Dabhol Power Project Minority Staff Committee on Government Reform U.S. House of Representatives February 22, 2002

FACT SHEET

Background on Enrons Dabhol Power ProjectEnron is a majority owner of Dabhol, a massive combined-cycle power plant on the western coast of India's Maharashtra state. The Dabhol power plant was initiated in 1992 and took nine years to commence operation. The total project cost is $2.9 billion. Enron owns 65%, Bechtel Enterprises owns 10%, General Electric owns 10%, and the Maharashtra State Electricity Board owns 15%. The project is 2,184 megawatts, which Enron says is the largest gas-fired power plant in the world. The plant closed in June 2001, due to a payment and contract dispute between the Maharashtra state government and the plant owners. Enron says it incurred over $1 billion in costs for the plant. I. CHRONOLOGY OF DABHOL POWER PROJECT India opens its power sector to private foreign investors. Enron begins investigating opportunities in the Indian power sector. Enron executives pitch their ideas to the Indian power secretary, who is in the United States to encourage foreign participation in the Indian power sector. Enron and General Electric sign a memorandum of understanding with the Maharashtra State Electricity Board (MSEB) to build the Dabhol project. The operating entity is the Dabhol Power Company, a joint venture. Enron is the majority owner, while General Electric and Bechtel each own 10% shares. The parties negotiate the terms of the deal. Enron obtains the necessary approvals for the project from the Indian government. The Dabhol Power Company and MSEB sign the power purchase agreement. Indian political parties opposing the ruling Congress party campaign on an antiEnron platform. Enron seeks and obtains $635 million in financing, insurance, and loan guarantees from Bank of America, ABN Amro, a group of Indian banks, the U.S. Export-Import Bank, and the Overseas Private Investment Corporation (OPIC). Commerce Secretary Brown visits India, accompanied by Ken Lay, and oversees signing of loan agreements by the Dabhol Power Company with the U.S. Export-Import Bank and OPIC.

1991-1992 Feb. 1992 May 1992 June 1992

June 1992Dec. 1993 Dec. 1993 1994-early 1995

Jan. 1995

Spring 1995 Aug. 1995 Aug.-Dec. 1995

The opposition alliance wins the election in Maharashtra in March, and in May the new government appoints a committee of state ministers (the Munde Committee) to review the Dabhol project. The Munde Committee issues a sharply critical report that recommends scrapping the Dabhol project. The state government acts on this advice. Enron enters arbitration and seeks $300 million in compensation. The state government files suit in September to void the agreement, alleging fraud and misrepresentation. U.S. officials, including Energy Secretary Hazel OLeary, warn India that its action will discourage foreign investment. Rebecca Mark, Chairman of Enron International, meets with Bal Thackeray, the top power in one of the ruling parties. Afterwards, negotiations resume between Enron and the state. The state announces it will accept a revised agreement. The state and the Dabhol Power Company finalize the terms of the revised agreement. Legal challenges to the project by Indian groups continue, but are eventually dismissed. Enron obtains approval from the Indian government to expand the Dabhol liquified natural gas terminal to allow it to process 5 million metric tons annually. Dabhol Phase I (740 megawatts) begins generating power. The state of Maharashtra stops paying for Dabhol as of its $22 million December 2000 bill. The state subsequently seeks to cancel the power purchase agreement. Enron begins arbitration proceedings. Secretary of State Colin Powell raises Enrons problems regarding Dabhol in a discussion with Indias foreign minister. The Dabhol Power Company ceases operation of the Phase I portion of the plant and halts construction on the 90% completed Phase II portion (1,444 megawatts). The Bush Administration releases the White House Energy Plan, which contains a provision that benefits Enrons India operations. Vice President Cheney raises Dabhol in a meeting with Sonia Gandhi, the president of Indias opposition Congress Party. 2

Nov. 1995

Jan. 1996 Feb. 1996 1996-1997 1997

May 1999 Jan. 2001

April 2001 April 2001 May-June 2001 May 2001 June 2001

July 2001

The National Security Council leads a Dabhol working group with Administration officials, including Treasury, State, the Export-Import Bank, and OPIC officials. Christina B. Rocca, Assistant Secretary of State, meets with Indian officials on Dabhol. Alan Larson, Undersecretary of State for Economic, Business and Agricultural Affairs, raises Dabhol with the Indian foreign minister and the Indian national security advisor. Talking points are prepared for President Bush to discuss Dabhol in a meeting with Indian Prime Minister Vajpayee on November 9. However, the topic is vetoed the day before the meeting on November 8, which is the same day that Enron discloses a stunning $586 million in previously unreported losses.

July 2001 Oct. 2001

Nov. 2001

II.

DEVELOPMENT OF THE DABHOL PROJECT

Enron began to investigate opportunities in the Indian power sector in 1992, when India first opened its power sector to private foreign investors.1 In May of that year, Enron executives pitched their ideas to the Indian power secretary, who was in the United States to encourage foreign participation in this sector.2 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.3 The operating entity was the Dabhol Power Company, which is a joint venture.4 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 Enrons equity stake, which dropped Enrons share to 65%.6) The parties negotiated the project terms over an 18-month period, which culminated inAccounting for Enron: U.S. Fought for Companys Project in India, Wall Street Journal (Jan. 21, 2002); Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 8 (revised July 6, 1998).2 3 1

Id.

Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 10 (January 1999).4 5

Some sources refer to this entity as the Dabhol Power Corporation.

Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 10 (January 1999).6

Id the Dabhol Power Company and MSEB signing a power purchase agreement in December 1993.7 Enron also obtained the necessary approvals for the project from the Indian government during this period.8 Over the next year, Enron developed the project financing, obtaining $635 million in financing, insurance, and loan guarantees from Bank of America, ABN Amro, a group of Indian banks, the U.S. Export-Import Bank, and the Overseas Private Investment Corporation (OPIC).9 As discussed below, the initial agreement was modified early in 1996, and the project was expanded. In addition, in 1997, the Indian government approved Enrons request to expand a portion of the project, the Dabhol liquified natural gas terminal, to allow it to process 5 million metric tons annually.10 III. ENRON PROMOTION OF THE DABHOL PROJECT

From the projects inception, Enron strongly promoted Dabhol as a key element of its international strategy.11 In 1996, Enrons CEO and Chairman, Ken Lay, said, This project serves as a cornerstone of Enrons activities in India. We pursue additional projects in the country, we look forward to a long-term relationship with both the government and the people of India.12 As early as 1992, Thomas White, the president of Enron Power, stated: In the future, Enrons business will be 10% domestic and 90% overseas. 13 The Dabhol project was easily Enrons most significant overseas endeavor in its size, cost, and political visibility. According to

Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 9-10 (revised July 6, 1998). Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 12-25 (January 1999).9 8

7

Id. at 114; Financing for Indian Plant Secured, Houston Chronicle (Jan. 17, 1995).

