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Singhal 1 of 37
Instructions
This is a team assignment with the class divided into
five teams – 1, 2, 3, 4, and 5. The teams will be rated groupwise i.e.
the marks will be same for all members of the same team.
• Each group is required to submit a written report in regard to its study for
evaluation within 7 days before the audio session. Please mark the Names,
Roll Nos., and Group No. on the report.
Read carefully the attached write-up “The Unfinished Story of the Enron
Project” and answer the questions at the end of the summary (page 3).
Whilst the participants will be required to know the complete case study,
for the purpose of assignment, the class will be divided into five groups,
each group presenting a write-up on the area assigned in the questions.
-------------------------------------------------
Team Formation
The participants are required to form 5 teams, viz:
The Names and roll numbers of participants in each team must be circulated
to the class and facilitator 7 days before the audio session by email.
--------------------------------
The project had been contentious right from inception due to techno-
economic and commercial considerations unfavourable to MSEB as well as
allegation that bribery and corruption have played a part in getting the
contract signed. In January-June 2001, there were several exchanges
between MSEB and DPC that had generated quite many sparks with threats
to terminate the ongoing contract. It was said that the entire negotiations
with Enron were an illustration of how not to negotiate, how not to take a
weak position in negotiations and how not to leave the initiative to the other
side. It was also an example of the perils of signing a contract in haste, a
complete lack of transparency in negotiations in making a contract and of
not properly analysing the implications of the deal.
Dabhol Plant’s Phase-I (740 MW) began operating on naphtha in May 1999,
since Dabhol’s LNG Terminal was not ready. Due to post-contract
controversies between MSEB and DPC, the plant was shut down in May 2001
after MSEB refused to buy expensive power whose rates had tripled since
the contract was signed. The plant’s Phase-II remained incomplete.
10. What are the main learnings from the Enron Project?
– D.C. Singhal
Part 1
Enron’s Dabhol project was the single largest foreign direct investment
project in India at the time costing nearly U.S.Dollars 3 billion. It was a two-phased
project by Dabhol Power Corporation (DPC) for building, owning and operating a
2184 MW super thermal power plant using imported liquefied natural gas (LNG) as
fuel. The Dabhol Power Company and the Maharashtra State Electricity Board
(MSEB) had signed a twenty-year power purchase agreement (PPA) for offtake of
power by MSEB.
The project had been contentious right from inception due to techno-
economic and commercial considerations unfavourable to MSEB as well as
allegation that bribery and corruption have played a part in getting the contract
signed. In January-June 2001, there were several exchanges between MSEB and
DPC that have generated quite many sparks with threats to terminate the ongoing
contract. It was said that the entire negotiations with Enron were an illustration of
how not to negotiate, how not to take a weak position in negotiations and how not
to leave the initiative to the other side. It was also an example of the perils of
signing a contract in haste, a complete lack of transparency in negotiations in
making a contract and of not properly analysing the implications of the deal.
• Phase II –
• LNG facilities: To receive, regassify and supply to the power plant 5 MTPA-
LNG (only 2.1 MPA LNG required for Phase I & II)
The Equipment
The Investment
* MSEB was unable to fund more than 15% stake at this stage
• Price – Fixed tariff US Dollars 1.3 billion per year (US Dollars 26 billion in 20
years) covering DPC’s cost of plant, operation and other expenses and balance
would be profits.
• PPA based on guaranteed purchase of power at 90% plant load factor (PLF)
GOI MERC
dsc-dpc-linkages
• On June 15, 1992, Enron and GE representatives came to India and discussed
with GoI officials. On June 17, 1992, the Enron team went to Maharashtra,
surveyed the sites, met Maharashtra government officials and signed an MoU
on June 20, 1992 to build Dabhol Power Project.
• Thus in less than three days, the MoU was signed between Enron and MSEB
for a power project involving US Dollars 3.1 billion using entirely imported fuel
(LNG) and with largely imported equipment which no one in the government
had any experience or expertise and with a party whose history, business or
accomplishments were not known. The Secretary, Energy, Government of
Maharashtra (GoM) instructed the MSEB to finalise certain points so that a
proper PPA could be signed “in sixty days”.
• Although the MoU is not a legally binding document, the deal making process
was criticized for its haste, its lack of transparency and the absence of
competitive bidding.
