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ENRON

Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that it s reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into questions the accounting practices and activities of many corporations throughout the United States and was a factor in the creation of the Sarbanes Oxley Act of 2002. The scandal also affected the wider business world by causing the dissolution of the Arthur Andersen accounting firm. Enron filed for bankruptcy protection in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It emerged from bankruptcy in November 2004, pursuant to a court-approved plan of reorganization, after one of the biggest and most complex bankruptcy cases in U.S. history. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and focused on reorganizing and liquidating certain operations and assets of the pre-bankruptcy Enron. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. Enron traces its roots to the Northern Natural Gas Company, which was formed in 1932, in Omaha, Nebraska. It was reorganized in 1979 as the leading subsidiary of a holding company, InterNorth which was a highly diversified energy and energy related Products Company. Internorth was a leader in natural gas production, transmission and marketi ng as well as natural gas liquids and an innovator in the plastics industry. It owned Peak Antifreeze and

developed EVAL resins for food packaging. In 1985, it bought the smaller and less diversified Houston Natural Gas.[5] The separate company initially n amed itself "HNG/InterNorth Inc.", even though InterNorth was the nominal survivor. It built a large and lavish headquarters complex with pink marble in Omaha (dubbed locally as the "Pink Palace"), that was later sold to Physicians Mutual. However, the departure of ex-InterNorth and first CEO of Enron Corp Samuel Segnar six months after the merger allowed former HNG CEO Kenneth Lay to become the next CEO of the newly merged company. Lay soon moved the company's headquarters to Houston after swearing to keep it in Omaha and began to thoroughly re-brand the business. Lay and his secretary, Nancy McNeil, originally selected the name "Enteron" (possibly spelled in camelcase as "EnterOn"), but, when it was pointed out that the term approximated a Greek word refer ring to the intestines, it was quickly shortened to "Enron". The final name was decided upon only after business cards, stationery, and other items had been printed reading Enteron. Enron's "crooked E" logo was designed in the mid-1990s by the late American graphic designer Paul Rand. Rand's original design included one of the elements of the E in yellow which disappeared when copied or faxed. This was quickly replaced by a green element. Almost immediately after the move to Houston, Enron began selling off key assets such as Northern PetroChemicals and took on silent partners in Enron CoGeneration, Northern Border Pipeline and Transwestern Pipeline and became a less diversified company. Early financial analysts said Enron was swimming in debt and the sale of key operations would not solve the problems.

Products :Enron traded in more than 30 different products, including the following: Products traded on EnronOnline Petrochemicals Plastics Power Pulp and paper

Steel Weather Risk Management Oil and LNG transportation Broadband Principal investments Risk management for commodities Shipping / freight Streaming media Water and wastewater

Online marketplace services


Enron Online (commodity trading platform) Click Paper (transaction platform for pulp, paper, and wood products) Enron Credit (the first global online credit department to provide live credit prices and enable business-to-business customers to hedge credit exposure instantly via the Internet.) EPowerOnline (customer interface for Enron Broadband Services) Enron Direct (sales of fixed-price contracts for gas and electricity; Europe only) Energy Desk (energy-related derivatives trading; Europe only)

Energy and commodities services


Enron Power (electricity wholesaling) Enron Natural Gas (natural gas wholesaling) Enron Clean Fuels (biofuel wholesaling)

Enron Pulp and Paper, Packaging, and Lumber (risk management derivatives for forest products industry) Enron Coal and Emissions (coal wholesaling and CO2 offsets trading) Enron Plastics and Petrochemicals (price risk management for polymers, olefins, methanol, aromatics, and natural gas liquids) Enron Weather Risk Management (Weather Derivatives) Enron Steel (financial swap contracts and spot pricing for the steel industry) Enron Crude Oil and Oil Products (petroleum hedging) Enron Wind Power Services (wind turbine manufacturing and wind farm operation) MG Plc. (U.K. metals merchant) Enron Energy Services (Selling services to industrial end users) Enron International (operation of all overseas assets)

Energy transportation and upstream services


Natural Gas Transportation Northern Border Pipeline Houston Pipeline Transwestern Pipeline Florida Gas Transmission Northern Natural Gas Company Natural Gas Storage Compression Services Gas Processing and Treatment Engineering, Procurement, and Construction Services

EOTT Energy Inc. (oil transportation)

INDIA
Enron is well known for its actions in India. Around 1992 India came to the United States to find energy investors to help India with its energy shortage problems. Many countries were wary of doing business with India; Enron was not. In December 1993, Enron inked a 20-year power-purchase contract with the Maharashtra State Electricity Board. The contract allowed Enron to construct a massive 2,015 megawatt power plant. Construction would be completed in two phases and Enron would form its own power company to help manage the plant, the Dabhol Power Company. The power project was the first step in a $20 billion scheme to help rebuild and stabilize India's power grid. Enron, GE (who was selling turbines to the project), and Bechtel (who was actually constructing the plant), each put up 10% equity.

