stake in the project to Entergy Corp., a utility based in New Orleans. The cost of the can-
cellation to Enron was about US$75 million. The reduction in electricity rates was partly off-
set by a drop in turbine prices and other anticipated savings in equipment costs over the
second phase of the project. Enron had a strong incentive to make concessions and reach
agreement with the MSEB, so that it would not appear that its global power strategy could
easily be derailed by local politics. By this time Enron had 29 power and pipeline projects
pending or underway in Bolivia, Brazil, China and Turkey. At the same time India needed
to reassure the international business community that disputes with foreign investors could
be resolved fairly.^8
In August 1996 the Indian lenders’ consortium led by the IDBI said that it would not
negotiate revised financing terms with DPC until all domestic court cases were settled and
DPC withdrew its arbitration case in London. A case filed by the leftwing Confederation of
Indian Trade Unions, challenging the project’s approval by various federal and state agencies,
was still pending and threatened to delay the project further. The lenders also refused to
increase their original commitment, equivalent to US$95 million, saying that the sponsors
should cover all cost overruns resulting from the interruption of work on the site, estimated
at US$160 million.^9
In December 1996, after a 16-month stalemate, the Indian high court dismissed the last
of the many lawsuits attempting to block the project. The sponsors resumed construction
work and completed financing for the first phase, which was expected to be up and running
by December 1998.
Refinancing and further litigation
At that time project refinancing was closed (again as detailed in the section ‘Basic informa-
tion’ above). By February 1997 50 per cent of the project’s first phase was completed. In
March preparatory work began for the second phase.
In May the Indian supreme court rejected a public-interest petition from an environ-
mental activist and the Centre for Indian Trade Unions alleging that the Central Electricity
Authority had cleared the project without complying with various provisions of the
Electricity Supply Act 1948, and that the Maharastra state administration had subverted sev-
eral statutory processes in granting the most recent approval. They challenged the notion that
the country had achieved a better deal in the renegotiation and called for a review of the entire
project. The court noted that the project and its PPA had been adequately examined by the
Mumbai high court and did not need a review at this stage. After the project had weathered
more than a dozen court cases at local, state and national levels, power industry analysts and
legal experts thought that the supreme court’s decision finally might have brought the litiga-
tion to an end.^10
Financing for Phase II and completion of Phase I
Financial arrangements for the US$1.87 billion second phase of the project, including the
LNG terminal and regasification plant, were completed on 6 May 1999 (again as detailed
above). The first phase of the project began commercial power production on 13 May 1999,
having been completed at a cost of US$1.08 billion. The MSEB began to purchase all the
power generated by the unit under the 20-year PPA at a price of 3.01 rupees (7.04 US cents)
DABHOL POWER COMPANY, INDIA