Enron Entry Strategy Why Dabhol State board was profitable and this reduced the revenue risk - the state board could pay Enron for power generated A large demand for power existed in the state Maharashtra already generated close to 10,000MW (12% of India’s generation capacity) Location was close to a port making it easy to transport fuel for the power plant. Maharashtra was one of India’s more developed states – institutional risks were comparatively lesser
Transcript
Enron Entry Strategy
Why Dabhol
State board was profitable and this reduced the revenue risk - the state board could pay Enron for power generated
A large demand for power existed in the state
Maharashtra already generated close to 10,000MW (12% of India’s generation capacity)
Location was close to a port making it easy to transport fuel for the power plant.
Maharashtra was one of India’s more developed states – institutional risks were comparatively lesser
Enron Entry Strategy
In Dabhol
IAS officer in charge held talks with Enron
Enron officials spoke to MSEB who were open to entering into an agreement
Enron proposed a phased 2000 MW LNG plant. MSEB agreed to this.
Phased plan was drawn out to first test the concept, and then to develop the complete facility:
695 MW was to be developed in Phase 1 1320 MW was to be developed in Phase 2
Purpose of the project
• Maharashtra was one of the developed states and one of the 2 states which had a positive return on their fixed assets, thus revenue risk was relatively lower in Maharashtra than in other states
• Dabhol was a good location for the power plant to close proximity to a deep-water port which would require less dredging and save costs
• Dispute resolution clause in the PPA through international arbitration mitigated some of the local judicial risk in case of any disputes
• Enron had structured the project as a PPP very carefully, building in guarantees into the contract. Signing PPAs ensured that atleast 90% of the power generated would be bought and thus, ensured a constant demand throughout the operation of the plant
• The tariff structure mitigated all currency risk, inflationary risk and fuel price risk for DPC and was borne by MSEB/GoM/GoI
• They had partnered with firms like GE and Bechtel who could provide them sound technical expertise • They undertook the investment in two stages. This was a good step as any problems noted in the first phase of
the project could be rectified in the second phase• They had a strong financial backing for their project, through the strength of Enron’s own balance sheet and by
