THE DABHOL

POWER PROJECT
1.Analyse and comment on the contractual operational risk
management/mitigation arrangements that underpinned the
original Dabhol Power Project.
Contract Risk Currency Risk
The MSEB entered into Power Purchase The final price of Dabhol power was in USD
Agreement (PPA) with DPC even if the and for MSEB it was dependent on the USD-
capacity was unwanted for ensuring constant INR rate thus, the currency risk for DPC was
revenue stream for DPC removed and it was borne by MSEB, central
The PPA specified the plant load factor that and state government
DPC would operate at, but did not specify
any penalties if the plant load factor was not
met
The tariff structure was such that it increased
every year
Financial Risk Political Risk
Enron negotiated a highly profitable deal for Political insurance of US$100 million was
DPC whereby the real post-tax IRR of 26% obtained from (Overseas Private Investment
-32% while the projected IRR of project was Corporation) OPIC as a loan for the coverage
16%. This amounted to annual excess of equity stakes and loans bought and
payments of between USD 15.9-20.4 million obtained respectively by the DPC promoters
from MSEB
Credit support in the form of letter of credit,
guarantee from state gov, counter-
indemnities from central gov and a escrow 2

account over some of MSEBs payments