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The Dabhol Power Project in

Group 3
Need for the establishing power project:
• Power generation growing @10% per annum,but demand
continued to outstrip power supply resulting in 3.1% loss in
industrial production

• Per capita consumption of electricity in India - 190 Kw (

compared to 600 KwH in Malaysia) not driven by lack of
• Indian Government Electricity power survey committee
estimated that 50000 MW of additional capacity would be
needed by year 2000
• Power shortages were unevenly distributed across the country
resulting in restricting development in Industrial
sector.However power grid corporation was set up in 1989 to
construct and operate inter-state and inter-regional
transmission system.
Need for Privatisation and FDI in Power industry:
• SEB’s were unable to meet the shortages in power sector
because most of them are close to insolvency
• Estimates suggest that SEB’s owned $500 million in arrears to
Central Government own generating company.
• Average cost recovery is 78%
• Huge losses due to :
– Inefficient pricing policy
– Poor maintenance and inefficiencies.Average Plant load
factor was 58% with some reporting around 30%
– Transmission and Distribution averaging 22% of generated
power due to old equipment, few substations, poor quality
cabled and widespread theft
Dabhol Project
• About the company, Enron Corporation:
–Provider of natural gas services
–With the increase in demand for power, it started
providing services in energy solutions
• Enron began investigating Indian power sector
after an advertisement was placed for a 200
MW plant near Delhi.
• Enron decided to build power plant in
Maharashtra with natural gas as fuel as
domestic resources are highly controlled.
• Required documents were drafted with roles of
MSEB and GOM including PPA, Tariff structure.
Impact of Political risk on Dabhol Project
• There was a change of Government in 1996 which was
against FDI.It performed an analysis on project and
stopped it stating the following reasons
–No Transparency
–No bidding process
• Enron tried it’s best to revive the project.later it
entered into an agreement with MSEB.It completed
phase 1 with a delay of two years.This resulted in
• MSEB declared it cannot buy power from Enron.
• Finally power plant was overtaken by Ratnagiri Gas
and Power Private limited in July,2005.
What could have been done
●Enron could have maintained the transparency
from beginning to the public.
●It could have emphasized on the importance of
need for power generation to the public
●Trying to reduce the misconceptions the public
had on Foreign direct investment.
●It could have reduced rate of return
Chad Cameroon Project
Role of World Bank
• World Bank was involved in the project primarily for risk mitigation.
• The sponsors needed someone for protection from political risk.
They felt the presence of multilateral financers can help mitigate
this risk
• The main risks included-
– These were one of the poorest countries in the world. Corruption was
also rampant
– Chad was under the authoritarian rule of President Idriss Deby. There
was huge political instability under his regime
– President Biya of Cameroon was also known for his poor human rights
– It was necessary for the host countries to ensure they get back their
– It was necessary for the protecting the 17 rivers and 5 habitat zones
along the pipeline
Role of world bank
• The World Bank did excessive consultation both
from supporters and opponents
• They involved 45 scientists and hosted 145
meetings with 250 NGO’s. They also included 900
• The assessment and public review took about 5
years, after which a 3000 page environmental
assessment report was made
• The analysis and the contingency plan addressed
three key topics-environmental impacts,
indigenous people and long term sustainability
Pros Cons
The project was an ideal means to The project had huge risks. There was the
eliminate poverty in Chad and Cameroon potential risk to halt the project as the
political situation was very poor in both
the countries
The project was very well analysed and The risks associated with environment and
studied by the World Bank social causes were left to the local
The Project was commercially very viable Project returns were highly dependent on
and attractive the oil price and the volume assumptions
The consortium was complex and involved The revenues from the project for the
many players. The World Bank had governments were comparatively lower
expertise in such complex projects than the aid taken for the project
The Revenue management plan had The private participants( Exonn) had a very
proper audit and overseeing mechanisms poor environmental record.