• After the agreement was signed, the Maharashtra Government requested the
World Bank to review the project. Initially, Enron was “convinced that the World
Bank has full and scientific knowledge of the working of the Power Sector in
India”. This is despite the fact that the then Finance Secretary felt that Enron
would pre-empt the financing of other projects (and hence was not in favour).
• The World Bank found many irregularities in the agreement. The government
had not provided an “overall justification for the project” and the MoU was “one
sided” in favour of Enron. It encouraged the government to “verify Enron’s
experience” as an electricity generating company before proceeding with the
project.
• Later in its report, the World Bank advised that the Enron Project –
i) is unviable
ii) does not satisfy the test of least cost power
iii) is too large and
iv) is not justified by the power demands of Maharashtra.
It clearly mentioned on April 30, 1993, that the project was not a least cost
choice for base load power generation compared with Indian coal and local
gas. Even imported coal is a better option as against imported LNG with the
current environmental standards.
• Enron’s reaction was that the “World Bank’s opinion can be changed” and that
they would engage a “public relations firm to manage the media”.
• The MSEB and GoM addressed the concerns of the World Bank by
emphasising the environmental benefits of using natural gas, slightly reducing
the plant size and assuring the GoI that there would be power sector reforms to
adjust electricity tariffs.
• In retrospect, the concerns of the World Bank proved well founded. Reforms
did not occur, the tariff was too high and the system was not able to absorb the
capacity, even of Phase I which was operational since May 1999. In hindsight,
it is easy to argue that the decisions made at the time were not justified, but in
this case these issues were raised and dismissed at the time the original
decision was made.
• The MoU did not provide specific details about the costs of the project that were
required under the Indian Law. When CEA asked DPC for the detailed project
costs to justify the rate of return, DPC replied that the tariff was guaranteed
regardless of the capital costs and hence the request was irrelevant and did not
furnish any information beyond the capital cost summary already provided (1).
• The MoU did not specify when the 20-year contract and its associated
payments would begin, when power would be available or when the contract
was signed.
• There was no provision to audit the project over time to ensure that the price
MSEB paid to DPC was commensurate to the actual cost of electricity.
• The MSEB had agreed to a guaranteed minimum fuel purchase but the fuel
supplier was not bound for the minimum fuel supply.
• The MSEB had not verified whether the price of fuel was economical.
• Hence the CEA concluded that the entire MoU was one sided in favour of
Enron.
• On August 29, 1992, Enron submitted its detailed application to GoI’s Foreign
Investment Promotion Board (FIBP).
• On December 12, 1992, the foreign Investment Promotion Board notified Enron
to split the project into two phases, scale it down and reduce the cost
accordingly to which Enron agreed.
• On February 3, 1993, the GoI notified Enron that its project was approved and
that the GoI would apply for financing to the World Bank and other institutions.
• On April 30, 1993, the World Bank turned down the request for financing (for
reasons given earlier)
• On November 20, 1993, the CEA gave a provisional clearance to the project to
finalise financing.. This provisional clearance was used by Maharashtra
Government for signing the PPA between MSEB and DPC on December 8,
1993. This was treated as highly confidential document.
PROJECT IMPLEMENTATION
• In March 1995, following the state elections, the Congress (I) government
under which the original PPA was signed gave way to Siv Sena led government
in Maharashtra. Whilst Phase I was under implementation, the new government
scrapped the project on the grounds of alleged corruption and high costs. It
appointed a committee led by Deputy Chief Minister, Gopinath Munde on May
3, 1995 to review the project.
• The renegotiated deal was severely criticized in Indian press. It was still one
sided in favour of Enron and open to all the core objections of the original deal.
It further committed the government to almost three times the original capacity.
The renegotiated deal was perceived as eyewash to save face and push the
project through.
• Phase I was completed on May 13, 1999. Phase II is scheduled for completion
by end 2001.
• In the meantime, the rupee-dollar exchange rate went up from Rs 32 when the
contract was signed to Rs. 46 in December, 2000 and the price of oil went up
from US$15 per barrel at the time of signing the contract to US$28 per barrel in
December, 2000.
• Since the power tariff was in US dollars and escalation was accepted in fuel
prices, the tariff increased from Rs.2.4 per unit to Rs 7.8 per unit whilst cost of
generating power from coal stood at Rs 1.25 per unit of Tata Electric
Companies and Rs 2 per unit of Bombay Suburban Electric Supply (BSES) in
December 2000.