Enron, Enron International Our Presence in India (2000) (available online at: http://www.ei.enron.com/presence/projects/india.html). Power Politics: Enrons Plant in India Was Dead; This Month, It Will Go On, Wall Street Journal (Feb. 5, 1999) (Enron was eager to get a jump on the potentially mammoth [Indian] market). Enron Power Co Welcomes India Court Dismissal of Lawsuit, Asia Pulse (Dec. 3, 1996); see also India Draws Private Firms to Power Sector, Asian Wall Street Journal (Jan. 29, 1993) (Were very, very excited about it, says Joe Sutton, the Enron official overseeing the project. Were forging the way forward. This will be the cornerstone of other agreements). International Power Enron Power Lays Out International Strategy; Lands Philippine Project, Independent Power Report (July 17, 1992).13 12 11

10

4

Enron, the 2,184 megawatt Dabhol plant is the largest gas-fired power plant in the world.14 Dabhol also was important for other Enron plans. Dabhol was intended to be a major customer for liquified natural gas supplies from a project that Enron had entered into with the Qatar government.15 As of 2000, Enron had 20-year contracts for 2.1 million tons/year of liquified natural gas with two Middle Eastern suppliers.16 A substantial element of the Dabhol project was construction of a modern port facility that could unload large tankers and a facility for regasification of the imported liquified natural gas.17 Enron saw this liquified natural gas terminal as the hub of a future Enron gas network in India.18 As of 2000, Enron was developing a natural gas pipeline project to carry the regasified liquid natural gas to Dabhol and customers north of Dabhol.19 In addition, in January 1999, Enron had entered a joint venture to construct, own, and operate a large liquified natural gas carrier dedicated to bringing liquified natural gas from the Middle East to the Dabhol terminal.20 Enron lobbied the Indian government, the U.S. government, and other institutions such as the World Bank to support the project.21 Enron led the efforts to obtain the financing for the

High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001). See Enrons Overseas Reach Fell Shy of Goals: Firm Rode U.S. Policy, Washington Ties to Lofty but Failed Ventures, Dallas Morning News (Feb. 2, 2002); Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 8 (revised July 6, 1998). Enron, Enron International Our Presence in India (2000) (available online at: http://www.ei.enron.com/presence/projects/india.html) (contracts were with Oman LNG and Abu Dhabi Gas Liquefaction Company Ltd.). Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 8 (revised July 6, 1998).18 17 16 15

14

Power Politics: Enrons Plant in India Was Dead; This Month, It Will Go On, Wall Street Journal (Feb.

5, 1999). Enron, Enron International Our Presence in India (2000) (available online at: http://www.ei.enron.com/presence/projects/india.html).20 21 19

Id.

See Bidding Set for Enrons India Project, Reuters (Jan. 21, 2002); The Enron Affair Shadowy Path to State Approval, Financial Times (Jan. 12, 2002); Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 9-10 (revised July 6, 1998); Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 114 (January 1999).

5

project, which was a huge and critical endeavor.22 Enron also hired lobbyists and orchestrated media campaigns.23 According to a press account, Enron employee Linda Powers testified before the House Appropriations Committee in 1993 that Enron had spent $20 million on educating Indians in how capitalist business should work.24 A leader of the main anti-Enron alliance stated: The public face of Enrons strategy was to put up visiting U.S. officials and even local U.S. diplomats to argue that Enron was good for India and Indo-U.S. relations. This was a well-orchestrated campaign that had an insidious and secret element, which we are seeing unravel in Enrons U.S. operations.25 IV. VIABILITY OF THE DABHOL PROJECT

As far back as April 1993, the World Bank evaluated the Dabhol project and concluded that it was not economically viable, and thus could not be financed by the Bank.26 An April 30, 1993, letter from the World Bank Country Director for India to an Indian official in the Ministry of Finance found that the proposed plant would produce too much power at too high a price for the state.27 Specifically, the World Bank found that the project was too

See Enron Power Venture Signs Pact to Supply Indian State, Asian-Pacific News (Dec. 9, 1993) (Enron still had to complete financing arrangements. Apart from equity, the company intends to approach the U.S. Export-Import Bank and institutions such as the World Bank-affiliated International Finance Corp., as well as Indian financial institutions); Enron Backtracks, Deal Nears, Power Asia (Sept. 13, 1993) (Enron, with its reputation for efficiency, will be a blue chip client, facilitating mobilization of money in bonds and equity on the world market with [the International Finance Corp.] as a catalyst). For example, in 1993, Enron signed a consulting and investing agreement with former U.S. Secretary of State, James Baker and former U.S. Secretary of Commerce, Robert Mosbacher, saying it expected their knowledge and experience to aid Enrons drive to expand foreign natural gas operations. An Enron spokesperson said: They will be providing us counsel and advice on how we might pursue various projects outside the U.S., based on their knowledge of people and government structures and government protocol in countries around the world. She further stated that they could be involved in discussions for projects under development in several countries, including India. Heavyweights for Enron, Platts Oilgram News (Feb. 23, 1993).24 23

22

The Enron Affair Shadowy Path to State Approval, Financial Times (Jan. 12, 2002). Id.

25 26

Letter from Heinz Vergin, Director of the India Country Department, World Bank, to M.S. Ahluwalia, Secretary, Department of Economic Affairs, Ministry of Finance (Apr. 30, 1993) (with attachment: India: Dabhol Power Project). See also High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001). Letter from Heinz Vergin, Director of the India Country Department, World Bank, to M.S. Ahluwalia, Secretary, Department of Economic Affairs, Ministry of Finance (Apr. 30, 1993) (with attachment: India: Dabhol Power Project).27

6 large for base load operation in Maharashtra.28 The Bank also found that the plants power, which would be produced from liquid natural gas, would cost much more than power from coal.29 Under the proposed deal, the plants power would displace lower cost power, raising power costs overall for the state.30 The letter stated: This adversely affects the economic viability of the project and would place a heavy financial burden on the MSEB.31 The World Bank also found that [t]he project is not part of the least cost sequence for Maharashtra power development. Local coal and gas are the preferred choices for base load generation.32 Enron responded by increasing its lobbying efforts, targeting the World Bank and various Indian officials.33 According to a detailed report prepared by Human Rights Watch: Enron was undeterred by the World Banks 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. Well get there!34 In addition, Indian officials had concerns about the national economic impacts of importing large quantities of liquified natural gas. According to media accounts, Indias planning commission originally opposed the project on grounds that the plants annual requirement of 3-million tons of gas would drain at least $250-million from Indias foreign exchange reserves.35 While the size of the project was scaled down from the originally proposed 2,550 megawatts to a still massive 2,184 megawatts, it is not clear whether this

28 29 30 31 32 33

Id. Id. Id. Id. Id.

Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 9 (revised July 6, 1998); Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations 14, 114 (January 1999). Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 114 (January 1999), quoting Letter from Joseph Sutton, chief operating office of Enron, to Ajit Nimbalkar, chairman, Maharashtra State Electricity Board (June 23, 1993). India Okays First Private Power Unit: A 1,920-MW Venture by Bechtel/Enron/GE, Independent Power Report (Jan. 15, 1993).35 34

7 reduction fully resolved the concern about the projects effect on foreign exchange reserves.36 V. CONTROVERSY OVER DABHOL

The Dabhol project was highly controversial in India from the start, and it was associated with allegations of malfeasance and corruption at the highest levels.37 While controversy has been ongoing throughout the life of the project, there are several key areas of dispute. These include the process and content of the original agreement, the process and content of the revised agreement, the projects effects on local communities, including human rights violations, and the cost of the power when the project ultimately came on line. A recent op-ed in the New York Times stated: From the beginning, critics in India warned that the power plant was economically unsound, and there have been suggestions that corruption was involved in the awarding of the contract. The Hindu, a leading Indian newspaper, said recently that no India-specific shenanigan has yet come to light. But it added that the possibility of malfeasance cannot be dismissed in the light of voluminous material now available on Enrons unethical behavior in the U.S.38 An official report on the Dabhol project was commissioned by the Indian government and published in 2001 by Madhav Godbole, an independently minded bureaucrat.39 The report condemned the circumstances surrounding the approval of the project, finding that a severe abuse of governance and a lack of transparency marked [the projects] fast-track approval.40

See id.; High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001). The Biggest Fraud in Indias History, Guardian (Nov. 30, 2001); The Munde Committee, Report of the Cabinet Sub-Committee to Review the Dabhol Power Project (1995), reproduced in Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations (January 1999) (The Project generated one of the most intense intellectual debates at the national level on any single commercial venture. . . . It soon took the shape of a mass agitation with the ordinary public getting involved in satyagraha, giving the Project law and order dimensions). For example, there were allegations that Indias Commerce Minister P. Chidambaram had strongly supported Enrons Dabhol power project in public forums in India and abroad without disclosing the fact that he had given a paid legal opinion to Enron. Entire Indian Project Can Use Naptha, Platts Oilgram News (July 26, 1995). Business Line reported that Enron had paid Mr. Chidambaram a substantial fee when he was practicing law in between holding two Cabinet posts, and members of the opposition party called for his dismissal on the grounds of conflict of interest. Id.; see also Government for Stay on DPC Arbitration, Times of India (Sept. 25, 2001); India Power Play, Energy Compass (July 13, 2001) (local reports continue to suggest that the entire deal is riven by corruption).38 39 40 37

36

Money, Energy Politics and Enrons Costly Misadventure, New York Times (Feb. 3, 2002). Id. Id.

8 A.

Criticisms of the Initial Agreement

Fueled by negative reaction to the Dabhol project, the opposition party won in Maharashtra in 1995 on a platform of throwing Enron into the Arabian sea.41 The new government promptly appointed a group of ministers, known as the Munde Committee, to review the Dabhol project.42 The Munde Committee report critiqued both the process by which the project had been developed and the terms of the deal.43 It found that the initial memorandum of understanding was rushed and one-sided (citing a letter from the World Bank), condemned the absence of competitive bids and lack of transparency in the process, critiqued subsequent changes to the project design as addressing only the concerns of Enron, and found that Enron was given undue favors and concessions.44 The report also found that the capital costs of the project were inflated, that the rates for the power would be much higher than justified, in part because the contract was based on U.S. dollars (placing the risk of currency fluctuations on the state), that there were outstanding environmental questions, and that the project would adversely affect the state of Maharashtra.45 Based on this evaluation, in August 1995, the state decided to halt construction and cancel the project.46 The states chief minister Manohar Joshi stated: From the speed with which the memorandum of understanding was signed it seemed as if Enron came, it saw, and it conquered. The proposed capital investment in the project is definitely more than it should have been, and there is uncertainty about many components of the power purchase agreement resulting in payment of an unjustified rate which is higher than other comparable projects and therefore the project, in its current form, is not

High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001); see also The Biggest Fraud in Indias History, Guardian (Nov. 30, 2001). High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001); Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 26 (January 1999); The Munde Committee, Report of the Cabinet Sub-Committee to Review the Dabhol Power Project (1995), reproduced in Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations (January 1999). The Munde Committee, Report of the Cabinet Sub-Committee to Review the Dabhol Power Project (1995), reproduced in Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations (January 1999); Entire Indian Project Can Use Naptha, Platts Oilgram News (July 26, 1995).44 45 46 43 42

41

Id. Id. Legal Nightmare Looms as Maharashtra Axes Dabhol, Power Asia (Aug. 7, 1995).

9 in the interest of the state.47 B. Criticisms of the Revised Agreement

In response to the states action, Enron sought $300 million in compensation, while attempting to convince the Indian government to reverse its decision.48 The state government countered by filing suit to void the agreement, alleging fraud and misrepresentation.49 In early November 1995, Rebecca Mark, Chairman of Enron International, held a crucial meeting with the Bal Thackeray, the top power in one of the ruling parties.50 After this meeting, negotiations resumed between Enron and the state.51 On January 8, 1996, the state announced it would accept a revised agreement, and the terms were finalized on February 23, 1996.52 While the state dropped its lawsuit, other Indian groups continued to pursue legal challenges to the project. Eventually, all of these were dismissed.53 Critics of the revised agreement charged that the revisions were very minor, failed to fix the fundamental problems of the project, and in fact exacerbated those problems.54 The revised agreement expanded Phase I of the project from 695 megawatts to 740 megawatts and committed the state to both Phase I and the 1,320 megawatt Phase II portion of the project (under the initial

Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (A), 9-10 (revised July 6, 1998) (quoting Enron Decision: Shockwaves, India Abroad (Aug. 11, 1995)).48 49

47

Indias Maharashtra Govt Files Writ Vs Enrons Dabhol, Dow Jones News Service (Sept. 7, 1995).

Indian State Sues to Void Enron Pact, Alleging Fraud, Wall Street Journal (Sept. 8, 1995); Indias Maharashtra Govt Files Writ Vs Enrons Dabhol, Dow Jones News Service (Sept. 7, 1995); Previous Adjudication May Strengthen Enrons Case in Dispute with India, Global Power Report (Nov. 9, 2001). Power Politics: Enrons Plant in India Was Dead; This Month, It Will Go On, Wall Street Journal (Feb. 5, 1999); Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (C), 1 (1996). Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (C), 1 (1996).52 51 50

Id. at 3. See India: Supreme Court Not to Go into Enron Project Validity, Hindu (May 3, 1997).

53 54

Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (C), 2-3 (1996); Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 29-31 (January 1999).

