Project Finance: Practical Case Studies

Project summary

The Dabhol power project consists of the development, construction and operation of a power
station, port facilities for the importing of LNG, and an LNG regasification facility. It is locat-
ed near the village of Dabhol in the state of Maharashtra, 170 kilometres south of Mumbai
(formerly known in the West as Bombay). The project has been constructed in two phases.
The first phase is a single power block and ancillary facilities. The second phase entails con-
struction of two additional power blocks; an adjacent regasification facility; and a fuel jetty,
breakwater, dredged channel and turning basin for an LNG tanker. Each power block is a
combined-cycle unit comprising two combustion-turbine generators, two heat-recovery
steam generators and one steam-turbine generator.
The project represents the largest foreign investment and the largest energy infrastructure
project financing in India. Financing for the first phase of the project in 1995 was the first to
close after foreign companies were allowed into the Indian power sector. It was facilitated by
the first Indian government guarantee of a foreign corporation’s liabilities.
The project has been plagued by wilful default by the Maharastra State Electricity Board
(MSEB), the main offtaker; defaults by both federal and state governments on their guaran-
tees; and the bankruptcy of Enron, the principal project developer. Among the underlying
problems have been that:

• the price of power supplied by Dabhol under the Power Purchase Agreement (PPA) was
  more than the MSEB could afford;


• the State of Maharastra had more power than it needed; and


• the project was not allowed to sell power to other parties without state and federal gov-
  ernment permission.

The project is now under the control of the lenders.

DABHOL POWER COMPANY, INDIA

The refinancing (December 1996) comprised:

• US$298 million provided by US Eximbank;


• US$150 million from a syndicated commercial bank loan led by ABN AMRO and
  Bank of America;


• US$100 million from OPIC; and


• US$96 million funded by the Industrial Development Bank of India (IDBI).

The financing for Phase II (May 1999) comprised:

• US$452 million in sponsors’ equity;


• US$333 million equivalent in rupee-denominated loans from an Indian bank con-
  sortium;


• US$497 million as a commercial bank syndicated loan;


• US$433 million as an export credit loan arranged by Japanese Export Credit
  Agency; and


• US$90.8 million as an export credit loan provided by commercial banks and insured
  by Office Nationale du Ducroire (ONG) of Belgium.