In 1996 when India's Congress Party was no longer in power, the Indian government assessed the project as being excessively expensive and refused to pay for the plant and stopped construction. The Maharashtra State Electricity Board (MSEB), the local state run utility, was required by contract to continue to pay Enron plant maintenance charges, even if no power was purchased from the plant. The MSEB determined that it could not afford to purchase the power (at Rs. 8 per unit kWh) charged by Enron. The plant operator was unable to find alternate customers for Dabhol power due to the absence of an open free market in the regulated structure of utilities in India. From 1996 until Enron's bankruptcy in 2001 the company tried to revive the project and spark interest in India's need for the power plant without success.

POWER PLANT
Dabhol Power Project (India) 2,184 MW combined cycle plant, generally considered one of Enron's most controversial and least successful projects.

Dabhol Power Company


The Dabhol Power Company was a company based in India, formed to manage and operate the Dabhol Power Plant. The Dabhol plant was built through the combined effort of Enron, GE, and Bechtel. GE provided the generating turbines to Dabhol, Bechtel constructed the physical plant, and Enron was charged with managing the project through Enron International. Starting in the mid 1990s, Unocal and its partners planned to build a 1,000 mile gas pipeline from Turkmenistan to Multan, in Pakistan. Cost: about $2 billion. Also considered was a route from Iran to Multan which was seen as feasible due to Iran's huge oil and gas reserves. However, In 1996 when the Sanctions against Iran were imposed, the FBI blocked the plan, and it was forcibly cancelled. A proposed 400 mile extension from Multan to New Delhi would bring some of the gas into India's network of gas pipelines. Cost: $600 million. A sea route from Gwadar, Pakistan, to Dabhol, India, was never considered despite both locations being coastal towns. The plant was to be constructed in two phases. In March 1995, the ruling Congress Party in Maharashtra lost to a nationalist coalition that had campaigned on an anti-foreign investment platform. In May, hundreds of protesting villagers swarmed over the site, and a riot broke out. Human Rights Watch and Amnesty International eventually charged the security forces guarding Dabhol for Enron with human-rights abuses; Human Rights Watch blamed Enron for being complicit. On August 3, the Maharashtra ordered the project to be halted because of "lack of transparency, alleged padded costs, and environmental hazards." Construction ground to a halt. By then, Enron had invested about $300 million into the project.

Phase One
Phase one was set to burn naphtha, a fuel similar to kerosene and gasoline. Phase one would produce 740 megawatts and help stabilize the local transmission grid. The power plant's phase one project was started in 1992 and finally completed in two years behind schedule.

Phase Two
Phase two would burn liquefied natural gas (LNG). The LNG infrastructure associated with the LNG Terminal at Dabhol was going to cost around $1 billion.In 1996 when India's Congress Party was no longer in power, the Indian government assessed the project as being excessively expensive and refused to pay for the plant and stopped construction. The Maharashtra State Electricity Board (MSEB), the local state run utility, was required by contract to continue to pay Enron plant maintenance charges, even if no power was purchased from the plant. The MSEB determined that it could not afford to purchase the power (at Rs. 8 per unit kWh) charged by Enron. The plant operator was unable to find alternate customers for Dabhol power due to the absence of an open free market in the regulated structure of utilities in India. From 1996 until Enron's bankruptcy in 2001 the company tried to revive the project and spark interest in India's need for the power plant without success. The project was widely criticized for excess costs and deemed a white elephant. Socialist groups cited the project as an example of corporate profiteering over public good. Over the next year Enron reviewed its options. On February 23, 1996, Maharashtra and Enron announced a new agreement. Enron cut the price of the power by over 20 percent, cut total capital costs from $2.8 billion to $2.5 billion, and increased Dabhol's output from 2,015 megawatts to 2,184 megawatts. Both parties committed formally to develop the second phase. The first phase went online May 1999, almost two years behind schedule, and construction was started on phase two. Costs would now ultimately climb to $3 billion. Then everything came to halt. The MSEB refused to pay for all the power, and it became clear that getting the government to honor the guarantees would not be an easy task. Although Maharashtra still suffers from blackouts, it says it does not need and cannot afford Dabhol's power. India's energy sector still loses roughly $5 billion a year. Today, Dabhol, in which Enron had invested some $900 million, sits silent. This plant was taken over by Ratnagiri Gas and Power Private limited in July 2005.