10 agreement, the state was bound only to the Phase I portion).55 As the Maharashtra State Electricity Board was still committed to buying 90% of the plants output and covering the risk of currency fluctuations, the expansion increased the financial risk to the state under the revised agreement.56 In addition, while the state announced that Enron had reduced the capital costs of the project, critics charged that the reductions were largely the products of external factors, not accommodations by Enron.57 A recent press account described Indian suspicion over the dramatic reversal: [Enrons recent] problems seemed to lend credence to long-standing claims in India that the company bulldozed and bamboozled a newly elected state government into approving a power project it had campaigned to stop. In 1995 the newly installed state government of Maharashtra approved in 12 days the building of a plant three times larger than the original project, which had taken nine months to negotiate.58 C. Local Opposition and Human Rights Violations

The local communities and other Indian interest groups strongly opposed the Dabhol project throughout its development. The communities had many of the same concerns outlined above regarding the lack of transparency in the development process and the cost of the power.59 In addition, the project was projected to displace 2,000 people and land was seized without notification or compensation.60 There were also environmental concerns with the project related to pollution of fresh water, diversion of fresh water for the project, and the potential contamination of salt water which would adversely affect fishing communities.61 According to a comprehensive report issued by Human Rights Watch in 1999, the local communities in fact suffered from sharply reduced quantities of fresh water available for consumption and

Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 3031 (January 1999). Phase II may have been subsequently expanded, as recent reports describe Phase II as 1,444 megawatts. India: Update 1 Sale of Enrons India Plant to Begin Next Week, Reuters English News Service (Jan. 26, 2002). See Harvard Business School, Enron Development Corporation: The Dabhol Power Project in Maharashtra, India (C), 2 (1996).57 58 59 56

55

Id. Bidding Set for Enrons India Project, Reuters (Jan. 21, 2002).

Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 3342 (January 1999).60 61

Id. at 39-44. Id. at 44-48.

11 agriculture.62 Acting on these concerns, leading Indian environmental activists and representatives of villagers organizations in the area organized to oppose the project through largely nonviolent protests.63 They were countered aggressively by government security forces that were paid for by the Dabhol Power Company, the operating entity for the project, which was majority owned by Enron.64 The Human Rights Watch report details what it termed a pattern of serious human rights violations that the project provoked.65 Police beat and jailed human rights and environmental workers deemed to have instigated largely nonviolent protests against the project, tear-gassed demonstrators, and threw suspected protestors into preventive detention.66 Human Rights Watch found that Dabhol Power Company employs security forces who routinely beat and harass people demonstrating peacefully against the power plant.67 Enron denied any role in the arrests or beatings in India, but the Human Rights Watch investigation countered the Enron claims: The Dabhol Power Corporation and its parent company, Enron, are complicit in these human rights violations. Enron's local entity, the Dabhol Power Corporation, benefitted directly from an official policy of suppressing dissent through misuse of the law, harassment of anti-Enron protest leaders and prominent environmental activists, and police practices ranging from arbitrary to brutal.68 Additionally, the Human Rights Watch report found categorical evidence that Enron was paying the government directly specifically to police the protests, and that it was also lending the police its helicopters.69

62 63 64 65 66 67 68

Id. Id. at 2-3. Id. Id. at 2. Id. at 2-3, 58-99. Hell's Wells, Australian Financial Review (Feb. 10, 2001).

Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 3, 104-111 (January 1999).69

Id. at 106-109; Hell's Wells, Australian Financial Review (Feb. 10, 2001).

12 Enron denied this report as well, so Amnesty International investigated. Amnesty found suppression of local protests and said that people who protested against Enron, however peacefully, were liable to harassment, arbitrary arrest, preventive detention under the ordinary criminal law and ill-treatment.70 D. Dispute Over the Cost of Power

As it turns out, the critics predictions were correct, and the price of the power from Dabhol is far beyond what consumers in the area will pay or the state can afford. The financial problems began to appear in the winter of 2000. Phase I of the project runs on naptha (a derivative of crude petroleum), but oil prices have apparently been higher than projected, and demand has been substantially lower.71 In addition, the deal was structured to peg the costs of power to the dollar, so the state bore the risk of currency fluctuations.72 The state was contracted to buy the full output of the plant, but was purchasing only 10%-20% of the plants output from Phase I.73 The state was obligated nonetheless to pay the plants full fixed costs, which further increased the rates.74 In 2001, power from Dabhol was four times more expensive than that from domestic power producers.75 The payments due for the power from Dabhol alone would be more than Maharashtras entire budget for primary and secondary education.76 These financial problems were expected to dramatically worsen after Phase II came on line, as it would add an additional 1,444 megawatts of power and the entire project would be converted to run off imported liquid natural gas, which is a relatively expensive fuel.77 The state of Maharashtra stopped paying for Dabhol as of its $22 million December 2000

70 71 72

Hell's Wells, Australian Financial Review (Feb. 10, 2001). Bidding Set for Enrons India Project, Reuters (Jan. 21, 2002).

Money, Energy Politics and Enrons Costly Misadventure, New York Times (Feb. 3, 2002); Bidding Set for Enrons India Project, Reuters (Jan. 21, 2002). High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001).74 75 76 73

Id. Enron Issues Veiled Sanctions Threat to India, Financial Times (Aug. 24, 2001).

High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001).77

See id.

13 bill.78 The state subsequently sought to cancel the power purchase agreement.79 Enron began arbitration proceedings in April 2001, ceased operation of the Phase I portion of the plant in May 2001, and halted construction on the 90% completed Phase II portion of the plant (1,444 megawatts) in June 2001.80 Enron claims that the state owes it $64 million in unpaid bills.81 VI. ENRONS POSITION AFTER PLANT CLOSURE

The state has urged Enron to renegotiate the contracts at lower prices, but Enron has refused.82 Enron sought to sell its 65% stake in the project for $2.3 billion.83 In a September 14, 2001, letter to Indian Prime Minister Atal Bihari Vajpayee, Ken Lay stated that Enron wanted $1.2 billion for the cost of the companys investment and $1.1 billion for the purchase of offshore lenders debt.84 Mr. Lay argued that the $2.3 billion total strikes me as exceptionally reasonable when compared to the size of our legal claim, which Enron estimated at $4 billion to $5 billion.85 In a press interview in August 2001, Mr. Lay warned that if Enron did not recoup at least its full costs in building the plant (reported in that article to be $1 billion), India could be subject to U.S. sanctions.86 VII. U.S. GOVERNMENT EFFORTS TO HELP ENRON ON DABHOL

See id. (stating that the state of Maharashtra has stopped paying its bills for Dabhol and the December payment for $22 million is now more than a month overdue, not to mention the January bill). But see Accounting for Enron: U.S. Fought for Companys Project in India, Wall Street Journal (Jan. 21, 2002) (stating that the state electricity board stopped paying its Dabhol bills in May 2001). Enron Rocks Indias Flagship Investors, Financial Times (May 29, 2001); Indian Govt Admits to Mistake in Agreeing to Enrons Tariff, Asia Pulse (Jan. 28, 2002); Dabhol Power Company: Will there Ever Be Light?, Press Trust of India Limited (Dec. 25, 2001). Enron Rocks Indias Flagship Investors, Financial Times (May 29, 2001); Indian Govt Admits to Mistake in Agreeing to Enrons Tariff, Asia Pulse (Jan. 28, 2002); Dabhol Power Company: Will there Ever Be Light?, Press Trust of India Limited (Dec. 25, 2001).81 80 79

78

Cheneys Role Draws Scrutiny, Los Angeles Times (Jan. 19, 2002). Enron Rocks Indias Flagship Investors, Financial Times (May 29, 2001) .

