Appendix B: Report of the Cabinet Sub-Committee to Review the Dabhol Power Project

Appendix C: Selected Recommendations and Conclusions from the Parliamentary Standing Committee on Energy, May 29, 1995

Appendix D: Correspondence Between the Government of India and the World Bank

On January 8, 1996, in a complete reversal of its earlier stance and its claims in a lawsuit and arbitration proceedings, the Shiv Sena-BJP government in Maharashtra announced that it would accept a “renegotiated” project. The government said that it had cut the capital costs from $2.8 billion to approximately$2.5 billion and had reduced the tariff by 22.5 percent.51 According to several observers, the reported savings of 22.5 percent were actually not made on Phase I at all. The reduction was based on the projected costs of Phase II. In other words, the Shiv Sena-BJP government signed an agreement to build Phase II when the previous government’s agreement with the DPC made Phase II optional. Then the Shiv Sena government reported it had saved 22.5 percent on Phase II, thereby reducing costs. It failed to mention that the former agreement had no obligation to Phase II. Costs for Phase I are the same as the old agreement, and all the savings are on Phase II.

The renegotiated project was excoriated in the Indian business press. For example, after reviewing the renegotiated deal, a major Indian financial newspaper, Business Line, noted:

The new terms recommended by the six-member Negotiating Group set up by the Maharashtra Government to revive the Dabhol Power Project are unacceptably advantageous to Enron and clearly disadvantageous to Maharashtra and India. Notwithstanding the cost reductions advertised for Phase II of a 2,450 MW power plant in an exercise which smacks of disingenuousness and technical and financial sophistry, the revised terms are open to all the core objections that were successfully raised against the original deal...

In one vital respect, the attempted cure will make the situation worse for the Maharashtra State Electricity Board than it might have been with the original Power Purchase Agreement. That was before the Shiv Sena-BJP government (at Bal Thackeray’s diktat) decided to go back on a major election promise and revive the “scandalous” and “corrupt” Enron deal on renegotiated terms. The 1993 PPA covered only Phase I, which meant that Maharashtra would have been saddled with an extortionate 695 MW plant functioning as a baseload station...

The revised package, which is before the State Government and approval, saddles the MSEB with a telescoped Phase I and Phase II of an expanded power plant. In essence, what the numbers provided by the expert Negotiating Group ask us to buy is lower unit cost created byeconomies of larger-scale production—the terms of which are still one-sided and go against rational economic considerations. 52

Having reported this savings, the government committed itself (and consumers) to finance the construction of a Phase I that was expanded to 740 megawatts and a 1,320-megawatt Phase II. The previous agreement, that the Shiv Sena-BJP government renegotiated, had only committed the government to the 695-megawatt Phase I and gave the government the option to authorize Phase II. In effect, the government had agreed to a project of approximately 2,100 megawatts—almost three times its original capacity. Rebecca Mark, the CEO of the Enron Power Development Corporation, announced that construction would commence within ninety days.53

51 Mark Nicholson, “Delhi Clears Way for $2.5bn Dabhol Power Plant,” Financial Times, July 10, 1996.

52 “Enron: An Indefensible Exercise,” Business Line, December 12, 1995.

53 Mark Nicholson, “Dabhol Plant Finally Gets Green Light,” Financial Times, January 9, 1996.