fer of assets to the MSEB, which allowed the assets of the power plant to be valued. Enron
said that it intended to sell its stake in DPC to either the Indian government or Indian lenders
and two Indian power utilities had indicated an interest. At this point Enron’s own problems
with unexplained off-balance-sheet transactions were beginning to escalate following a US$1
billion charge to earnings and a US$1.2 billion writedown of shareholders’ equity disclosed
on 16 October.
In December the Indian government asked local financial institutions to help it to find
bidders for the Dabhol project. Two private Indian utilities, BSES Ltd. and Tata Power
Company, met DPC and the lenders to discuss ways to resurrect the project. They agreed to
study the project further and inspect its books over the next couple of months. Indian news-
papers reported that Enron and its co-sponsors were looking for US$1.2 billion and the Indian
bidders were prepared to pay only half that amount. Later in the month the project’s bank
lenders agreed to release US$20 million from various restricted accounts for urgent care and
maintenance of the power plant, which was deteriorating while not in operation. By this time
most of DPC’s employees had been laid off, apart from a skeleton staff for security and mini-
mal maintenance.
Fundamental problems unresolved
At this point there were still two principal problems unresolved. First, the price of power sup-
plied by DPC under the PPA was more than the MSEB could afford and more than the price
charged by other power plants in Maharastra.
Second, Maharastra had more power than it needed. In the early 1990s, when the origi-
nal PPA was negotiated, it had been projected that Maharastra would need all the power that
the Dabhol project could produce and more. However, even though the Indian economy grew
at more than 7 per cent for several years in the late 1990s, Maharashtra’s economy had not
grown as fast since then. The state had a total installed generation capacity well above the
highest peak demand ever recorded and therefore power was needed from DPC only during
peak demand periods or when other plants were shut down for maintenance.^16
A review committee commissioned by the Maharastra government and chaired by
Madhav Godbole, a former home minister in the federal government, proposed that:
- DPC’s shareholders should write off three quarters of their US$1 billion in equity;
- the Indian government should forgo duties on imports of capital equipment and LNG fuel
for the project; - the federal government should borrow 25 billion rupees and make that amount available
to Dabhol as an interest-free loan; and - the government should pay Enron a contract termination penalty of US$300 million.
In the committee’s opinion, this combination of sacrifices would allow DPC to sell power at
a price that Maharastra could afford.^17
The consortium of Indian bank lenders led by the IDBI had other ideas. They proposed
investing an additional US$250 million to convert the plant to run on LNG rather than naph-
tha, allowing the Gas Authority of India (GAIL) to take over the LNG terminal and the
National Thermal Power Company (NTPC) to take over the power plant. However, GAIL and
NTPC, both state-owned, were reluctant to be drawn in.^18
DABHOL POWER COMPANY, INDIA