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Presented by
Shubham Bhatnagar (011214) Shubham Bhatia (011213) Shashank Shakher (011196) Rutesh Kumar (011179) Raju Mahato (011167) Sharikant Sharma (011208)
INFRASTRUCTURE DEVELOPMENT
The HBJ pipeline carries most of the Indias liquid natural gas. Hazira in Gujarat, north of Mumbai would have been the end terminal of the HBJ pipeline. But in 1997, Enron international announced plans to link Dabhol because of its existing power generation facilities. Moreover, Enron said they will add about 1500 miles to the HBJ pipeline, whose development costs $300 - $900 million.
INTRODUCTION
Dabhol power company was promoted in March 1993as a 100% foreign owned private company incorporated in India by Enron corp. USA, Bechtel Enterprises Inc. USA (constructing the plant), and General Electric Co. USA (selling turbines). In phase 1, DPC will set up a combined cycle power plant with an installed capacity of 695 MW at Dabhol, Guhagar Taluka, Ratnagiri district, Maharashtra. (total area1700 acres) The power generated by the plant will be sold to Maharashtra State Electricity Board (MSEB). The cost is estimated at Rs 3029 crores (U.S $ 946.55billion)
FEASIBILITY STUDY
Need for a large power plant in Maharashtra (Generation Of Ideas) India invites Enron Corp to explore possibilities ( Initial Screening)
Is the idea prima facie promising ? (Yes)
Financial Analysis
Economical & Ecological Analysis
Technical Analysis
BACKGROUND
Enron is the majority owner of the project. Project was initiated in 1992 and took nine years to commence operation. The project is 2184 MW which Enron says is the largest gas- fired power plant in the world. The plant closed in June 2001 due to a payment and contract dispute between the Maharashtra state government and the plant owners. Enron says it incurred 1 $billion in costs of the plant.
REVIEW OF LITERATURE
The DPC project in India in the 1990s is the case in point in the power sector. The election of the new government that was not supportive of the project led to re negotiation of tariff rates that reduced the profitability of the private firm. However, when a new govt. was re elected, the condition of the pre-existing agreement was revised, resulting in the private sector consortium Dabhol power corporation (DPC) stopping the project
Four international financiers - ANZ Investment Bank, Credit Suisse First Boston, ABN-AMRO, and Citibank. US government owned Overseas Private Investment Corporation supplied the project $160 Million loans and worth $180 Million in risk insurances. The American Export Import Bank, had issued worth $300 Million as direct loan. State Bank of India, ICICI, Canara Bank, Industrial Finance Corporation of India, and Industrial Development Bank of India. Combined loan and guarantee exposure of the domestic lenders was roughly Rs 62 billion.
PHASE 2
Capacity-1,275 MW Cost- $ 3.5billion Fuel- LNG
Operations began- 1999 Construction suspended Total capacity 2,015 MW Originally estimated cost of the plant - $ 2.9 billion
PPA DETAILS
Agreement for 20 years.
Implemented on BOO basis (Build, Own, Operate). MSEB guaranteed to buy 90% of power produced. MSEB to receive 30% of the DPC profits annually. MSEB to bear any increase in fuel price.
Failure of GOM Govt. of Maharashtra was the sole purchaser of power under PPA and a 15% equity holder in the project.
It utterly failed to participate in the long workout efforts
CONTOVERSIES
Lack of competitive bidding(transparent procurement method). No EIA (Environmental Impact Assessment) was carried out. MoU signed within 20 days. One-sided MoU signed in favour of DPC (World bank).
FINDINGS
Based on this analysis, the appropriate return to equity holders should not be much greater than the cost of foreign debt given the PPA and the counter guarantee by the Government of India Payments by MSEB as per the PPA has been guaranteed by the Government of Maharashtra and counter guaranteed by the Government of India. The cost of foreign debt assumed in the Enron project is 10-11 per cent. This is not the risk-free rate but a rate which takes into account default risk. Government of Maharashtra and Government of India and possibly by other contracting parties, the premium for equity appears excessive.