This power point is about dabhol case study wherein case was discussed

1. DABHOL POWER COMPANY
SUBMITTED BY-
MUSKAN AGARWAL- PGP24137
MOHIT SINGH- PGP24135
NEERAJ SINGH- PGP24143
NIHAL TYAGI- PGP24146
NEHA SHARMA – PGP24144
PROJECT FINANCING AND MANAGEMENT

2. Dabhol Power Company Intro-
In April 2003, the Dabhol Power Project, a $3 billion gas-based
independent power project in western India, faced challenges as
power cuts and blackouts plagued the region. Overseas lenders
intended to terminate the power purchase agreement with the
Maharashtra State Electricity Board, putting the project at risk of
abandonment. Explore the journey of the Dabhol Power Project
and its significance in the power sector.

3. DABHOL POWER – A BRIEF HISTORY
1 The Early Years
One of the first independent
power projects in India, the
Dabhol Power Project was
signed in 1992 between Enron
and the Government of
Maharashtra. It aimed to be a
baseload gas-fired plant with a
capacity of 2015 MW.
2
Phase I Project Approvals
After obtaining approvals from
various government agencies,
the project signed a Power
Purchase Agreement in 1993.
Guarantees from the
Government of Maharashtra and
the Government of India were
also secured, leading to
financial closure in 1995.
3 Initial Setback
In 1995, due to a change in
government, Phase II of the
project was canceled, and
Phase I construction was
suspended. This setback posed
significant challenges.

4. Project Renegotiation
1 Sponsors' Actions
The sponsors filed for international arbitration and met with government
officials to showcase the project's economic viability.
2 Renegotiation Committee
In 1996, a "Renegotiating Committee" was formed to restructure the deal
with Enron. The revised Power Purchase Agreement was signed, and
construction of Phase I resumed.
3 Phase II Financial Closure
While Phase I construction progressed, Enron pursued the financial closure
of Phase II. After negotiations, the project finally achieved financial
closure, overcoming several obstacles.

5. Enron's Success and Expansion in India
Enron's achievement of financial closure for Phase II
of the Dabhol project in 1999 marked a significant
milestone. The company's success in the face of
controversies and obstacles paved the way for
ambitious expansion plans in India, including a
pipeline, regassified LNG sales, power marketing
ventures, and a broadband network.

6. The Indian Economy and
Power Sector in the 1990s
In the 1990s, India's economy underwent liberalization
efforts to dismantle the bureaucratic barriers that had
plagued the country. The power sector was identified as a
key infrastructure sector for development. However,
challenges such as lack of infrastructure and power
shortages persisted, hindering the country's progress.

7. The Indian Power Sector - Structural
Changes After Liberalization
As part of India's liberalization efforts, the power
sector experienced significant reforms. The generation
sector was the first to be opened up to private sector
participation, while reforms in the transmission and
distribution sectors were slower. State electricity
boards faced financial difficulties, and electricity
regulatory commissions faced limitations imposed by
state governments.

8. The Project Structure
Dabhol Complex
The Dabhol project
comprised a power
station and an LNG
regassification plant,
creating an integrated
energy complex.
Key Contracts
Key contracts included
the Power Purchase
Agreement, LNG sales
and purchase agreement,
EPC agreement, and
credit support
agreements, ensuring
the project's operation
and financial stability.
Tariff Structure
The project had a
unique tariff structure,
enabling a sustainable
business model for both
the project and the sole
customer, MSEB.

9. Enron's Vision for Dabhol
Pipeline Network
Enron planned to construct a
pipeline network for
regassified LNG sales,
strengthening the energy
infrastructure in western India.
Power Marketing
Venture
Enron aimed to establish a
power marketing venture to
address the growing energy
needs of the region.
Broadband
Development
Enron envisioned the
development of a broadband
network across India,
contributing to the digital
transformation of the country.

10. Perceived high tariff
The negotiated project tariffs led to a perception that the DPC tariffs
were high, especially after Phase I became operational. The cost of
power from the new liquid fuel-based DPC was significantly higher
than MSEB's older coal-based power plants. The low dispatch of the
power plant and the increase in fuel costs contributed to the higher unit
costs from DPC. This comparison to MSEB's old plants and other
centrally operated plants further fueled the perception of high tariffs.

