Enron’s power struggle in India- A case study.
Enron was an American company based in Houston, Texas. It was one of the world’s leading power and natural gas company. Fortune magazine named Enron,” America’s most innovative company” for six consecutive years. In October 1991, the government of India liberalized India’s domestic power sector, allowing private developers both from India and abroad to build and operate independent power projects with no restriction on foreign equity ownership (100% Equity). India was in great need of power. The demand for power exceeded more than supply by 25%. Forecasts suggested that an extra 140,000 mega watts of capacity would be needed by 2005, but government was not capable of doing such huge investment. The government could not fund the required expansion in capacity. In 1991, India’s then Prime Minister, Mr. P V Narasimha Rao, during one of his visits to USA to seek help from USA for India’s economic development, invited Enron to build independent power projects in the country. Enron accepted the offer and agreed to invest upto $ 20 billion, the largest FDI in Indian history. Under the plan, Enron would set up two LNG based power plants, one at Dabhol, in Maharashtra and another at Ennore, in Tamilnadu. Enron appointed Ms. Rebecca Mark, 36 years old, as the CEO for India’s operations. Even though the Central government at New Delhi principally approved the project, still Enron had to get the approval from Maharashtra State Government. Enron had to get 170 different state and central permits / licenses, handle several complicated legal issues and had to deal with complex web of state and central taxes. Enron signed a 20 year power purchase contract with the Maharashtra Electricity Board. As per the contract, the MSEB had to pay Dabhol Power Corporation (DPC) a minimum of $ 220 million a year for 20 years whether it needs the power produced or not. After the agreement was signed, the government of Maharashtra...
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