• The higher power tariff increased the burden on MSEB resulting in delays and
defaults in its payments to DPC in December 2000 and January 2001 which
were under arbitration. The DPC had invoked the counter guarantees for the
payment defaults (but to no avail).
• In April 2001, the Godbole Committee submitted its report with following main
recommendations.
• On May 19, 2001, the DPC issued a pre-termination notice (PTN) to MSEB due
to payment defaults.
• On May 24, 2001, the MSEB rescinded the PPA on grounds that the power
plant did not conform to the PPA and is not capable of meeting the contractual
terms regarding operating characteristics and dynamic parameters. This was
evinced as DPC failed to deliver the base load of 657 MW within 180 minutes
on three occasions – Jan. 28, Feb.13 and Mar. 29. DPC failed and neglected
to adjust the rebate in the billing statement. This issue of rebate payment was
before an arbitration panel.
• The DPC had admitted in a letter to MSEB after January 28 that their power
plant did not conform to the PPA and is not capable of meeting the contractual
terms in respect of operating characteristics and dynamic parameters. The
MSEB thus justified the termination of the PPA.
• On May 28, 2001, the MSEB stopped taking power from DPC since DPC
objected to MSEB’s notice with the argument that MSEB cannot keep
extracting electricity and rescind the PPA.
• MSEB had slapped a penalty of Rs.401 crores for the default in power supply of
January 28. This was followed by another penalty of Rs.400 crores for default
of February 13.
Procurement and Construction). After the expiry of this deadline, the EPC
contractors have pulled out.
• Due to project controversies, the lenders held back about US Dollars 250
million of committed debt. About 10 to 15 percent work was still to be done on
Unit I of Phase II that was to be operational in June 7, 2001.
• DPC had experienced a cost overrun of about US $400 million taking up the
project cost from $2.9 billion to $3.3 billion. This was due to increase in
equipment cost. The financial institutions had refused further exposure to the
project. This would delay the Phase II completion due in end 2001.
• DPC had requested the Indian Financial institutions led by IDBI to reduce their
lending rates. Acceding to DPC request, the lending rates were reduced from
21 per cent to 16.5 percent. This downward revision was not conditional to
DPC’s passing the benefit to MSEB. The IDBI CMD said that such
concessions are made to several (Indian) clients and the concession is not
unprecedented.
• Change of strategy coupled with DPC’s feud with MSEB led to the decision by
Enron to pull out of DPC. Hence a suitable buyer had to be found for the
project.
• The Indian financial institutions led by IDBI had lent money to DPC as well as
stood security for the loans of foreign financial institutions to DPC. Hence the
Indian financial institutions had every reason to be concerned about DPC
shutdown and to find a solution.
• The financial institutions (FIs) had pegged a loss of $0.5 million per day due to
stoppage of power from Phase-I and delays in completion of Phase-II that was
90% complete. Indian FIs exposure to the project was about Rs.5170 Crores
plus guarantees.
• Earlier, the FIs had proposed NTPC taking over the project. However, the
government did not allow such backdoor nationalization of independent power
producers (IPPs).
• After the shutdown, the interested buyers for DPC’s power plant are Tata
Power Company (TPC) and the Bombay Suburban Electricity Supply Company
(BSEB). The interested buyers for LNG facilities are GAIL, Shell, Total Fina Elf
and Gaz de France (GdF). These companies were to carry out open, fair and
transparent due diligence.
3. The lenders would also advertise for inviting expression of interest (EoI)
from other possible bidders.
5. On Jan 31, 2002, the due diligence would begin in London for examining
books and documents. The bidders would be given four days to complete
this exercise.
6. This would probably be followed by a two-day site visit to the plant by each
bidder.
10. The final bid would take place by April 15, 2002. This was expected to end
the uncertainty of the project.
• Whilst Enron had expected $ 1 billion for its stake in DPC, the bidders expect to
pay about half after due diligence. Consideration was also to be given to the
amount required to re-start Phase-I generation and for completion and start-up
of Phase-II.
• The DPC in the meantime shifted some critical plant components (e-chips,
coded CDs etc) and confidential documents to a “safe place” (Enron’s
headquarters at Houston). The Customs have held DPC prima facie
responsible for violating the Customs Act. The Indian lenders have asked DPC
to return these items.
