Case Questions Political Risk
Case Questions-Political Risk and Dabhol
Analyze the Case issues etc. and present the brief analysis in your report. Along with providing detailed answers to the following questions.
1. Critically analyze and comment on the contractual operational risk management/mitigation arrangements that underpinned the original Dabhol Power Project.
Ans. The various risk which underpinned the DPP are as follows -
Currency Risk:
The Power purchase agreement (PPA) also took care of the currency risk. The final price of Dabhol power was in USD and for MSEB it was dependent on the USD-INR rate. Thus, the currency risk for DPC was removed and it was borne by MSEB. All these factors’ risk was borne by the MSEB, central government and state government.
Financial Risk:
Enron negotiated a highly profitable deal for DPC whereby the real post-tax IRR of 26% to 32% while the projected IRR of project was 16%. This amounted to annual excess payments of between USD 15.9-20.4 million from MSEB.
Political Risk:
Political insurance was obtained from (Overseas Private Investment Corporation) OPIC for the coverage of equity stakes and loans bought and obtained respectively by the DPC promoters.
Environmental Risk:
There were certain environmental hazards like pollution of sea water and thereby affecting the fishing communities. The diversion of water to the plant and thereby non availability of water to villages earlier having 24 hour water supply previously. The land that was acquired to the project was mainly farmland and that resulted in relocation of many families. These were not completely settled by DPC. All these environmental risks aspects were raised as objections by individuals posting letters to the company when it published a notice in the newspaper. But DPC falsified the fact and reported that it did not receive any notices.
2. Assuming that the measures for mitigating operational risks that underpinned the Dabhol power project were a problem, discuss how Enron may have
Analyze the Case issues etc. and present the brief analysis in your report. Along with providing detailed answers to the following questions.
1. Critically analyze and comment on the contractual operational risk management/mitigation arrangements that underpinned the original Dabhol Power Project.
Ans. The various risk which underpinned the DPP are as follows -
Currency Risk:
The Power purchase agreement (PPA) also took care of the currency risk. The final price of Dabhol power was in USD and for MSEB it was dependent on the USD-INR rate. Thus, the currency risk for DPC was removed and it was borne by MSEB. All these factors’ risk was borne by the MSEB, central government and state government.
Financial Risk:
Enron negotiated a highly profitable deal for DPC whereby the real post-tax IRR of 26% to 32% while the projected IRR of project was 16%. This amounted to annual excess payments of between USD 15.9-20.4 million from MSEB.
Political Risk:
Political insurance was obtained from (Overseas Private Investment Corporation) OPIC for the coverage of equity stakes and loans bought and obtained respectively by the DPC promoters.
Environmental Risk:
There were certain environmental hazards like pollution of sea water and thereby affecting the fishing communities. The diversion of water to the plant and thereby non availability of water to villages earlier having 24 hour water supply previously. The land that was acquired to the project was mainly farmland and that resulted in relocation of many families. These were not completely settled by DPC. All these environmental risks aspects were raised as objections by individuals posting letters to the company when it published a notice in the newspaper. But DPC falsified the fact and reported that it did not receive any notices.
2. Assuming that the measures for mitigating operational risks that underpinned the Dabhol power project were a problem, discuss how Enron may have