Case analysis report on

Dabhol Power PlantPresented by-Jayesh Bhanushali(19)Jigar Khunt(20)Kishan Pandya(21)Lokesh Kumar(22)Manoj Kumar Mishra(23)Maulik Amin(24)

Adani Institute of Infrastructure Management(AIIM)

Introduction To fulfil the power deficiency of state, the Maharashtra government singed an MoU with

Enron Corporation in 1992. The cost of project was estimated to be 3029 Cr. The PPA was signed in 1993 for 20 year power supply to MSEB. The Phase-I was designed for a capacity of 695MW. It was planned that under phase-II the plant capacity will be increased to 2015MW from

695MW. The work of project commenced from February 1994. In 1995 the government changed, the GOM decided to cancel the phase-II of project and

suspend the work of phase-I in aug1995. The renegotiation happened in 1996 and the contract was restructured. In 1999 the government changed again and same story was repeated. 2001 the contract failed.

Background Dabhol Power Company (DPC) was promoted in March 1993 as a 100 per cent foreign

owned private unlimited liability company incorporated in India by Enron Corp., USA (Enron), Bechtel Enterprises Inc., USA (Bechtel) and General Electric Co., USA, (GE).

In 1995 the election of a new government(BJP) that was not supportive of the project led to renegotiation of tariff rates that reduced the profitability of the private firm.

In 1999 the political scenario changed and congress came to power and again the same story repeated.

The committee submitted a report on reduction of charges per unit in PPA but DPC denied to do so in negotiation process.

At the same time its main sponsor Enron got stuck in Corruption charges in USA, which results in its bankruptcy.

And this dampened the bargaining position of DPC.

Parties involved

Details of power plant

Phase 1 Capacity: 740 MW, Cost: $ 1.078 billion Fuel: Naphtha Operations began: 1999

Phase 2 Capacity: 1, 275 MW Cost: $ 3.5billion Fuel: LNG Construction suspended

Total capacity: 2, 015 MW Originally estimated cost of plant: $ 2.8 billion Capital cost calculated by DPC: Rs. 4.5 crore/MW (’96)

Contractual framework

Enron80%

Bechtel10%

GE10%

1993

Enron Bechtel GE MSEB

En-ron50%

Bechtel10%

GE10%

MSEB

30%

1998

Enron Bechtel GE MSEB

Enron65%

Bechtel10%

GE10%

MSEB15%

Finally

Enron Bechtel GE MSEB

PPA details Power Purchase Agreement for 20 years Implemented on BOO basis MSEB guaranteed to buy 90% of power capacity MSEB to receive 30% profits of DPC annually MSEB to bear any increase in fuel price MSEB to guarantee a min. fuel purchase MSEB to pay DPC $ 220 million per year

Payment Security mechanism Multi layered payment security mechanism was established for both regular

payment and termination related payment. The security mechanism consisted of

Letter of credit Guarantee from GOM Counter guarantee from GOI Escrow account covering MSEBs cash collection from selected region.

If GOM failed to pay the company has the potential to seize any state asset.

Controversies The Government imposed allegation that the procedure adopted for setting of the plant

was unethical and unlawful.

Lack of competitive bidding (transparent procurement method)

No EIA (environmental impact assessment) was carried out.

One-sided MOU signed in 20 days and totally in favor of DPC (World bank).

Interest of Investors Domestic landers filed a petition in MHC to prevent DPC from issuing final terminate

the PPA. Domestic Leander are in favor of acquiring the assets and then sale it to interested

parties. Foreign investors are in favor of equity sale of project.

Conclusion The Dabhol power project was rechristened as Ratnagiri Gas and power Pvt. Ltd.(RGPPL).

The first phase of plant operation was commissioned with a capacity of 740MW on 1st

MAY 2006.

The major stake holders were NTPC and GAIL, they were technically assisted by BHEL,

GE and BECHTEL.