• MSEB and DPC were continuing to fight various cases in different courts.
• DPC subsequently laid-off all its workforce (some 12,000 plant employees)
except just a few security.
• On June 20, 2001, Bechtel (the engineering and construction contractor) and
GE (the equipment supplier) had demobilised their workforce and equipment
from the project site.
• While the Dabhol crisis was simmering, back at the head quarters of Enron
Corp. in Houston, Texas, serious problems began to unfold which turned the
meteoric rise of Enron to an even more dramatic fall. This section enumerates
the factors that led to the rise and crash of Enron.
• In 1985, Enron was formed by merger of Houston Natural Gas and Inter North
of Omaha, Nebraska. In the early days, the company’s main business was
operation of natural gas pipelines. There was not much money from natural
gas whose prices were then regulated.
• In February 1986, Kenneth Lay became the Chairman of Enron. He took the
company to its dizzy heights till his resignation on January 24, 2002 just after
the crash of Enron.
• Subsequently, Enron diversified itself from energy trading of gas, oil, coal and
electricity to trading in various other areas such as telecom bandwidths,
commodities, fibre optics, water, weather derivatives, newsprint and real estate.
In 1999, it created “Enron Online”, an internet based trading system.
• Enron’s aggressive and innovative method made it the largest and fastest
growing company from a $8 billion company in 1986 to the seventh largest
corporation in Fortune 500 list with sales over $100 billion by 2000 with its stock
trading of $90. Between 1996 and 2001, Enron was six times on Fortune’s list
of “America’s most innovative companies”.
Fig. 4. The
Pre Work-Session key events and stock price movements
6-Bus.Neg
in the growth and bankruptcy of Enron.
D.C.Singhal 20 of 37
• On October 16, 2001, Enron reported poor third quarter results. In many of the
new areas there were significant losses. Many of the losses were due to bad
bets Enron had made through highly leveraged derivatives. This shattered the
investor and customer confidence.
• On October 24, 2001, the crash started. The Chief Financial Officer, Andrew
Festow, was forced to resign.
• In Oct-Nov 2001, Enron revised its reports of four years from 1997 to 2000 and
showed $600 million less profit than reported earlier and a debt of $628 million.
• In Nov 28, 2001, Enron’s rival, Dynegy, withdrew $8 billion take over bid.
Enron’s stock plummeted to 26 cents from a high of $80 in Jan 2001. Standard
and Poor downgraded Enron’s brands to junk status.
• In Dec 2, 2001, Enron filed for Chapter 11 bankruptcy, the largest in US history
till the time. Enron also sued Dynegy for breach of contract.
• Enron’s collapse also entangled the firm’s auditor, Arthur Anderson, and the
Bush Administration with which Enron had close proximity. Enron and Arthur
Anderson had also shredded and destroyed many confidential documents.
• On Jan 23, 2002, Kenneth Lay resigned as Enron’s Chairman and Chief
Executive Officer.
• The swift downfall of Enron left countless investors burned-up, most employees
(more than 20,000) out of work with lost retirement savings invested in Enron
stock (US companies commonly use their managed retirement funds to boost
their own stock). The creditors of Enron filed lawsuits to try and retrieve at least
some of the money they loaned, the main creditor being JP Morgan with $2.1
billion credit.
• The insiders, board members and senior executives who were in the know
exited in time. At one stage, the privileged executives were selling Enron stock
and the unprivileged employees were being encouraged to buy. But the top
key employees got away with the cream!
The Aftermath
• For corruption, fraud and conspiracy that led to the bankruptcy of Enron, the
U.S. government prosecuted the top executives responsible for it. The results
of the main prosecutions are given below (2).
• On January 14, 2004, Andrew Fastow, the former Chief Financial Officer of
Enron pleaded guilty to the criminal charges of money laundering and
conspiracy to commit fraud and agreed to a ten year prison term. He asked for
leniency and agreed to cooperate with the shareholders’ suit. His sentence was
reduced to six years.
• On February 19, 2004, Jeffrey Skilling, the former Chief Executive of Enron
was indicted for conspiracy, fraud and insider trading. On October 23, 2006,
Skilling was sentenced to more than 24 years in prison.
