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    Chathurya Challa ce17b113
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    The Dabhol Power Project was a large power plant project in Maharashtra, India proposed by Enron to help address power shortages. Enron proposed a 2000MW LNG plant to be built in phases. A power purchase agreement was signed guaranteeing purchase of power for 20 years. However, political changes led to project delays and changes. The project faced further issues as the buyer MSEB began defaulting on payments. Enron eventually filed for bankruptcy in 2001 and the plant was shut down, though parts were later revived under new ownership.

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    The Dabhol Power Project was a large power plant project in Maharashtra, India proposed by Enron to help address power shortages. Enron proposed a 2000MW LNG plant to be built in phases. A power purchase agreement was signed guaranteeing purchase of power for 20 years. However, political changes led to project delays and changes. The project faced further issues as the buyer MSEB began defaulting on payments. Enron eventually filed for bankruptcy in 2001 and the plant was shut down, though parts were later revived under new ownership.

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    113 views7 pages

    Dabhol Case Study

    Uploaded by

    Chathurya Challa ce17b113
    The Dabhol Power Project was a large power plant project in Maharashtra, India proposed by Enron to help address power shortages. Enron proposed a 2000MW LNG plant to be built in phases. A power purchase agreement was signed guaranteeing purchase of power for 20 years. However, political changes led to project delays and changes. The project faced further issues as the buyer MSEB began defaulting on payments. Enron eventually filed for bankruptcy in 2001 and the plant was shut down, though parts were later revived under new ownership.

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    of 7

    DABHOL POWER

    PLANT
    Group 6
    Indian Power Sector
    Power Generation • Demand for power was increasing, with demand outpacing supply by an
    average of 9%
    • The SEBs were unable to meet the shortages, because most of them were
    Private
    4% close to insolvency
    Centre
    31% • Tariffs were less than operating costs
    State
    65%
    • Agriculture and rural sector granted large subsidies
    • Capacity Utilization was low (an average PLF of 56%)
    • Transmission and Distribution losses due to old equipment, widespread
    theft etc. averaged to about 22% of generated power
    Private Centre State

    Reforms (Congress Party government)


    • Invitations to private sector companies to build and operate power stations of any size up to 100% foreign
    equity
    • Tariff reforms which included two-part tariff structure – for fixed and variable costs
    • Export/Import reforms were enacted to bring down costs
    • Procedurals reforms were enacted like a single window clearance for all power projects
    Enron
    • World’s leading multinational firm in the natural gas industry
    • Enron had 5 subsidiaries, Enron Development Corporation (EDC) participated in the Dabhol Power
    project

    • Enron wanted to take up this project because :


    • Huge demand for power in India
    • Attractiveness of the market
    • To obtain more projects if they were successful with this one

    • EDC invested 13.2 million in feasibility studies

    • They picked Maharashtra because:


    • Large demand for power existed in the state
    • MSEB could pay for the power generated
    • Location was close to a port making it easy to transport fuel for the plant
    The project
    • Enron proposed a phased 2000MW LNG plant.
    • Enron’s partners were Bechtel and GE for the project
    • Project was financed by multilateral lending institutions
    • The plan was phased so as to get started, test the concept and then to develop the complete facility
    • Phase 1 – Generate 695 MW with fuel sourced locally
    • Phase 2 – Introduce an additional 1320 MW, build rest of the facility, convert Phase 1 to LNG

    The contract
    • A Power Purchase Agreement was made where MSEB agreed to purchase power for 20 years at a certain
    tariff. Initial price was Rs2.4 KwH
    • In case of default of MSEB, Government of India and Maharashtra guaranteed the payments
    • DPC was responsible for meeting the power demands of MSEB, should pay penalties if it failed to meet
    • 20 year agreement could be extended, if not MSEB was required to purchase the plant
    • MSEB was to bear the risk of rupee-dollar exchange rate
    • Clauses for dispute resolution and in the case of termination of PPA before 20 years by any party also
    mentioned in the contract.
    Risk mitigation by Enron
    • Exchange Rate risk
    • Borne by the Government
    • Economic/Demand Risk
    • PPA with fixed and variable tariffs
    • Political Risk
    • Participation by the Overseas Private Investment Corporation (OPIC)
    • International arbitration in case of disputes
    • Project Risk
    • Had experienced partners such as Bechtel, GE

    Change of Government
    • Bombay witnessed widespread communal rioting which led appointing Mr. Sharad Pawar as CM.
    • Even though groundwork for the Enron Project was laid out by previous state government, it’s pace
    picked up on Mr. Pawar’s arrival
    • The GOM Finance Secretary raised several points of concerns regarding the project, but Enron responded
    to each concern during intense renegotiations.
    • Finally the PPA was readied and signed on Dec 8 of 1993.
    Future of the Project
    There was a speculation that the Congress Party might get out of power and their sharpest challenge was to come
    from the opposition alliance of two political parties: the BJP and SS and they were known to oppose foreign
    investment in the consumer goods sector.

    A brief timeline of what happened later on in the project


    •1993- PPA signed.
    •1995- Construction of phase I began;  Change in Government of Maharashtra;  Project Scrapped.
    •1996- Renegotiation;  Construction of phase I resumes.
    •1999- Phase I becomes operational.
    •2000- MSEB begins to Default.
    •2001- Enron files for Bankruptcy; DPC shuts down.
    •July 2005 – The plant is taken over by RGPPL.
    •Oct.2005-The project was taken over by a conglomerate that included public sector banks, MSEB, GAIL, NTPC and
    some financial institutions.
    •May 2006 – Ratnagiri Gas and Power Pvt Ltd (RGPPL), a special purpose vehicle started operation.
    THANK
    YOU!

    References:
    • Dabhol Power Project Case Study from HBS Case Studies
    • http://indianpowersector.com/home/about/case-study/

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