Enron Versus Bombay Politicians

Topics: Maharashtra, India, Bharatiya Janata Party Pages: 2 (847 words) Published: May 16, 2014
International Financial Management
Homework 4
Chapter 16 Mini Case
Enron Versus Bombay Politicians
On August 3,1995, the Maharashtra state government of India, dominated by the nationalist right-wing Bharatiya Janata Party(BJP), abruptly canceled Enron’s $2.9 billion power project in Dabhol, located south of Bombay, the industrial heartland of India. This came as a huge blow to Rebecca P. Mark, the chairman and chief executive of Enron’s international power unit, who spearheaded the Houston-based energy giant’s international investment drive. Upon the news release, Enron’s share price fell immediately by about 10 percent to $33.5. Mark sprang to action to resuscitate the deal with the Maharashtra state, promising concessions. This effort, however, was met with scorn from BJP politicians. Enron’s Dabhol debacle cast a serious doubt on the company’s aggressive global expansion strategy, involving some $10 billion in projects in power plants and pipelines spanning across Asia, South America, and Middle East Enron became involved in the project in 1992 when the new reformist government of the Congress Party (1), led by Prime Minister Narasimha Rao, was keen on attracting foreign investment in infrastructure .After meeting with the Indian government officials visiting Houston in May, Enron dispatched executives to Indian to hammer out a “memorandum of understanding “in just 10 days to build a massive 2,015-megawatt Dabhol power complex. New Delhi placed the project on a fast track and awarded it to Enron without competitive bidding. Subsequently, the Maharashtra State Electricity Board (MSEB) agreed to buy 90 percent of the power Dabhol produces. Tow other U .S. companies, General Electric GE) and Bechtel Group, agreed to join Enron as parents for the Dabhol project. In the process of structuring the deal, Enron made a profound political miscalculation: It did not seriously take into consideration a rising backlash against foreign investments by an opposition...
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