The Enron Saga
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Question for Discussion
3. The case mentions that both Enron and MSEB should look for
alternative options as the project in its present form was not viable.
Explain the options available to Enron. Which according to you is a
better option and why? |
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1. One option could be allowing the DPC to sell power to other states.
That would keep the plant running at full capacity and keep the per unit
cost low. But the Electricity Act did not allow any trading of power,
and prevented the DPC from selling power to anyone but the MSEB.
Implementing this would mean a change in the Indian Laws. On February 8,
2001, a high level tripartite meeting of DPC, GoM and MSEB agreed to
explore the possibility of selling power from Dabhol to other parties.
DPC was of the opinion that up to 700 MW could be sent to other states
through the existing transmission systems.
2. There were reports
of efforts to sell DPC's power to Karnataka. But according to power
experts, the transmission lines between the west and the southern grid
were too weak to permit a sale of more than 380 MW of power to
Karnataka. The other states in the western grid were Gujarat and Madhya
Pradesh. Of these, Gujarat was fully occupied with the consequences of
the earthquake and was not in a position to absorb DPC's current
capacity of 740 MW, let alone its expanded capacity of 2,100 MW by the
end of 2001. Madhya Pradesh's State Electricity Board was in even worse
shape than Maharashtra's.
3. In early 2001, GoM appealed to the GoI to bail it out by getting NTPC
to pick up equity stake in DPC . If MSEB or NTPC were to take another
20% stake in DPC, they would gain control of the project. This would
also allow them to renegotiate the PPA. In early 2001, Enron made it
clear that it was no longer interested in power projects in India and
its focus would be broadband and data centers. Accepting this proposal
would allow Enron to walk away from DPC.
4. The third option would be renegotiation of the contract. But Enron
refused to consider that. If Enron agreed to renegotiation then one
possibility was that the tariff could become back-ended instead of being
front-ended. Under the renegotiated contract, a risk management
mechanism against the price of oil could also be worked out. The average
price of fuel could be agreed upon in advance and any movement away from
that price could be negotiated into the next year's bill.
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