Background on Enron’s Dabhol Power Project
Enron is a majority owner of Dabhol, a massive combined-cycle power plant on the western coast of India's Maharashtra state. The Dabhol power plant was initiated in 1992 and took nine years to commence operation. The total project cost is $2.9 billion. Enron owns 65%, Bechtel Enterprises owns 10%, General Electric owns 10%, and the Maharashtra State Electricity Board owns 15%. The project is 2,184 megawatts, 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 over $1 billion in costs for the plant. I. CHRONOLOGY OF DABHOL POWER PROJECT India opens its power sector to private foreign investors. Enron begins investigating opportunities in the Indian power sector. 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. 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. The parties negotiate the terms of the deal. Enron obtains the necessary approvals for the project from the Indian government. The Dabhol Power Company and MSEB sign the power purchase agreement. Indian political parties opposing the ruling Congress party campaign on an antiEnron platform. Enron seeks and obtains $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). 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.
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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. The Munde Committee issues a sharply critical report that recommends scrapping the Dabhol project. The state government acts on this advice. 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 O’Leary, warn India that its action will discourage foreign investment. 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. The state announces it will accept a revised agreement. The state and the Dabhol Power Company finalize the terms of the revised agreement. Legal challenges to the project by Indian groups continue, but are eventually dismissed. 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. Dabhol Phase I (740 megawatts) begins generating power. 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. Enron begins arbitration proceedings. Secretary of State Colin Powell raises Enron’s problems regarding Dabhol in a discussion with India’s foreign minister. The Dabhol Power Company ceases operation of the Phase I portion of the plant and halts construction on the 90% completed Phase II portion (1,444...