Dabhol Power Project Essay

931 words - 4 pages

Politics, Institutions and Project Finance: The Dabhol Power Project

Submitted To: Prof. Vivek Saxena Course In-charge Submitted By: Krishna Bhargav Vasa (238) Merwah Shahid Zubair (245) MBA (F&B), Term VI

1. Analyze and comment on the contractual operational risk management/mitigation arrangements that underpinned the original Dabhol Power Project. Contractual operational risk management/mitigation arrangements:

Off-take contracts:
The MSEB entered into Power Purchase Agreement (PPA) with DPC even if the capacity was unwanted for ensuring constant revenue stream for DPC. The denomination of the tariff for final payment was in USD and the tariff structure was such that it ...view middle of the document...

The diversion of water to the plant and thereby non availability of water to villages which had 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 project were a problem, discuss how Enron may have demonstrated “credible commitment” to the Dabhol Power Project. We can judge Enron’s “credible commitment” to the Dabhol Power Project on account of the following actions:  To allow Dabhol to proceed, Enron needed to secure some 150 federal and state approvals, resolve many legal issues and deal in principle with complicated federal and state taxes. Enron, achieved all these with exceptional speed.

Enron ran advertisements of the project showcasing the benefits that were associated with the project. Thus it developed a suitable environment from public support when it the project was cancelled by the state government. 80% of the state and 65% of the nation wanted the project the resume because of the publicity. Enron International chief, Mark, suggested a re-negotiation with the State Government proposing new tariff revision and PPA and even offered a stake of 30% to the State. In this negotiation, it was ready to use domestically produced naphta and LNG in the place of distilled fuel that it was importing. That would lower the cost of production and benefit MSEB.

3. Suggest approaches to manage risks in an unstable political and institutional environment associated with non-recourse/limited recourse finance. One of the major methods by which the political risk could be avoided was to include the government in the...

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