Enron Andddhabol Project

Case 2 Question: Enron and The Dabhol Power Company

1. Was the Indian government’s desperation to attract FDI in energy responsible for the fate of this project?

2. Which risks could be minimized for this project at the project planning stage?

Ans No 1

The faith of the project was decided based on the following reasons.

Infrastructure development is a priority for many emerging economies as they attempt to compete in the international economic system.

Following decades of unsuccessful socialist-oriented policies aimed at achieving self-sustainability in all sectors of the economy, India embarked upon an economic liberalization plan in the early 1990s that moved the economy away from its traditionally

Protectionist policies and toward policies that actively encouraged foreign direct investment.

Recognizing that India’s industrial growth depended substantially on the availability of reliable electric power, the government focused on bringing additional power capacity on line throughout the 1990s as central component of the country’s overall growth plan.

In turning to private investment for power plant development, the Indian Government gave the first few private sector projects the status of pioneer projects, or “fast-track” projects. For these fast-track projects, eight of which were eventually signed, the standard public tendering process was not followed because the Indian government was sensitive to its week negotiation position.

The Maharashtra State Electricity Board (MSEB) emerged as a front runner in preliminary discussions because of its relative success within the country and its long-standing desire to build a gas-fired plant to reduce its dependence on coal and oil.

Dabhol was selected because it was the only deep-water port in the region that would not require significant dredging.

Acting on the Government’s assurances that there would not be any tendering on the first few fast-track projects, Enron was the first IPP to...