82

White House Aided Enron in Dispute: Cheney, Others Intervened Over Indian Power Plant, Washington Post (Jan. 19, 2002).84 85 86

83

Id. Id. Enron Issues Veiled Sanction Threat to India, Financial Times (Aug. 24, 2001).

14

From the inception of the Dabhol project, Enron successfully enlisted the U.S. government in its support. The Export-Import Bank and the Overseas Private Investment Corporation (OPIC) were critical sources of funding and loan guarantees. Secretaries of State, Treasury, and Energy all supported the project, particularly during Enrons disputes with the Indian government in 1995 and 2001. Most recently, numerous Bush administration officials, including the Vice President himself, have intervened on Enrons behalf. There is even a provision that would help Enron regarding Dabhol in the White House energy plan for the nation. A. Support During the Clinton Administration

After the World Bank declined to fund the Dabhol project, U.S. government entities provided key funding for the project.87 OPIC ultimately supplied Dabhol with a total of $160 million in loan guarantees and $200 million in risk insurance.88 The Export-Import Bank provided a roughly $300 million loan in late 1994.89 (Of this, $202 million is outstanding, but four Indian banks have guaranteed the loan, eliminating any risk to U.S. taxpayers, according to an Export-Import Bank spokesperson.90) In addition, numerous Clinton Administration officials supported the project. For example, Commerce Secretary Brown wrote to Indias minister of Commerce before a January 1995 trip to India, asking the minister to facilitate financial closing of the Dabhol project in time to be celebrated during my visit.91 Once in India, and accompanied by Ken Lay, Secretary Brown oversaw the signature of loan agreements by Dabhol Power Company with U.S. ExportImport Bank and OPIC.92 In visits to India, Treasury Secretary Robert E. Rubin and Energy Secretary Hazel OLeary expressed Washingtons concern that India stand by commitments to investors.93 For example, Secretary OLeary warned India that it was hurting its reputation with87

Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 114 (January 1999). See Enron Project was Raised with India, Houston Chronicle (Jan. 18, 2002); Human Rights Watch, The Enron Corporation: Corporate Complicity in Human Rights Violations, 114 (January 1999); Financing for Indian Plant Secured, Houston Chronicle (Jan. 17, 1995). See Financing for Indian Plant Secured, Houston Chronicle (Jan. 17, 1995); Enron Seeks U.S. Aid, Miami Herald (Jan. 19, 2002) (sources provide varying exact dollar estimates).90 91 89 88

Id. Id.; see also Brown in India Unveils Alliance for Business, Asian Wall Street Journal (Jan. 17, 1995).

Brown in India Unveils Alliance for Business, Asian Wall Street Journal (Jan. 17, 1995); Financing for Indian Plant Secured, Houston Chronicle (Jan. 17, 1995). See also Accounting for Enron: U.S. Fought for Companys Project in India, Wall Street Journal (Jan. 21, 2002).93

92

Indias Dabhol/Fight - 2: In Some Areas Reform Seen Rapid, Dow Jones International News (Apr. 26,

1995).

15 foreign investors.94 After the project was cancelled, in late 1995 and 1996, Mack McLarty, a White House counselor, closely monitored the Dabhol project with the U.S. ambassador to India, keeping Ken Lay informed of the administrations efforts.95 In addition, according to press reports, President Clintons ambassador to India, Frank Wisner, was among the plants most influential advocates.96 Mr. Wisner joined the board of an Enron-controlled company after he left the Foreign Service in 1997.97 B. Support During the Bush Administration

The Bush Administration intensified U.S. government efforts on behalf of Dabhol as the project ran into trouble again in early 2001. As one commentator observed: But there was something quite specific that Mr. Bushs top aides did to help Enron last year before the hollowness of the company became clear: they lobbied to avert the shutdown of a $2.9 billion power plant in India built by Enron and two other American partners.98 Numerous high level officials, including Vice President Cheney, encouraged the Indian government to resolve the dispute. On April 6, 2001, Secretary of State Colin Powell raised Enrons problems regarding Dabhol in a discussion with Indias foreign minister.99 Secretary Powell said that such intervention was not inappropriate.100 Vice President Cheney raised the issue of Dabhol in a meeting with Sonia Gandhi, the

Enron: The Fallout: Enron Political Allies Saw to Indian Affairs, Asian Wall Street Journal (Jan. 22, 2002). But see Enron Episode Wont Affect Other Deals: OLeary Murali Ranganathan, News-India Times (Aug. 25, 1995) (Energy Secretary Hazel OLeary said last week that the cancellation of the Enron power project in Dabhol, Maharashtra, will not jeopardize other private power projects currently being pursued by the U.S. companies in India).95 96

94

The White House; That Invisible Mack Sure Can Leave His Mark, Time (Sept. 1, 1997).

White House Aided Enron in Dispute, Washington Post (Jan. 19, 2002). Id. Money, Energy Politics and Enrons Costly Misadventure, New York Times (Feb. 3, 2002).

97 98 99

Enron Probes Alleged Shredding Document Destruction Reportedly Continued To at Least Start of Jan., Boston Globe (Jan. 22, 2002). Anderson CEO Points a Finger at Enron Model; Company Policies Labeled a Failure, Houston Chronicle (Jan. 21, 2002).100

16 president of Indias opposition Congress Party, on June 27, 2001.101 In a June 28, 2001, e-mail, a National Security Council aide wrote: Good news is that the veep mentioned Enron in his meeting with Sonia Gandhi yesterday.102 According to press accounts, the National Security Council led a Dabhol working group with Administration officials from various agencies, including Treasury, State, the Export-Import Bank, and OPIC, to try to resolve Enrons problems with the project.103 E-mails sent from June 2001 through November 2001 from the National Security Council and OPIC discuss the Administrations efforts on Dabhol over that timeframe.104 In July 2001, an assistant secretary of State, Christina B. Rocca, met with Indian officials on the Dabhol issue.105 In discussing investment in India with an Indian industry group, she stated many of Indias problems in this regard can be summed up in the five-letter word, Enron.106 The Administrations efforts continued into the fall of 2001. In October, the Undersecretary of State for Economic, Business and Agricultural Affairs, Alan Larson, raised the Dabhol issue with the Indian foreign minister and the Indian national security advisor.107 On November 6, 2001, in a message to a top aide to the Indian Prime Minister, the President of OPIC, Peter Watson, emphasized how important this issue was to the U.S. government: The acute lack of progress in this matter has forced Dabhol to rise to the highest levels of the United States government.108 He continued: I ask that you give this matter serious and immediate

White House Aided Enron in Dispute: Cheney, Others Intervened Over Indian Power Plant, Washington Post (Jan. 19, 2002); Veep Tried to Aid Enron: Key Role in India Debt Row, New York Daily News (Jan. 18, 2002); Money, Energy Politics and Enrons Costly Misadventure, New York Times (Feb. 3, 2002).102 103

101

Veep Tried to Aid Enron: Key Role in India Debt Row, New York Daily News (Jan. 18, 2002).