• On July 8, 2004, Kenneth Lay, Enron’s founder and chairman was indicted
and charged with 11 criminal counts including securities and bank fraud and
faced up to 45 years in prison. On May 2006, Lay was convicted on six counts
of fraud and conspiracy and four counts of bank fraud. Lay died of heart attack
on July 6, 2006.
• High project costs and power tariffs. Enron had completed a similar sized plant
in Teeside, UK, for less than half the price. The power tariff for Jan 2001 of
DPC is Rs 7.8 per unit as against Rs 1.25 per unit of Tata Electric Cos. and Rs
2 per unit of BSES.
• The PPA and dealings were initially kept secret leading to the regrettable lack
of transparency in public transactions. Even in the US, Government
agreements are public under “Freedom of Information Act”.
• Enron paid US$20 million as “education gifts”. Critics consider these as bribes
to clear the project. It may be mentioned that a contract made through
fraudulent means is void.
• The CEA in 1993 did not clear DPC’s project because its tariff formula violated
the stipulated two-part structure. It gave only a “provincial clearance” to
arrange finance. This issue remains unopened in the subsequent dealings.
• Enron’s contract with MSEB was for supply of power and for fuel management.
The latter part could have been separated to impact less on the tariff.
• The World Bank had vetoed the project and did not finance it. Yet Enron was
undeterred and went ahead with the project. It is said that several unseen
factors and forces seemed to have worked to get Enron what it wanted.
• Enron had a clout with top US politicians and the US Government. It could
count on their support.
• It was perceived that if Enron pulled out of Dabhol project, the foreign direct
investment (FDI) in power projects in India may dry up. This aside, the Indo-US
relations may also suffer a setback.
• Contracts should not be signed too hastily. The party must be known as
regards its ability and past records.
• Multiple party bids must be invited not only for more competitive terms but also
for greater transparency.
• Proper analysis must be done as regards costs and benefits as well as terms
and conditions. This should include sensitivity analysis as would have been
required in the Enron contract such as:
• Recommendations of expert party such as the World Bank should not have
been ignored. In retrospect, all the concerns of the World Bank about Enron
Project proved well founded. The power costs were high. The system was
unable to absorb the capacity even of Phase-1 and power sector reforms did
not occur. Such issues were raised but dismissed at the time the original
decision was made.
• Contract terms should have been properly negotiated in the case of Enron
contract
i) There should have been a proper justification for the cost of power.
ii) Legal proceedings should have been agreed to in India and under Indian
Law (and not in England under English Law).
iii) The payments should have been denominated in rupees and not in U.S
dollars.
A foreign investor who negotiates a deal that extracts a fabulous price but
bankrupts the customer gets in fact a bad deal fraught with commercial and
political risk.
– D.C. Singhal
Part 2
• DPC Plant had been shut down since May 29, 2001. The FIs had lost over Rs.
2000 crores in interest income alone for about three years till May 2004. This is
aside from the deterioration and upkeep costs of the assets. The losses would
continue to mount till the project was restarted which may take more time.
• Despite early attempts for revival of the Dabhol Plant, the efforts were not
successful due to differences between the Indian and foreign lenders as well as
the foreign equity holders viz. Enron, GE and Bechtel.
• The price of power (and the load factor) acceptable to MSEB was also a matter
to be settled. This was coupled with the price of imported fuel that was loaded
with import duty and sales tax. A price of Rs. 2.8 per unit of power was finally
agreed in November 2002.
• To speed-up the process for plant revival, the GoI formed the Naresh Chandra
Committee. Their recommendations essentially were:
(1) The Indian lenders were to form a Special Purpose Vehicle (“SPV”) to take
over the offshore debt.
(3) The new sponsor would buy out the $ 120 million equity each of GE and
Bechtel as well as settle their contractual claims and take over the MSEB
stake to achieve 100% control.
(4) GE and Bechtel would recommission Phase I and complete Phase II (which
stood 93 % complete).
• Earlier, Opic had inked an option agreement to buy out its 65 % equity in the
DPC. Opic had already paid $ 57 million as damages to GE-Bechtel over their
DPC exposure. Whilst MSEB did not push its claim to buy Enron’s equity and
backed out in the last moment under GoI instructions based on legal advice
since it would have affected other court cases between MSEB and Enron.
• Reliance, the only Indian firm to bid, had offered $ 25 million for the Enron
equity in DPC. The US bankruptcy court turned this down, as it did not have the
support of the GOI. GE-Bechtel being the equity holders had the first rights.
