Enron - Dahbol Power Project
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Transcript of Enron - Dahbol Power Project
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Ethics
Group B 15
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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.
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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.
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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