You are on page 1of 5

Case Study : Dabhol Power Company Limited

इस पृष का िहनदी अनुवाद
By morgan ⋅ October 12, 2009 ⋅ Post a comment

Project Background
The power project at Dabhol is divided into two phases. Phase I comprise of 740 MW of combined cycle gas fired plant and was commissioned in early 1999. Phase II consists of generating capacities of 1444 MW. A consortium comprising of Enron Development Corporation of USA, Bechtel, General Electric (GE), and Maharashtra State Electricity Board (MSEB) was involved in the project as equity share holders. The plant is located at the port town of Dabhol in Ratnagiri district in Maharashtra, about 100 miles south of Mumbai. The particular site was chosen for the following reasons: 1. 2. 3. 4. 5. 6. 7. Investor friendly atmosphere in the State; Financial strength of MSEB which was to purchase the power generated; Requirement of power in the State; Proximity to the sea – to facilitate import of fuel from the gulf; Deep water port and ease of setting up port facilities at Dabhol; Availability of land; Requirements of development of the region.

The Dabhol Power Project
Dabhol Power Company (DPC) was incorporated as an unlimited liability Special Purpose Company (SPC) to domicile the project. The power project at Dabhol was one of the eight fast track power projects identified by the Government of India in the early stages of economic reforms. Phase – I of the Dabhol Power Project was set up and commissioned in May 1999 at a total cost of USD 1.1 billion. This combined cycle power plant was meant to use naphtha as fuel in the first phase. Construction work on the project was completed over a period of 33 months. A consortium comprising of Bechtel and GE carried out the EPC work on this phase. Alstom is the O&M contractor. The company has entered into a Power Purchase Agreement (PPA) with MSEB, which defines the respective roles and obligation of DPC and MSEB and the tariff structure in place. The PPA envisaged a pre-tax return of 25.22%, in dollar terms to the equity investors in the project. Phase – II comprised of a 1444 MW plant at an estimated cost of USD 2 billion including about USD 500 million for a re-gasification terminal. Phase – II is nearly complete with the work having stopped as a result of the ongoing dispute between the various parties to the project. The financial close had been achieved for Phase – II. The IPP is meant to be a base load power station supplying power to MSEB.

The Contractual Framework
Power Purchase Agreement
The salient features of the PPA signed between the DPC and the MSEB are summarized below: 1. DPC was responsible for design, construction, operations, maintenance and financing of the power station and fuel-handling facilities to the stipulated standards; 2. DPC was required to manage the fuel supply for the power plant including entering into fuel supply contracts in consultation with MSEB. 3. The plant was to be available for commercial power production within 33 months from the date of financial close. DPC would have had to pay MSEB USD 14,000 per day in penalties in case of failure to achieve commercial service within the stipulated 33 months. 4. DPC was to establish and declare the base-load and peak-load generating capacity of the power station at pre-determined intervals. Once base-load and peak-load capacities were established, DPC was responsible for meeting MSEB’s power demands up to 95% of those levels. DPC was obliged to pay rebates and penalties to MSEB if it failed to meet this condition. 5. MSEB and Government of Maharashtra (GOM) were to provide land for construction of the power station, power, communications, water, and approach roads during construction. 6. MSEB was required to build transmission lines from the power station to its power grid. 7. MSEB is required to purchase power from DPC. 8. The tenure of the agreement is for an initial period of 20 years from the start of commercial production. Thereafter, MSEB has the option to extend the agreement for upto ten years. 9. MSEB was required to make capacity payments once the plant was ready for commercial production even if power could not be supplied because of MSEB’s failure to construct transmission lines from the power station to the electric grid. If construction was delayed because of MSEB’s failure to provide the agreed services during the construction phase, the power tariff would be adjusted to fully recover increased costs due to construction delays

EPC Contract
DPC entered into an EPC contract with a consortium comprising of Bechtel and GE. The EPC Contract lays down the respective obligations of the Consortium and DPC with respect to complete delivery of the Project within the stipulated cost and time.

