Criticism on the Different Agreements and Cost of Power

Article overview + criticism on the different agreements and cost of power

From 1994 to 1998 gdp grew at a averqageof 7%

FDI reached record hıgh of 2.4 bılıon that was 20 times higher than 1991. Tarifs while still high where only 1 5 the level before liberalization.

Why did Enron start the business in India?

İndian population was starved for electricity.

All India s power generated and managed by state owned electricity boards. But they had no managerial, financial and operational problems. Government run power plants typically operated at about 50 % capacity. Private power plan run by Tata steel operated at about 85% capacity. 30% was stolen much of it by factory owners.

Indian power rates were among the lowest in the world. Most Indian farmers had a free power. Because of the problems and short of funds the central government decided to turn to the private sector. This comes out to an electricity act in 1991 to make this possible:

Many independent power producers(IPP) sent executives to India. Many memorandums(MOU) where signed between IPP and Indian government. Most of the bids came from American leading companies.

The negotiation phases:

Enron was in position to negotiate the financial structure of the deal. Critical was the Power Purchasing agreement(PPA) with the MSEB. It was the contract under which Enron as the owner of the power plant, would supply power to the MSEB electric grid.

World bank concluded the project was not economically viable because it has to produce too much power against too high a price for the state. So negotiations headed on. The Bank also found that the plant's power, which would be produced from liquid natural gas, would cost much more than power from coal. And the gas price is changeable.

By June 1992, Enron had selected Dabhol as the site for a project, and, with General Electric, Enron entered a memorandum of understanding with the Maharashtra State Electricity Board (MSEB) to build the Dabhol project. The operating entity was the Dabhol Power Company, which is a joint venture. During most of the Project development period, Enron owned 80% of the project, while General Electric and Bechtel each owned 10%.5 (In late 1998, MSEB purchased part of Enron's equity stake, which dropped Enron's share to 65%.6)

 The project was divided into two phases because Enron had been unable to finalize its gas contracts and because the governments concern about the growing critisism: Phase I: 695 MW plant using distillate fuel and Phase II would be a1320-MW gas fired plant. I:920 mıllion and 527 milion for the turnkey consruction. And phase II:1.9 billion.

 The government followed what was known asa