White House Aided Enron in Dispute: Cheney, Others Intervened Over Indian Power Plant, Washington Post (Jan. 19, 2002); Accounting for Enron: U.S. Fought for Companys Project in India, Wall Street Journal (Jan. 21, 2002). Chronology of Administration Dealings with Enrons Dabhol Power Plant in India, Washington Post (Jan. 22, 2002).105 106 104

Id. Accounting for Enron: U.S. Fought for Companys Project in India, Wall Street Journal (Jan. 21,

2002). Chronology of Administration Dealings with Enrons Dabhol Power Plant in India, Washington Post (Jan. 22, 2002). White House Aided Enron in Dispute: Cheney, Others Intervened Over Indian Power Plant, Washington Post (Jan. 19, 2002).108 107

17

attention.109 Administration officials warned India that President Bush would raise the issue of Dabhol with Indian Prime Minister Vajpayee when they met in November 2001, and talking points were prepared for President Bush to discuss the issue in a meeting with Mr. Vajpayee on November 9, 2001.110 However, an e-mail sent the day before the meeting, on November 8, warned that President Bush can not talk about Dabhol.111 That same day, Enron had disclosed a stunning $586 million in previously unreported losses.112 Since Enrons collapse, the Administration has continued to pursue the issue, but more quietly. U.S. Ambassador Robert Blackwill recently warned an Indian business audience about the effects of the dispute.113 He stated: I hear a frequent buzz from the United States that the sanctity of the contract may now be in doubt here, a concern that can spell death for potential investments.114 C. The White House Energy Plan

In addition to lobbying Indian officials, the Bush Administration also included a provision in the White House energy plan that would benefit Enron on Dabhol. The final White House energy plan specifically recommends that the President direct the Secretaries of State and Energy to work with Indias Ministry of Petroleum and Natural Gas to help India maximize its domestic oil and gas production.115 The energy plan does not discuss this recommendation or explain why maximizing oil and gas production in India should be a U.S. national energy priority, but one of its primary effects is to benefit Enron.116 Dabhol was widely viewed as the cornerstone project for foreign109 110

Id.

Enrons Overseas Reach Fell Shy of Goals: Firm Rode U.S. Policy, Washington Ties to Lofty but Failed Ventures, Dallas Morning News (Feb. 2, 2002); White House Aided Enron in Dispute: Cheney, Others Intervened Over Indian Power Plant, Washington Post (Jan. 19, 2002). White House Aided Enron in Dispute: Cheney, Others Intervened Over Indian Power Plant, Washington Post (Jan. 19, 2002).112 113 111

Id.

Enrons Overseas Reach Fell Shy of Goals: Firm Rode U.S. Policy, Washington Ties to Lofty but Failed Ventures, Dallas Morning News (Feb. 2, 2002).114 115

Id. (quote dated Jan. 28, 2002). National Energy Policy Development Group, National Energy Policy, 8-20 (May 2001). See Enrons One Good Return: Political Investments, Wall Street Journal (Jan. 31, 2002).

116

18 investment in energy projects in India.117 It was also the single largest foreign investment in India, representing over 10% of the total direct foreign investment in India since 1992.118 The conflict over Dabhol was broadly viewed as chilling foreign investment in Indias energy sector.119 As a result, resolution of Enrons Dabhol problem was a precondition to collaboration between the United States and Indian governments to promote Indias natural gas and oil production.120 In addition, Enron had further ambitions in Indias power sector. Enron saw its liquid natural gas imports facility at Dabhol as the hub of a future Enron gas network in India.121 As the chief executive of Enron International, Joseph Sutton, stated in 1999: The power plant is important, . . . [b]ut our vision all along is to bring gas to India.122 It appears that this recommendation on India was added to the White House energy plan late in the process. As of March 30, 2001, the State Department drafters had not included anything about India in the White House energy plan.123 This recommendation was inserted after the draft came under White House control, during a period in which the White House task force

See, e.g., India Okays First Private Power Unit: A 1,920-MW Venture by Bechtel/Enron/GE, Independent Power Report (Jan. 15, 1993) (The approval is considered a landmark in Indias efforts to attract foreign investors). High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001); Enron Power Station to Begin Commercial Operations, Agence France-Presse (May 11, 1999). See Enron Rocks Indias Flagship Investors, Financial Times (May 29, 2001) (quoting a senior executive discussing the hurdle rate of return for investment in India, which is the minimum rate of return on equity in dollars: If this Enron thing works out badly, the senior executive said, the hurdle rate is going to be infinity); High-Stakes Showdown; Enrons Fight Over Power Plant Reverberates Beyond India, New York Times (Mar. 20, 2001) (The worry that Dabhol could chill foreign investment is serious for India); NSC Aided Enron's Efforts: Agency Sought Lay Meeting with Indians on Plant, Washington Post (Jan. 25, 2002) (In a meeting with the Indian government on April 6, Secretary of State Colin Powell told his Indian counterpart that failure to resolve the matter could have a serious deterrent effect on other investors); Accounting for Enron: U.S. Fought for Companys Project in India, Wall Street Journal (Jan. 21, 2002) (quoting Bush Administration Ambassador to India, Robert D. Blackwell as stating, I want to be frank. . . . These disputes have darkened Indias investment climate). See also quote from Christina B. Rocca, assistant secretary of State, supra note 106 and accompanying text.120 121 119 118

117

Enrons One Good Return: Political Investments, Wall Street Journal (Jan. 31, 2002).

Power Politics: Enrons Plant in India Was Dead; This Month, It Will Go On, Wall Street Journal (Feb. 5, 1999).122 123

Id. Enrons One Good Return: Political Investments, Wall Street Journal (Jan. 31, 2002).

Stakeholders: Identify all the major stakeholders in the DABHOL power project. What are the intended benefits and costs of this project for the stake holders? Analyze the roles, responsibilities and reward structure of the stake holders. Based on the case study do you foresee a need to change the reward structure?

