Group Members
0006/50 ABHISHEK KATIYAR
0071/50 ANUJ SOOD
0106/50 BHARAT JAIN
0169/50 KOUSTOOV DUTTA
0225/50 NISHANT SOMYA
0275/50 RAHUL MITTAL
0311/50 SANTANU SHYAM
4018/20 ASHUTOSH SINGH
IIM Calcutta
A case study on Dabhol Power Plant

Indian Power Sector - Characteristics
• Huge energy demand outpacing supply India's Power Generating Capacity
Central Govt.
31%
State Govt.
65%
Private
4%
• Projected shortage of over 5,800 MW in Maharashtra only by
2001-2002 and around 50,000 MW nationwide
• Estimate of overall 3.1 % loss in industrial production
• Most SEBs close to insolvency: Average cost recovery of only
78%
• Different Tariffs for Industrial(High) and Agricultural(very low,
waive offs) consumers
• High Transmission and Distribution losses
Dominated by Public Sector

Reforms
• Invitations to private sector companies allowing 100% foreign equity
• Protection against adverse exchange rate fluctuations
• Import of equipment was permitted
• Single window clearance mechanism was introduced
• Foreign Investment Promotion Board(FIPB) was created to negotiate and approve investments
Opening up of Indian Power sector for Foreign Investment

Enron’s Global Strategy
• Vision - “to become world’s leading energy
company-creating innovative and efficient
energy solutions for growing economies and a
better environment worldwide”
• Focus on every aspect of natural gas –
exploration, production, transportation,
processing, marketing
• EDC offered complete energy solutions
– generating addition opportunities for
other Enron business units
• Introduce concept of PPP in energy
industry
• All undertakings are Project Financed with
long term contracts and appropriate
measures for Economic, Financial risks etc..
• Usage of Natural gas to take care of
environmental concerns
Positioning in India
• India, being a growing economy with huge
energy needs fit well with Enron’s vision
• By contracting the middle east for fuel
supply, EDC ensured stake of EPP in Dabhol
Project
• With reforms just coming in, India was
welcoming private investment in Power
sector
• Indian Govt. and MSEB providing for
Currency risk, commercial feasibility etc.
• India’s coal considered environmentally
unfriendly

Risk factors for Enron
• Political instability
• Lack of experience(In terms of foreign investments in India)
• Fuel wasn’t locally available
• Local opposition(because of environmental risks, displacing people)
• Technical risks
• Financial risks
• Transparency/corruption related issues
• Penalty payments on not meeting the targets
• World bank report: labeled Dabhol project as a liability

Potential benefits for Enron
• Huge untapped market
• Buying guarantee from MSEB
• High tariff rates
• Shielding from currency fluctuations (MSEB)
• First mover advantage
• Successful project completion would lead to future growth opportunities

Potential benefits for India/Maharashtra
• Growth of Indian power sector
• Development of sectors dependent on energy(Industry & Transport)
• Ability to satisfy growing demand
• Huge foreign Investments in India
• Local Infrastructure and social development
• Opening up to foreign investments in other sectors
• Employment generation

Risk factors for India/Maharashtra
• High project costs as compared to other similar projects
• Liability to pay in case of default
• Commitment to purchase 90% of the generated power
• Civil unrest
• Environmental concerns
• No prior FDI experience
• Project failure might result in loosing out on future FDI opportunities
• World bank report: Liability on the state

Enron Entry Strategy
Why Dabhol
 State board was profitable and this reduced the revenue risk - the state board could pay
Enron for power generated
 A large demand for power existed in the state
 Maharashtra already generated close to 10,000MW (12% of India’s generation capacity)
 Location was close to a port making it easy to transport fuel for the power plant.
 Maharashtra was one of India’s more developed states – institutional risks were
comparatively lesser
In Dabhol
 IAS officer in charge held talks with Enron
 Enron officials spoke to MSEB who were open to entering into an agreement
 Enron proposed a phased 2000 MW LNG plant. MSEB agreed to this.
 Phased plan was drawn out to first test the concept, and then to develop the complete
facility:
 695 MW was to be developed in Phase 1
 1320 MW was to be developed in Phase 2

