In March 1993 the Mumbai hotel where the Enron team was staying was severely dam-
aged by a bomb blast — an early indication of the political difficulties that the project would
face. In April the Indian central government commissioned a World Bank report on the fea-
sibility of the Dabhol project. Three months later the World Bank concluded that the project
was too large and not the least-cost choice for power generation in Maharastra. The World
Bank was therefore unwilling to participate in financing the project. Dabhol was intended to
be a baseload generator, producing electricity 24 hours a day rather than just at peak periods,
and the MSEB was committing itself to purchasing a high proportion of the plant’s capacity.
The report concluded that the MSEB would be forced to use more expensive power from
Dabhol in place of cheaper existing supplies during periods of low demand. The World Bank
argued that LNG should not be used for baseload power generation because coal, despite
transport problems, was more affordable.
In August 1993 Enron agreed to split the Dabhol project into two phases and, for the time
being, move ahead with just the first phase, a 695 MW plant fired by oil distillate or naphtha,
both of which could be sourced within India. The second phase, a 1,320 MW gas-fired expan-
sion of the plant with LNG loading and regasification facilities, might or might not follow
later at the discretion of the state government.
In November 1993 Dabhol Power Company (DPC) and the MSEB signed a PPA for 20
years, extendible for a further period of five or ten years by mutual consent. DPC guaranteed
an average availability of 90 per cent and also guaranteed a specified heat rate for 20 years,
subject to significant penalties for not meeting these performance targets. DPC committed
itself to commissioning the project within 33 months (1,005 days) from the date of financial
closure, subject to a large penalty for delay. The MSEB’s obligations were guaranteed by the
Government of Maharastra. DPC thus became the first project to be implemented under the
Indian power sector privatisation programme.^5
In September 1994 representatives of the Indian federal government and DPC signed a
counter-guarantee agreement for the first 695 MW phase of the project. This was the first time
that the Indian government had underwritten the liabilities of a foreign company. The counter-
guarantee was to be valid for just 12 years, even though the PPA had a 20-year term, and it
limited the government’s liability to US$300 million in the event that the MSEB defaulted.
To protect the government exposure, the counter-guarantee has a provision that allows the
government to redirect power from the plant to alternative buyers. While providing for mutu-
ally accepted dispute-resolution mechanisms, the counter-guarantee allows a dispute that can-
not be settled in 60 days to be taken to London courts under the Unicitral Arbitration Rules.
London was mutually agreed to be a neutral venue with a reputation for concluding arbitra-
tion proceedings quickly.^6
In 1993 and 1994, as Enron solidified its relationship with Congress Party officials at the
state level, Shiv Sena, a local militant Hindu nationalist party, became increasingly visible –
for example by inciting anti-Muslim riots in Mumbai. By early 1995 Shiv Sena had formed
an alliance with the Bharatiya Janata Party (BJP), a more moderate Hindu nationalist party
that was active throughout India. In anticipation of nationwide parliamentary elections in
1996 Shiv Sena and the BJP were looking for political issues to use in their campaign to wrest
power from the Congress Party in Maharastra. The Dabhol project, championed by the
Congress Party, was an easy and visible target that they could use in an information cam-
paign, appealing to cultural and economic nationalism, distrust of foreign companies and fear
of competition from them.
POWER PLANT