Enron, Bechtel Enterprises, and General Electricthrough offshore subsidiariesformed Dabhol Power Company to build the first phase of a major power plant in Maharastra state in India. Later, part of the equity was sold to the Maharastra State Electricity Board. Enron is also a stakeholder as fuel supplier and as the operator of the plant. Bechtels construction arm has engineering, procurement, and construction stakes; General Electric is a major equipment supplier; and the Maharastra State Electricity Board is the electricity purchaser. There are also other major sponsors of IPPs, such as AES Corporation, whose sole business is developing, owning, and operating electric power facilities. Moreover, the Asian Develop-

In Indias Dabhol project, for example, the owners are Enron, Bechtel, and GE Capital.

Shareholding Pattern

[pic]

Investment by Stake Holders

| | ||Foreign lenders (ABN AMRO, Standard Chartered, BNP Paribas, Calyon, CSFB, etc.) |USD 325 million ||Domestic lenders (the largest being IDBI, ICICI, SBI, Canara Bank and IFCI) |Rs. 62 billion ||Export Credit Agencies (JBIC, US EXIM, Belgium OND) |USD 480 million ||Overseas Private Investment Company (OPIC), USA |USD 250 million |

Counter guarantee by Govt. of INDIA

Ownership stake

|Stake Holder |% stake ||Enron (indirectly through a series of shell companies) |65% ||GE (indirectly through a series of shell companies) |10% ||Bechtel (indirectly through a series of shell companies) |10% ||Maharashtra State Electricity Board (MSEB) |15% |

Responsibilities & Rewards

Enron

Phase 1

Construction of a 695MW gas-fired power station to generate electricity constantly at Dabhol, Guhagar taluka, Ratnagiri district, Maharashtra scheduled to commence production in December 1997.

Capital cost- $920 million.

Phase 2

Expand the capacity of the plant to 2015MW and involved in the construction of a 1320MW gas-fired plant, re-gasification facility, and an LG carrier as well as corresponding port facilities including a fuel jetty, navigation channel, and breakwater. It was scheduled for commissioning at the end of 2001.

Switch the entire plant to LNG for fuel upon the completion of Phase II.

Capital Cost - $1.9 billion

Renegotiated deal

Enron cut the price of the power by over 20 percent, cut total capital costs to $2.5 billion and increased output to 2184MW.

Enron suggested switching from distillate fuel to naphtha or LNG from domestic suppliers.

Devolving of the re-gasification plant into a separate venture.

Enron offered MSEB a 30% share in DPC. This would reduce the projects annual cash outflow by US$ 150-170 million.

Annual return promised to investors in the Qatar facility was 15%.

Power purchase agreement assured DPC of an internal rate of return of 16% which as per industry observers was calculated as DPCs real post-tax interest rate of return to be between 26% and 32%.

MSEB

Take-or-pay contract MSEB to buy a minimum amount of electricity at a plant load factor of 90% as per 20yr contract irrespective of amount of energy used.

MSEB to bear any increase in fuel price.

MSEB to pay DPC $ 220 million per year.

MSEB was required to build transmission lines from the power station to its power grid.

MSEB to receive 30% profits of DPC annually.

State Government

Guarantee from the state government in the form of Letter of credit for credit support also waived sovereign immunity.

Main recipient of electricity due to the paucity of energy in the state.

Provide land for construction of the power station, power, communications, water, and approach roads during construction.

Central Government

Central government provided counter-indemnities.

Escrow account over some of MSEB payments.

Oman Gas Company

Entered into a contract with the DPC to supply gas.

Business Plan viability and Execution: Identify and discuss the original business plan of this project. Given the data of this case, was the DABHOL power project a feasible and worthwhile business proposition? In view of the business plan, critically comment on the project execution strategy.

Dabhol Power Company was a unlimited liability special purpose company (SPC) incorporated to execute the project.

The power project at Dabhol was one of the eight fast track power projects identified by GOI post the liberalization of the Indian economy. An MOU was signed between Enron and Maharashtra Govt in June 1992 which marked the beginning of the project.

Salient Features of the project were as follows

| |Phase 1 |Phase 2 ||Capacity |740 MW |2015MW ||Cost |USD 920 M |USD 1.9 B ||Fuel |Naphtha |LNG (Sourced from Qatar) ||Planned Completion |Dec-97 |End of 2001 |

Right from the inception the project was criticized by masses and viewed to be highly in favour of Enron (Majority stake holder in DPC).

Even the World Bank turned down Maharashtra govts loan application terming the project as not economically viable.

Some of the critical objections were as follows

1. The govt hurried in closing and the deal, and no other vendors were considered.

2. No EIA was carried out.

3. The project would produce too much power as compared to the state demands. And given the poor transmission system between the regional grids this would imply much higher costs for the govt.

4. The MOU required the state to pay DPC at 90% load factor irrespective of the demand; this was highly in favour of DPC and virtually assured the company of zero business risk.

5. As per the MOU, the govt had agreed to pay DPC as per base load independent of the actual demand. This was heavily criticized as the state faced shortage of power only during peak hours.

6. The structure of payments did not confirm to earlier guidelines issued by the central govt.

7. Naphtha wasnt a cheaper source of power as compared to the orthodox sources like fuel.

8. Sufficient audit measures were not assured, to regulate the cost of power.

1. MSEB had guaranteed a minimum fuel purchase from the supplier (Enron had heavy investment in the company) but the supplier wasnt bound to provide a minimum quantity of fuel; In addition to it, MSEB had agreed to bear any further increase in the fuel price!

2. All currency risk was taken by MSEB and not by DPC.

All these guaranteed an extraordinary IRR of 26 to 32% (post tax) to DPC.

Project Financing: Identify the possible sources of financing for a major infrastructure power project of this nature? Critically examine the financing options used by the DABHOL power project. What was the impact of the financing decision for the overall risk and success of this project? Explain, with rationale, what should have been done differently to finance this project?

The possible sources of financing for a major infrastructure project of this nature are:

Combination of debt and equity: Debt could be raised through a syndicate loan or loans from commercial banks and financial institutions. Equity could be pooled in by the promoters/sponsors

1. Securitization of the receivables i.e. in this case, the proceeds from running the power plant

2. Subordinated debt or mezzanine debt (multi-tranched)

3. External commercial borrowings

4. Equity financing using QIBs, strategic investors, or private placements

5. Bridge financing for short term requirements

Dabhol Power Project used the following financing structure for the 2 phases:

|Phase I |$ mn | |Phase II |$ mn ||Equity |276 | |Equity |414 ||Debt | | |Debt | ||Syndicate Loan (BankAm-ABN Amro Led) |150 | |Syndicate Loan - IDBI Led |333 ||US Exim |298 | |Syndicate Loan - Domestic & Offshore lenders |497 ||OPIC |100 | |OPIC |60 ||IDBI |98 | |Jexim |258 ||Debt/Equity Ratio |2.34 | |Commercial Banks |175 || | | |US Exim |90.8 || | | |Debt/Equity Ratio |1.75 |

As is evident, Dabhol Power Company raised a large amount of debt to finance the project and a large portion of it was also from the export credit corporations. Phase I had a D/E ratio of 2.34, while Phase II had a D/E ratio of 1.75.