Bank of America - $150 million
Overseas Pvt. Inv. Corp. - $100 million
IDBI + other Indian banks - $95 million
Exim Bank of USA - $298 million
Lenders
Purchase
contracts
Raw materials
Suppliers Purchasers
Dabhol Project
Debt
repayment
Debt
funds
Equity
investors Returns to
investors
Equity
funds
Output
Supply
contracts
Phase 1
Enron Power Corp. - $223 million
(80%) / $182 million (65%)
Bechtel Inc. - $28 million (10%)
General Electric - $28 million (10%)
MSEB - $42 million (15%)
PPA based on Capacity Payments
and Energy Payments
Enron - Rs. 2.40/KwH (initial)
Rs. 2.03/KwH (revised)
Ministerial Committee – Rs.
5/KwH (distribution + inflation
accounted)
695 MW (initial)
826 MW (revised)
Cost:
Rs. 4.49 crore per MW (overall)
Rs. 3.65 crore per MW (core)
Total cost: $920 million out of $2.8 billion
Proposed: 26.52%
Revised: 25.22%
Proposed: Distillate fuel
(Diesel) sourced locally;
later switch to LNG
Revised: Naphtha

To be worked out
Lenders
Purchase
contracts
Raw materials
Suppliers Purchasers
Dabhol Project
Debt
repayment
Debt
funds
Equity
investors Returns to
investors
Equity
funds
Output
Supply
contracts
Phase 2
Forward Contracts with
Qatar Govt. for LNG
To be worked out
PPA based on Capacity
Payments and Energy Payments
Enron - Rs. 2.40/KwH (initial)
Rs. 1.86/KwH (revised)
Ministerial Committee – Rs.
5/KwH (distribution + inflation
accounted)
1320 MW (initial)
1624 MW (revised)
Cost:
Rs. 4.49 crore per MW (overall)
Rs. 3.65 crore per MW (core)
Total cost: $1.88 billion out of $2.8
billion
Proposed: 26.52%
Revised: 25.22%
LNG

Strengths of market entry strategy
• Maharashtra was one of the developed states and one of the 2 states which had a positive return on their fixed
assets, thus revenue risk was relatively lower in Maharashtra than in other states
• Dabhol was a good location for the power plant to close proximity to a deep-water port which would require
less dredging and save costs
• Dispute resolution clause in the PPA through international arbitration mitigated some of the local judicial risk in
case of any disputes
• Enron had structured the project as a PPP very carefully, building in guarantees into the contract. Signing PPAs
ensured that atleast 90% of the power generated would be bought and thus, ensured a constant demand
throughout the operation of the plant
• The tariff structure mitigated all currency risk, inflationary risk and fuel price risk for DPC and was borne by
MSEB/GoM/GoI
• They had partnered with firms like GE and Bechtel who could provide them sound technical expertise
• They undertook the investment in two stages. This was a good step as any problems noted in the first phase of
the project could be rectified in the second phase
• They had a strong financial backing for their project, through the strength of Enron’s own balance sheet and by
the support of well know credible global lenders.

Weaknesses of market entry strategy
• They didn’t have a transparent bidding process for their contracts
• Enron didn’t consider the impact of the project on the local communities and the actual consumers of the
power they supply.
• The possible repercussions of the high cost of power compared to other projects were not considered by Enron
• The MoU was drafted in a very short span of time and it was highly one sided, favouring DPC on most
occasions.
• Such an MoU was bound to fail as when the new government actually realized that it would cause MSEB huge
amount of losses if they went ahead with the project and honoured all the terms of the contract
• No EIA (Environmental Impact Assessment) was carried out
• Proposed use of LPG as compared to cheaper alternative indigenous fuels greatly increased the cost of the
energy supplied to MSEB
• The return to equity of 25.22% was still a very high number compared to other previous power projects
• A lot of responsibility and risk was on MSEB and GoM, in such a scenario it was only fair that Enron gave
MSEB an equity stake in their project which they failed to do in the first agreement
• Enron didn’t take political risk into account.
• A changing political environment, inefficient, slow moving administration constant re-examination of projects and
disputes over the approved contracts. All these factors actually end up causing major hindrances for Dabhol down
the line

The Aftermath
• With the Enron bankruptcy, Enron's stake in DPC was bought out by GE and Bechtel.
• In 2005, it was taken over and revived by the RGPPL (Ratnagiri Gas and Power Private Limited), a company
owned by the Government of India
• The power plant Phase I which was renamed Ratnagiri Gas and Power Pvt. Ltd (RGPPL) started operation in
May 2006, after a hiatus of over 5 years. However, the Dabhol plant ran into further problems, with RGPPL
shutting down the plant on 4 July 2006 due to a lack of naphtha supply. The Qatar based company RasGas
Company Ltd. started supplying LNG to the plant in April 2007.
• The power station had resumed operations at 100% of its installed capacity of 1967 MW in 2010.
• The 1,980MW plant had closed down last March, but even when gas becomes available, the cost of power
from the plant will be over Rs 5.50 per unit, which is far higher than other sources of power for MSEDCL. There
is no incentive for MSEDCL to buy this power, since it is power surplus and is selling power to others.
• It seems the project is en route to becoming another non-performing asset (NPA).

Thank You!