CHRONOLOGY OF DABHOL POWER PROJECT:1991-1992 India opens its power sector to private foreign investors. Feb. 1992 Enron begins investigating opportunities in the Indian power sector. May 1992 Enron executives pitch their ideas to the Indian power secretary, who is in the United States to encourage foreign participation in the Indian power sector. June 1992 Enron and General Electric sign a memorandum of understanding with the Maharashtra State Electricity Board (MSEB) to build the Dabhol project. The operating entity is the Dabhol Power Company, a joint venture. Enron is the majority owner, while General Electric and Bechtel each own 10% shares. June 1992- The parties negotiate the terms of the deal. Enron obtains the necessary Dec. 1993- approvals for the project from the Indian government. Dec. 1993 The Dabhol Power Company and MSEB sign the power purchase agreement. 1994-early 1995 - Indian political parties opposing the ruling Congress party campaign on an anti- Enron platform. Enron seeks and obtains $635 million in financing, insurance, loan guarantees from Bank of America, ABN Amro, a group of Indian banks, the U.S. Export-Import Bank, and the Overseas Private Investment Corporation (OPIC). Jan. 1995 - Commerce Secretary Brown visits India, accompanied by Ken Lay, and oversees signing of loan agreements by the Dabhol Power Company with the U.S. Export-Import Bank and OPIC. Spring 1995 - The opposition alliance wins the election in Maharashtra in March, and in May the new government appoints a committee of state ministers (the Munde Committee) to review the Dabhol project. Aug. 1995 - The Munde Committee issues a sharply critical report that recommends scrapping the Dabhol project. The state government acts on this advice.

Aug.-Dec. 1995 - Enron enters arbitration and seeks $300 million in compensation. The state government files suit in September to void the agreement, alleging fraud and misrepresentation. U.S. officials, including Energy Secretary Hazel OLeary, warn India that its action will discourage foreign investment. Nov. 1995 - Rebecca Mark, Chairman of Enron International, meets with Bal Thackeray, the top power in one of the ruling parties. Afterwards, negotiations resume between Enron and the state. Jan. 1996 - The state announces it will accept a revised agreement. Feb. 1996 - The state and the Dabhol Power Company finalize the terms of the revised agreement. 1996-1997 - Legal challenges to the project by Indian groups continue, but are eventually dismissed. 1997 Enron obtains approval from the Indian government to expand the Dabhol liquified natural gas terminal to allow it to process 5 million metric tons annually. May 1999 Dabhol Phase I (740 megawatts) begins generating power. Jan. 2001 The state of Maharashtra stops paying for Dabhol as of its $22 million December 2000 bill. The state subsequently seeks to cancel the power purchase agreement. DEVELOPMENT OF THE DABHOL PROJECT:Enron began to investigate opportunities in the Indian power sector in 1992, when India first opened its power sector to private foreign investors. In May of that year, Enron executives pitched their ideas to the Indian power secretary, who was in the United States to encourage foreign participation in this sector By June 1992, Enron had selected Dabhol as the site for a project, and, with General Electric, Enron entered a memorandum of understanding with the Maharashtra State Electricity Board (MSEB) to build the Dabhol project The operating entity was the Dabhol Power Company, which is a joint venture During most of the project development period, Enron owned 80% of the project, while General Electric and

Bechtel each owned 10% (In late 1998, MSEB purchased part of Enrons equity stake, which dropped Enrons share to 65%). The parties negotiated the project terms over an 18-month period, which culminated in the Dabhol Power Company and MSEB signing a power purchase agreement in December 1993. Enron also obtained the necessary approvals for the project from the Indian government during this period. Over the next year, Enron developed the project financing, obtaining $635 million in financing, insurance, and loan guarantees from Bank of America, ABN Amro, a group of Indian banks, the U.S. Export-Import Bank, and the Overseas Private Investment Corporation (OPIC). As discussed below, the initial agreement was modified early in 1996, and the project was expanded. In addition, in 1997, the Indian government approved Enrons request to expand a portion of the project, the Dabhol liquified natural gas terminal, to allow it to process 5 million metric tons annually. CONTROVERSY OVER DABHOL:The Dabhol project was highly controversial in India from the start, and it was associated with allegations of malfeasance and corruption at the highest levels. While controversy has been ongoing throughout the life of the project, there are several key areas of dispute. These include the process and content of the original agreement, the process and content of the revised agreement, the projects effects on local communities, including human rights violations, and the cost of the power when the project ultimately came on line. An official report on the Dabhol project was commissioned by the Indian government and published in 2001 by Madhav Godbole, an independently minded bureaucrat. The report condemned the circumstances surrounding the approval of the project, finding that a severe abuse of governance and a lack of transparency marked [the projects] fast -track approval.
   

Criticisms of the Initial Agreement: Criticisms of the Revised Agreement: Local Opposition and Human Rights Violations Dispute Over the Cost of Power

ASSIGNMENT OF GEO POLITICAL

ENRON FAILED IN INDIA

SUBMITTED TO PRO. Vijesh jain

SUBMITTED BY
SARIKA NISHANT DUBEY PULAK BOHRA VIKASH KAUSHIK PRAMOD KUMAR