11. MSEB's poor operational
performance & financial health
MSEB faced multiple issues that affected its performance. The policy of cross-subsidization,
where industrial and commercial consumers paid higher tariffs than agricultural consumers,
combined with an economic downturn, resulted in a decline in demand from industrial
customers. MSEB also had high transmission and distribution losses due to old equipment and
consumer theft. Poor collection efficiencies led to high gross receivables, which impacted
MSEB's ability to pay DPC's power bills.

12. Emergence of MERC
The emergence of the Maharashtra Electricity Regulatory Authority (MERC) in 1999 added to
MSEB's problems. MERC questioned MSEB's purchase of power from DPC and did not
approve the tariff increases MSEB sought.

13. Managing Public Opinion
Enron's aggressive approach to closing the deal and lack of attention to public opinion created
controversies around the project. The perception of high-cost power and the non-competitive
bidding process further fueled criticism. Enron's failure to address these concerns and attempts
to deflect criticism worsened the situation.

14. Downward Spiral
MSEB's deteriorating condition and the change in government further
complicated the situation. DPC developed various workout plans, but
none significantly alleviated MSEB's burden. The project's problems took
on political overtones, and MSEB sought to unwind the deal.

15. Invocation of GoM & GoI
Guarantees by DPC
MSEB's financial condition, public perception, and the upcoming
commissioning of Phase II led to delayed payments to DPC. DPC
invoked the guarantees from the Government of Maharashtra (GoM)
and the Government of India (GoI). MSEB raised a technical dispute
and imposed a claim, leading to further complications.

16. Escalation of Legal Dispute
DPC alleged that MSEB misdeclared the availability of its plant,
but MSEB claimed that DPC's actions were an attempt to avoid
making contractual payments. Both the GoM and GoI failed to
pay DPC's bill, citing disputes with MSEB. DPC initiated
conciliation and dispute resolution, but MSEB blocked attempts
to activate the escrow account. When conciliation failed, DPC
sought international arbitration and served a Preliminary
Termination Notice. MSEB disputed the arbitration process and
wanted MERC to adjudicate. MSEB eventually rescinded the
PPA, claiming misrepresentation by DPC.

17. Energy Review Committee - Godbole
Committee
The GoM appointed the Energy Review Committee to assess the project's approval process and
review the project tariff. The committee criticized the project's approval and demand
projections. It proposed financial restructuring and reductions in the tariff structure.
Negotiations with the committee failed, leading to the sponsors' attempt to sell their equity.
However, Enron's financial problems and bankruptcy hindered their efforts. Meanwhile, DPC
and MSEB were engaged in a legal battle over various issues.

18. Termination of DPC Contracts
As disputes escalated, lenders stopped disbursing funds, leading to non-payments to EPC
contractors and termination of their contract. With no payments from MSEB, DPC's cash reserves
dwindled, forcing layoffs. DPC prepared to issue the final termination notice to MSEB.

19. Rift between the Sponsors & Lenders
Domestic lenders were reluctant to issue the final termination notice, as they had the most
exposure to the project. They believed DPC's heavy reliance on legal recourse had worsened
the situation. The Indian Financial Institutions filed a petition to prevent DPC from issuing the
notice. Disagreements between domestic and foreign lenders hindered the sale of sponsors'
equity and completion of the project. The domestic lenders sought the appointment of a receiver
to preserve the project while restructuring was explored.

20. Rift between Domestic & Foreign Lenders
A growing rift between domestic and foreign lenders prevented a viable solution. Domestic
lenders favored acquiring the project's assets and then selling them, while foreign lenders
preferred an equity sale. The conflicting interests led to a stalemate. In April 2003, the foreign
commercial lenders terminated the DPC PPA.

21. CONCLUSION AND RECOMMENDATIONS
The project Cost should have Been more accurately estimated.
The project’s PPA should have been negotiated to protect the company from default by MSEB.
The project’s goverance structure should have been more efficient in managing the project ‘s risks and challenges.
The fuel cost should have been hedged to reduced the risk of price volatility.