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Ethics

Group B 15

Evolution of Dabhol Project


Pioneering project, thus policies and approvals
are still evolving.
Decision to enter market based on
attractiveness of the market westernized
legal code, widespread use of English and
democracy
Source gas unreliable thus LNG chosen
Gulf countries chosen to supply LNG
Simultaneous construction of modern port

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 you need 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.

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 an
expensive 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. Subsequent


terrorist bombings of BSE and various commercial centres
forced the new chief minister to take office.

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.

Enrons experience in various countries


It followed a market led approach and provided solution for
complex 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 and
construction contractor. 50% of Ownership interest was to
be given to Enron Global Power and Pipelines. This project
helped EDCs success in other fast track projects.
Dominican Republic First phase project, $200 million 185
MW combined cycle plant. 20 year power purchase
agreement with government. Enron would serve as
operator, fuel manager and construction contractor. 49%
stake to be given to Enron Global Power and Pipelines.

Enrons experience in various countries


Turkey - $545 million 478 MW gas-fired power
plant. Enron would act as an operator and
turnkey contractor. Power purchase agreement
with State and guaranteed payment obligations.
Indonesia two projects, $520 million 500 MW
gas-fired power project in East Java and $138
million 136 MW gas-fired power project in East
Kalimantan. 20 year power purchase agreement
with subject to a gas contract. Enron would be
the turnkey contractor and operator. 50% stake in
both plants.

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 reduced
tariff etc.
MSEB failed to failed to pay its debts.
Enron finally decided to terminate the contract.

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