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

When financing for Phase I of the project was planned, the involvement of multilateral development banks, primarily the World Bank, was considered crucial to the project’s success. The World Bank, however, refused to fund the project. The World Bank’s analysis was telling and reinforces later criticism by protesters that the price of power generated by the project is too high. Specifically, the World Bank did not oppose the privatization of the Indian power sector or the participation of multinationals in power generation, but its experts felt that this particular project was not viable. A letter from Heinz Vergin, the country director for India, to Montek Singh Ahluwalia, the secretary of the Department of Economic Affairs for the Indian Ministry of Finance, states:

Our analysis based on the parameters provided to us indicates that the LNG [liquefied natural gas]-based project as presently formulated is not economically viable, and thus could not be financed by the Bank. We have reached this conclusion on the following two grounds:

(a) the proposed 2,015 MW project is too large for base load operation in the Maharashtra State Electricity Board (MSEB) system. Project design is inflexible and would result in uneconomic plant dispatch (lower variable cost coal power would be replaced by much higher cost LNG power) in order to utilize the full amount of LNG to be contracted. This adversely affects the economic viability of the project and would place a heavy financial burden on MSEB; and (b) the project is not part of the least-cost sequence for Maharashtra power development. Local coal and gas are the preferred choices for base load power generation...

[I]t would appear worthwhile for you to explore possible ways to sustain their interest in investing in India’s energy sector, in particular to see whether it would be economically feasible to reshape the project to serve higher value intermediate loads in the Western Region.266

Enron was undeterred by the World Bank’s refusal to fund the project or negative reports appearing in the Indian media. Consequently, Joseph Sutton, in a letter to Ajit Nimbalkar, wrote that Enron would hire a public-relations firm to “manage the media from here on.” Sutton continued:

The project has solid support from all other agencies in Washington. We’ll get there!267

Weathering further lobbying by the government of India and Enron, the World Bank steadfastly refused to fund the project.268 Facing a $635-million budget shortfall for the $920- million project, the company turned to the U.S. government and a consortium of private investors.269 While a group of private foreign investors, led by the Bank of America and ABN Amro, provided approximately $150 million, and another group of Indian banks, led by the Industrial Development Bank of India, provided $95 million, political risk insurance and loan guarantees came from the U.S. government’s Overseas Private Investment Corporation (OPIC) and Export-Import Bank (Ex-Im Bank)—institutions financed by U.S. taxpayers. OPIC contributed approximately $100 million in political risk insurance, and the Ex-Im Bank extended a loan guarantee of approximately $290 million in late 1994.270 A State Department official, commenting on Enron’s lobbying for U.S. government financing, told Human Rights Watch:

Enron is a pain, they constantly lobby for OPIC and Ex-Im. They always make a case that their projects are very important for U.S. interests, who their international competitors are, and how many U.S.jobs their project will provide. They are aggressive and really work the government.271

266 Letter from Heinz Vergin, World Bank country director for India, to Montek Singh Ahluwalia, secretary of economic affairs, Indian Ministry of Finance, April 30, 1993. Letter on file at Human Rights Watch.

267 Letter from Joseph Sutton, chief operating officer of Enron, to Ajit Nimbalkar, chairman, Maharashtra State Electricity Board, June 23, 1993. Letter on file at Human Rights Watch.

268 Letter from Heinz Vergin, World Bank country director for India, to R. Vasudevan, secretary for the Indian Ministry of Power, July 26, 1993. Letter on file at Human Rights Watch.

269 The lead lawyer who represented the governmental financing agencies, the private international financial institutions, and the Indian financial institutions of Phase I of the Dabhol Power Project was Ellen W. Smith, counsel at the New York-based law firm White & Case.

270 “Enron Power Project Secures $635 Million in Financing,” Economist Intelligence Unit, April 19, 1995.

271 Human Rights Watch interview with David Kirsch, Office of Economic Analysis, Department of State, Washington, D.C., June 18, 1998.