1. Dabhol Power Project

2. “…it [ICF] is a mix of finance, economics and, like it or not, politics.”

3. Reforms Galore India opened her power sector to private foreign investors in 1991-92 Monopolistic, loss-making SEB’s abound Need to strengthen the grid, integrate the power systems and make better use of installed capacities Did we really need an IPP?

4. The Birth of DPC DPC formed in 1992 (80% Enron, 10% each GE and International Generation Co) A negotiated project under the government’s scheme of “fast track” projects – no bidding

5. The Agreement 1993: PPA between DPC and MSEB signed after necessary govt approvals obtained After Enron spends millions “educating” the Indians about the benefits of such a project Despite the World Bank evaluating it as “not economically viable” saying it would produce too much power at too high a price for the state Despite the fact that the plant’s annual requirement of LNG (3m tonnes) would cause immense strain on India's forex reserves State government guarantee backed up by one from the national government

6. State Elections And All That 1995: BJP/Shiv Sena ousts the Congress using “We’ll throw Enron into the Arabian Sea” as a campaign platform The Project scrapped following the Munde committee report US Ambassador deplores the cancellation Renegotiation committee appointed following Rebecca Mark’s meeting with Thackeray Central government re-ratifies it’s counter guarantee on the last day of it’s 13-day tenure

7. The Renegotiated Terms Phase I increased in capacity from 695MW to 740MW. Overall project increased from 2015MW to 2184MW What about Enron and the Arabian Sea?? Thrice the original size approved by the new govt within a month (original deal took nearly a year) Phase II to use LNG from an Enron project in Qatar Reduced capital costs or transfer pricing gains?? Switching from distillate to naphtha for Phase I State to still bear exchange rate risk and fluc- tuations in international fuel prices

8. The Price of Power MSEB to pay DPC a fixed component of Rs 95 cr every month irrespective of consumption At 90% PLF, approx Rs 2.80 per unit An ROE of more than 30% - nearly twice that of other power projects Would MSEB distribute that much electricity to consumers?

9. Meanwhile… Congress comes to power again in 1999 Election campaign promises to halt DPC and renegotiate tariff if necessary Complete turnaround in Dec when faced with a power shortage MSEB starts purchasing 33-60% of DPC’s output Government says reduced offtake due to slow growth of demand for power in the state

10. The Outcome MSEB runs up abominable electricity bills… …which it simply cannot afford Gets rapped by the MERC for buying expensive power from DPC Dues amount to Rs 300+ cr for Nov 2000 to Jan 2001 Exchange of a volley of notices – the judicial system gets dragged into the matter Feb 2001: Enron decides to invoke counter guarantee

11. And Finally… April 2001: MSEB clears March bill after threat from DPC to cut off supply totally MSEB stops buying power from DPC in July “The venture was always too big and too expensive for the state of Maharashtra to handle” – Godbole committee (Aug 2001) Phase 2 remains 95% complete as thousands are laid off

12. “Our experience would indicate that contracts with governmental authorities in India really do not seem to represent anything more than a starting point for a later renegotiation and are broken by Indian governmental authorities whenever and as often as they prove inconvenient or burdensome.”

13. Repudiation of the PPA following a change of government Should not happen Defeats the entire purpose of attracting such investment – will scare potential investors away from India Message to the overseas investor: India does not have the legal and administrative infrastructure to resolve a DPC type problem quickly