been approved with lower 16% return.

After negotiation Enron offered lower ROR of 25.22% and 10%

permanent equity ownership to MSEB.

May 1993 Various documents including Power Purchase Agreement(PPA) that

defined the relationship between MSEB and DPC were readied.


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Enrons experience in various countries

It followed a market led approach and provided solution forcomplex energy problems

China$135 million 150 MW plant on Hainan Island,economic free trade zone, was developed by a US company,

Enron would be the operator, fuel manager andconstruction contractor. 50% of Ownership interest was tobe given to Enron Global Power and Pipelines. This projecthelped EDCs success in other fast track projects.

Dominican RepublicFirst phase project, $200 million 185

MW combined cycle plant. 20 year power purchaseagreement with government. Enron would serve asoperator, fuel manager and construction contractor. 49%stake to be given to Enron Global Power and Pipelines.


7/9

Enrons experience in various countries

Turkey - $545 million 478 MW gas-fired powerplant. Enron would act as an operator andturnkey contractor. Power purchase agreementwith State and guaranteed payment obligations.

Indonesiatwo projects, $520 million 500 MWgas-fired power project in East Java and $138million 136 MW gas-fired power project in EastKalimantan. 20 year power purchase agreement

with subject to a gas contract. Enron would bethe turnkey contractor and operator. 50% stake inboth plants.


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Why DPC failed??

BJP which was vehemently against foreign

dominance in power sector, won in 1995 general

Elections.

Central government cancelled the project stating

higher tariff, lack of transparency, and for

breaching environmental standards.

Enron agreed to new contract terms of reducedtariff etc.

MSEB failed to failed to pay its debts.

Enron finally decided to terminate the contract.


9/9

Ethical Dimensions

Few clearances were ignored

Lack of transparency and competition in

bidding process

Concerns raised by WB were ignored

High cost of project

High tariff

enron - dahbol power project

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