• It may be mentioned here that there was no bidding process as such for the
Enron stake. The US court was only approving an agreement of February-
March 2004 between Opic, GE, Bechtel and Enron. The agreement was not
only for DPC but also involved the settlement of other claims. However, Opic’s
backing of GE-Bechtel could perhaps have been a deciding factor for the
transfer of Enron’s stake to them.
• Also in April 2004, Frank Wisner, the former US Ambassador to India and
subsequently the Chairman of AIG, had meetings in Delhi on the subject.
(AIG stands for the American International Group Inc., the world’s no. 2
insurer by market value). The GoI sought assurances that in case of change of
ownership of DPC, the US companies would not claim damages on the
sovereign guarantees given to Phase I of DPC. In September 2003, GE-
Bechtel had filed an arbitration action against the GoI claiming $ 1.2 billion as
damages.
• After the acquisition of the Enron stake, GE-Bechtel offered to GoI their stake in
DPC for $ 400 million. This comprised:
• Enron had pledged their DPC shares with the Indian lenders and the position
continued to remains so. Hence whilst GE-Bechtel’s takeover of Enron’s equity
consolidated their negotiating position, the transfer of ownership required the
lender’s approval.
• As per loan agreements, DPC’s equity has been pledged to Indian lenders who
could either enforce it or go in for a negotiated settlement with the defaulting
borrower. This is also provided for under the Securitisation Act 2002.
• For enforcing the pledge, the Indian lenders need to classify the DPC assets as
non-performing assets (NPAs) and provide for them. Sources said that whilst
ICICI Bank, SBI and Canara Bank had provided for their exposures, IDBI had
yet to do so. This had prevented the Indian lenders from enforcing the pledge
under which they could take over DPC’s shares. IDBI had been in talk with the
RBI for permission to treat DPC as a special case otherwise the assets would
become NPAs. Subsequently, in April 2004, the IDBI also provided for its Rs.
2121 crore exposure to DPC (Phases I & II) thus pulling down its net profits for
2003-04.
• The Indian lenders had been trying to take over the foreign debt at
40 % of its value. That was not acceptable the foreign lenders. The
Indian lenders subsequently revised the amount to 70 % of the value
so that it could be acceptable to the foreign lenders. This needed to
be negotiated.
• The SPV to be floated by the Indian lenders to take over the foreign debt and
the export credit guarantees would comprise the issue of bonds that will be
guaranteed by the GoI. These bonds were expected to have a maturity period
of five years and an interest rate in line with the other similar GoI securities.
• The total foreign exposure of Indian lenders comprised Rs. 900 crores ($ 640
million) debt and Rs. 2000 crore of export credit guarantees.
– D.C. Singhal
Part 3
THE SETTLEMENT
• 85 % equity was with GE and Bechtel (the balance 15 % being with MSEB). GE
and Bechtel who at the start of the project had 10 % equity each, had post-
shutdown acquired the Enron stake of 65 % in a settlement in the U.S. and
strengthened their negotiating position on their claims.
• The foreign debt was from the Export Credit Agency (“ECA”), a consortium of
foreign lenders headed by JIBC of Japan.
• A Special Purpose Vehicle (“SPV”) named Ratnagiri Gas and Power Private
Limited (“RGPPL”) was set-up to revive the power plant. GAIL and NTPC would
invest Rs. 500 crore each in RGPPL. MSEB would also be a partner in RGPPL
with a preferential equity of Rs. 265 crores (at zero coupon rate for five years).
• Finally in July 12, 2005, a settlement for $ 160 million was reached with Bechtel
on its claims. Earlier, a similar settlement for $ 145 million was separately
reached with GE on its claims. Hence, with total equity in Indian hands, a way
was paved for Dabhol start-up.
• It was agreed that GE – Bechtel would withdraw all cases against the Indian
side and vice versa i.e. GoI would withdraw the Dabhol related arbitration cases
in the Supreme Court. The GE – Bechtel had taken an indemnification from the
Union Government against future claims of LNG suppliers and carriers, which
the GoI considered as not holding much ground.
•The power plant, lying idle since 2001, would be first transferred to
an SPV floated by GE – Bechtel named the New Age Power
Company and then to RGPPL.
