Presented by –Shubham Bhatnagar (011214)Shubham Bhatia (011213)Shashank Shakher (011196)Rutesh Kumar (011179)Raju Mahato (011167)Sharikant Sharma (011208)

• The HBJ pipeline carries most of the India’s liquid natural gas.• Hazira in Gujarat, north of Mumbai would have

been the end terminal of the HBJ pipeline.• But in 1997, Enron international announced plans

to link Dabhol because of its existing power generation facilities.• Moreover, Enron said they will add about 1500

miles to the HBJ pipeline, whose development costs $300 - $900 million.

Dabhol power company was promoted in March 1993as a 100% foreign owned private company incorporated in India by Enron corp. USA, Bechtel Enterprises Inc. USA (constructing the plant), and General Electric Co. USA (selling turbines).In phase 1, DPC will set up a combined cycle power plant with an installed capacity of 695 MW at Dabhol, Guhagar Taluka, Ratnagiri district, Maharashtra. (total area-1700 acres)The power generated by the plant will be sold to Maharashtra State Electricity Board (MSEB). The cost is estimated at Rs 3029 crores (U.S $ 946.55billion)

Need for a large power plant in Maharashtra(Generation Of Ideas)

India invites Enron Corp to explore possibilities ( Initial Screening)

Feasibility Analysis(Enron ready to add 1500 miles pipeline)

Is the idea prima facie promising ? (Yes)

Market Analysis(Shareholders available) Technical AnalysisFinancial Analysis

Economical & Ecological Analysis

(Was the project worthwhile ?)(No)

• Enron is the majority owner of the project.• Project was initiated in 1992 and took nine

years to commence operation.• The project is 2184 MW which Enron says is the

largest gas- fired power plant in the world.• The plant closed in June 2001 due to a payment

and contract dispute between the Maharashtra state government and the plant owners.

• Enron says it incurred 1 $billion in costs of the plant.

• The DPC project in India in the 1990’s is the case in point in the power sector.

• The election of the new government that was not supportive of the project led to re negotiation of tariff rates that reduced the profitability of the private firm.

• However, when a new govt. was re elected, the condition of the pre-existing agreement was revised, resulting in the private sector consortium – Dabhol power corporation (DPC) stopping the project

• Four international financiers - ANZ Investment Bank, Credit Suisse First Boston, ABN-AMRO, and Citibank.

• US government owned Overseas Private Investment Corporation supplied the project $160 Million loans and worth $180 Million in risk insurances.

• The American Export Import Bank, had issued worth $300 Million as direct loan.

• State Bank of India, ICICI, Canara Bank, Industrial Finance Corporation of India, and Industrial Development Bank of India.

• Combined loan and guarantee exposure of the domestic lenders was roughly Rs 62 billion.

PHASE 1 PHASE 2

Capacity – 740 MW Capacity-1,275 MW

Cost – $ 1.078 billion Cost- $ 3.5billion

Fuel – Naphtha (Mix. of Hydrocarbons) Fuel- LNG

•Operations began- 1999

•Construction suspended

•Total capacity – 2,015 MW

•Originally estimated cost of the plant - $ 2.9 billion

•Agreement for 20 years.

•Implemented on BOO basis (Build, Own, Operate).

•MSEB guaranteed to buy 90% of power produced.

•MSEB to receive 30% of the DPC profits annually.

•MSEB to bear any increase in fuel price.

•MSEB to pay DPC $ 220 billion per year.

• By early 2002, Enron was variously termed ‘radioactive’ , ‘contaminated’.

• Maharashtra ordered the project to be halted because of lack of transparency, alleged padded costs and environmental hazards. But by then Enron had invested $300 million.

• The congress government in Maharashtra was defeated in the state polls in March 1995 and the new govt. of BJP and Shiv Sena came into power.

• A committee led by deputy chief minister recommended scrapping of the project on Aug 3, 1995.

• Failure of GOI – It refused to commit the resources to solve the problems raised through the project’s failure.

• Failure of GOM – Govt. of Maharashtra was the sole purchaser of power under PPA and a 15% equity holder in the project.

• It utterly failed to participate in the long workout efforts

• Lack of competitive bidding(transparent procurement method).

• No EIA (Environmental Impact Assessment) was carried out.

• MoU signed within 20 days.

• One-sided MoU signed in favour of DPC (World bank).

• It felt that the project was not ‘economically viable’.• Project did not satisfy the test of least cost power.• It was too large for the power demands of Maharashtra.• Power tariffs higher than compared to other

independent power projects in the country.• Agreement was treated as confidential.• MSEB owed DPC almost $ 110 in Jan 2001.• Land resettlement, compensation to affected

fishermen, pollution control measures• Project's promoters had not obtained the CEA's

statutory clearance as required under the Electricity Supply Act.

• Based on this analysis, the appropriate return to equity holders should not be much greater than the cost of foreign debt given the PPA and the counter guarantee by the Government of India

• Payments by MSEB as per the PPA has been guaranteed by the Government of Maharashtra and counter guaranteed by the Government of India.

• The cost of foreign debt assumed in the Enron project is 10-11 per cent. This is not the risk-free rate but a rate which takes into account default risk.

• Government of Maharashtra and Government of India and possibly by other contracting parties, the premium for equity appears excessive.

• Reduce dependence on MSEB, by allowing Central Govt. owned utilities to buy power.

• Involve the World Bank or multilateral financing agency, to avoid political risk.

• Detailed study on financial credibility of the host country.

• Financial updates and status report on regular basis.

• Alternate source of financing.• Communication and transparency.