O&M Contract
The O&M Contract with Alstom records the respective obligations of the Consortium and DPC with respect to ensuring levels of service for the Project based on pre-determined levels of availability and safety.

Gas Supply Agreement
Oman Gas Company has entered into a contract with the DPC to supply gas.

Government Guarantees

GOM has guaranteed the obligations of MSEB under the PPA for both phases. GOI has counterguaranteed the GOM guarantee for Phase – I only.

Loan Agreements
Loan agreements have been entered into with numerous overseas and domestic lenders including with export credit agencies.

Tariff Structure
The power tariff consists of the following components:

Capacity Component
1. These will be determined per kilowatt-hour on base-load capacity established through tests by DPC each year. MSEB will have to make capacity payments on the established base-load capacity irrespective of the actual power it purchased 2. The capacity payment reflect two fixed costs: fixed O&M costs, and capital recovery charges to cover interest and principal payments related to the project, tax payments, and adequate returns to equity investors 3. Both O&M costs and capital costs consist of a mix of rupee and dollar payments. MSEB is required to bear the exchange rate risk. 4. The dollar component of O&M charges is indexed to the US inflation rate while the rupee component is indexed to the Indian inflation rate.

Energy Payments
1. These payments are based on the actual power output of the plant. 2. These reflect the variable costs like variable O&M costs, fuel charges, etc. 3. The dollar component of O&M charges is indexed to the US inflation rate while the rupee component is indexed to the Indian inflation rate

Share Holding Pattern
Share Holder Enron (indirectly through a series of shell companies) GE (indirectly through a series of shell companies) Bechtel (indirectly through a series of shell companies) MSRDC (thru Corporation) Maharashtra Total Power Development 15% 100% 15% 100% Original (%) 65% 10% 10% Current (%) 33% 26% 26%

The share holdings above reflect the effective equity control of the various parties in DPC. The equity control of Enron in DPC is held by its liquidators. GE and Bechtel have the option of buying the residual 33% of the equity control of Enron (through its liquidators) in DPC.

Lenders to DPC
The following lenders to DPC are in the fray:

S.N . 1. 2. 3. 4.

Lenders Foreign lenders (ABN AMRO, Standard Chartered, BNP Paribas, Calyon, CSFB, etc.) Domestic lenders (the largest being IDBI, ICICI, SBI, Canara Bank and IFCI) Export Credit Agencies (JBIC, US EXIM, Belgium OND) Overseas Private Investment Company (OPIC), USA

Approximate Stake USD 325 million Rs. 62 billion USD 480 million USD 250 million

Present Status
1. The total investment in the project so far has been about Rs. 120 billion. 2. The main promoter viz. Enron has been declared bankrupt in the USA. 3. A series of disputes have arisen between DPC and MSEB regarding payment of power dues and penalties for non-payment of these dues. Operations of Phase – I have been suspended since June 2001. Implementation on the partially completed Phase – II also ceased following the bankruptcy of Enron. The EPC contractors have claimed USD 137 million of their dues as lying unpaid. 4. MSEB has rescinded the PPA. 5. A complex set of litigations and arbitrations have been filed in London including against the Government of India (for about USD 5 billion) as the counter guarantor. 6. A number of parties have filed arbitration cases against MSEB (under the PPA), GOM (under the GOM Guarantee) and GOI (under the Counter Guarantee). 7. A number of parties have filed arbitration proceedings against GOI under a Bilateral Investment Promotion Agreement (BA or Bilateral Agreement). The BA aims to protect and promote the investment, in either Country, of investors based in the other Country. Protection is granted against expropriation (among others). Legal experts believe that a strong case of expropriation can be made against the GOI for actions taken (directly and indirectly) that will hurt the interests of the investors.


The proceedings have been filed in London. These proceedings have been stayed by

orders from various courts (Delhi, Mumbai) in India. 9. Arbitrations / cases have been filed by / against foreign lenders, domestic lenders, equity holders etc. The various parties to the arbitrations / cases include DPC, Enron, GE, Bechtel, GOI, GOM, Lenders, Customs, and others including sundry creditors.