•Once the asset transfer is complete, RGPPL would undertake the construction
and commissioning activities of the power plant and the LNG terminal. The
plant is expected to start in the second half of 2006.
•One settlement was still to be made. This was with the foreign lenders. The
RGPPL would need to go for a commercial borrowing to repay $ 380 million
due to ECA. The RGPPL may float bonds to raise the requisite funds to pay
back ECA.
(2) Dabhol should switch over to LNG from restart rather than use a
costly fuel like naphtha.
(4) The plant needs to be run as a base load station aiming at a plant
load factor of over 90 %.
(2) The lenders will have to foot the extra bill if the revival cost exceeds the
original estimate of Rs. 870 crores.
(2)Tax concessions under section 80-IA of the Income Tax Act i.e.
deductions from gross total income of a specified percentage of
profits and gains by enterprises engaged in infrastructure development.
(6) Approval for the negotiated tariff of Rs. 2.30 per unit of electricity
produced for a period of five years.
– D.C. Singhal
Part 4
• Project Ownership (3) – Dabhol Power Project now a state owned enterprise
with name changed to Ratnagiri Gas and Power Private (“RGPPL”). It is a
joint venture of NTPC and GAIL. Its ownership pattern is as follows:
• Start-up Schedule (1) (2) of the three unit multi fuel power plant :
GAIL has not been able to obtain supplies from Oman or Qatar to be
delivered at Dabhol. The same suppliers agreed to supply LNG at Daheg
(Gujarat) at the Petronet Terminal.
With the current naphtha prices, the power would cost Rs. 7 per unit with
the fuel cost running to Rs 6.07 based on the current naphtha price.
Maharashtra may buy power at over Rs. 6 per unit from RGPPL based on
using naphtha. Mahadiscom (the power distribution arm of the trifurcated
MSEB) has requested approval from the authorities.
The cost overrun of the LNG Terminal at the Dabhol Plant will be from the
initial estimate of Rs. 2800 crores to Rs. 4000 crores.To meet the cost
overrun, an equity infusion plan has been made comprising:
(b) Rs. 475 crores investment each by GAIL and NTPC (each
holding 28.5 per cent stake in RGPPL.
o The pipeline links the Gujarat network having five supply sources to
Maharashtra network with only one supply source (Bombay High which
is now declining).
o The trunk pipeline is a two-way flow pipeline 577 km long with 222 km in
Gujarat and 354 km in Maharashtra and passes over 33 river crossings.
It costs about 3,200 crores. It is a 30-inch diameter pipeline and can
transport 12 million cu.m. of gas per day.
o The construction started in May 2006 and was completed in June 2007
delivering the first gas supply to the power plant on July 10, 2007.
o The gas supply will enable the plant to switch over generation from
expensive naphtha to cheaper feedstock of gas. The 740 MW Unit 2
(Block II) is expected to switch to gas in first week of August and Unit 3
(Block III) would come on gas after eight weeks. Unit 1 (Block I) is
scheduled to go on gas from December 15, 2007 enabling the power
plant capacity of 2184 MW fully on gas. (GAIL had withheld gas supplies
after pipeline completion since RGPPL had delayed furnishing an L/C).
• References :
(1) The Times Of India (New Delhi), August 10, 2006, p.15 ,
“Dabhol looks for lifeline”.
(2) The Times Of India (New Delhi), August 24, 2006, p.19 ,
“Ratnagiri Gas to delay units at Dabhol”.
(3) The Economic Times (New Delhi), September 4, 2006, p. 16,
“Ratnagiri Gas has no plans to sell Dabhol Power Plant”.
(4) The Times Of India (New Delhi), September 6, 2006, p.15 ,
“State may buy Dabhol power at over Rs. 6 per unit”.
(5) BS Reporter, Mumbai, September 12, 2007.
(6) The Times of India, New Delhi, July 14, 2007, p.24,
“Dabhol gets first supply of gas from GAIL”
(7) The Times of India, New Delhi, July 24, 2007, p. 14,
“Petronet to start gas supply to Dabhol soon”
(8) The Times of India, New Delhi, May 8, 2007, p.16,
“GAIL’s Dabhol pipeline gets going”
GENERAL REFERENCES
A) Phase I Financing
B) Phase II Financing
Internet http://www.hrw.org/reports/1999/enron/enron-c.htm