In March 1996 the Congress Party fell from power in Maharastra and a new Shiv Sena
chief minister wasted little time in setting up a committee to review the Dabhol project. As
Shiv Sena pursued the investigation and the BJP pursued the politically motivated informa-
tion campaign, the two allied parties looked for both evidence of corruption and ways to chal-
lenge the project on technical grounds. Enron considered itself on solid ground, being backed
by contracts at the state level and a counter-guarantee at the federal level, and embarked on
its own information campaign. The Shiv Sena ministers in Maharastra came to realise, with
the concurrence of officials at the MSEB, that cancelling the project could be very costly for
the state unless clear evidence of corruption could be found. Rebecca Mark of Enron was con-
fident that no such evidence could be found. Nevertheless, the BJP wanted to pursue its infor-
mation campaign so as to be seen as representing the people’s interests by cutting the costs
or improving the terms of the MSEB’s contract with DPC. The local review committee found
no evidence of corruption or other legal grounds for cancelling the contract. Its report, only
parts of which were released to the public, reiterated charges already made:
- the project was negotiated rather than open to competitive tender;
- the tariff was too favourable to Enron;
- LNG was the wrong fuel because it was too expensive;
- Enron had padded its costs; and
- the deal was ‘obsessively secret’.
Rebecca Mark later commented that whether costs were padded or not was immaterial,
because the only thing that really mattered was the tariff.
Financing for Phase I
The sponsors and their bankers closed on a US$920 million project financing in June 1995
(as detailed in the section ‘Description of financing’ above).
Enron originally planned a Rule 144A private placement rather than a syndicated com-
mercial bank loan, but as a result of the recent Mexican peso crisis institutional investors were
not receptive to long-maturity, emerging-market bonds.
Contractual framework
As a prerequisite for the financial closing, the entire contractual framework for both phases
of the project was put in place. In addition to the PPA the contracts included:
- engineering, procurement and construction (EPC) contracts for both phases, including
the power station, the regasification facility and the marine facility; - operations and maintenance (O&M) contracts, also for both phases;
- LNG supply and purchase agreements; and
•a time charter for an LNG tanker to be dedicated to transporting LNG to the project.^7
The Dabhol project documents are governed by English law and provide for ICC arbitration
in London.
DPC’s credit risk related to the PPA was mitigated in several ways:
DABHOL POWER COMPANY, INDIA