DPC depended solely on MSEB as a consumer. If MSEB were to default on its payment, it would struggle to pay back its debt obligations.

On the other hand, given the excruciating clauses in the PPA, it was very likely that MSEB would not be able to purchase power from the Dabhol Power Plant and sell it profitably. It would have to incur a loss and have the state & if required central governments provide cover.

The alternative that Dabhol Power Company could have taken in terms of financing the project was to raise more equity from the sponsors or through the market (though this might have been relatively difficult given the long incubation period typical of these projects). They could also have opted for the securitization route. This was, the interest expenditure on debt would have been manageable. Also, based on the revised terms, MSEB received a 30% stake in the company. The equity stake was a double-edged sword. While on the one hand, it gave MSEB an opportunity to partake in the profits; on the other hand, it also made it difficult for MSEB to negotiate, since it was the sole customer too implying a conflict of interest.

Lessons Learnt and exit strategy: What are the crucial lessons of the DABHOL power project for other strategic initiatives in India? How do you address the risk inherent in such enormous global projects? How do you immunize against such risks? What other strategic, financial and regulatory initiatives would you recommend for such projects to succeed?

Lessons

The Enron Dabhol project has offered many lessons for any future strategic initiatives in India and it is imperative that the mistakes made in the DPC agreement must not be repeated. In order to avoid such situations from arising in the future, it is crucial to learn lessons from the shortcomings of the agreement. This will protect future stakeholders and provide benchmarks to examine other future agreements.

1. A surplus of power is as harmful as a shortage of power. Under certain circumstances, it may be cheaper to have no power than buy exorbitant unaffordable power. It is crucial to study the tariff implications of any supply-demand matching exercise.

2. Competitive bidding procedures rather than MoUs and counter-guarantees are the most effective method of getting the best terms from investors. The PPAs may come in the way of merit order dispatch, which is the most cost-effective way of supplying electricity to meet demand.

3. The broader developmental implications of expansion must be kept in mind. The given sector must pursue the goal of universal access to affordable utility. A stress on self -reliance as a central developmental objective to avoid control being taken over by foreign forces can be essential at times.

4. To protect against exchange rate volatility, the forex indexation of a given project costs must be avoided as far as possible. For instance, to protect against the impacts of international oil price rises, fuel policy must be based, ceteris paribus, on indigenous resources.

5. There must be not only competitive bidding in the process, but also transparency, accountability and participation. The right to information is crucial tool in the hands of people which they must exercise with the assistance of public-interest organizations.

The DPC episode demonstrates that despite the presence of certain safeguards, the lack of transparency in the agreement inevitably resulted in its failure. It also clearly reveals the extent of Government and investor indifference to consumer interests.

Risks

There is a high risk inherent in such enormous global projects. It could vary from political and economic risk to country and lending risks. Some of the risks involved would be:

1. Industry cycle and the prospects of growth of the industry over a longer period

2. Competitive positioning that would determine the market share, substitutes, variable costs of production etc

3. Regulation that would impact quickness and smoothness of decisions and actions and transparency in the process

4. Tariff structure and Government support5. Repayment risk

6. Currency risk

To generalize, it can be said that the large-scale projects require massive capital investment with long completion times, and they carry political, economic, legal, regulatory and financial risk. A key issue becomes how to attract private investors willing to participate in projects given their complex and risky nature. Cases of corruption and political and economic risk in the developing country make investors hesitate.

To mitigate these risks and fears, the Government must ensure that a clear investment policy, structured process flow, transparent mechanism is established which makes the investment environment conducive. Tools of project financing must be appropriately employed. In addition, keeping in mind the learning from the past can go a long way on making the project successful.

Recommendations

The following recommendations will help future agreements to avoid the difficulties that have arisen in the Dabhol case:

1. Any potential problem in agreements should be thought about, planned for, and dealt with in the first set of negotiations, rather than rectified time and again later.

2. Transparency is the key to the successful implementation of any agreement.

3. Negotiating with investors is a task that needs an expert panel that can professionally handle a given situation and can ensure stakeholder representation

4. Investors have a legitimate right to maximize their gains.

5. Government must recognize that the best incentive to investors is credible policy and a transparent investment environment, not the unsustainable artificial incentives.

6. While protecting the interests of the electorate should be the governments top priority, the consumers must not take it for granted that the Government will protect their interests.

7. Consumers need to become more organized and vocal and push for a greater role in policy decisions.

8. Investors must understand that unrealistic commercial agreements result in enhanced risks and are likely to fail.

9. Investors must understand and accept the commercial risks of the investments accompanied by high rates of return.

Problem: What can Enron do to salvage the Dabhol project and its ties to India?After nine years of an obvious debacle, it seems that Enron and the Indian government have reached a state of impasse, where a sustainable long term relationship cannot be achieved. Enron has chosen to terminate the agreement by offering to the Indian Prime Minister Enron's 65% equity in DPC for US$1.2 billion and offshore debt for US$1.1 billion.o Various political parties have consistently used Enron as an issue to gain the masses' approval and thus political power. Given the size and the "foreign" nature of the investment, Enron will constantly stir political unrest unless it gives in to the terms of the party in power.o Difficulty in predicting and understanding local political conditions and coping with the constant threat of forced re-negotiationo The agreement (PPA) was flawed from the beginning and unless the company sees the error of its ways, reviews from the World Bank and other committees would always reflect that there was a one-sided deal and would lead to a protracted debate of who owes who.o MSEB's capacity to pay DPC in the next few months is seriously doubtful. Though the Indian government has a guarantee, paying DPC will likely bankrupt MSEB and will lead to a threatening major dispute between MSEB and DPC.If Enron had wanted to cut its losses, it should have let the project end in Phase 1. It need not have negotiated for Phase 2 financing after barely getting Phase 1 operational.

Recommendations:

To be able to salvage its stake in DPC, it must re-negotiate the PPA with a reasonable tariff and terms that would pass the scrutiny of a neutral third party, e.g., the World Bank. Given the fact that MSEB could not absorb all the electricity generated by DPC, Enron should find a secondary market where the excess power can be sold to, or scale down its projected operation. Without these concessions, the benefits of an increased and continuous electricity supply cannot be realized in India, and the re-negotiation will still not be successful as DPC is trying to sell MSEB what it does not need. At this point, while Enron is still in a strong legal position to demand payment from the Indian government, it should be the one to spearhead the re-negotiation. It seems that the Indian government, with the Godbole committee report at the height of the cooling period, is bent on finding a more favourable position by re-evaluating the flaws in the PPA. In the end, Enron may well be the losing party if the Dabhol plant remains non-operational. With the Indian government knee high in debt, it will be a great challenge to get payments even if these were contractually committed. To improve its chances of staying in DPC and in India as well, Enron should get a local partner who could help re-negotiate with the government by selling a part of its stake in the Dabhol project. From the beginning, while Enron refused a local partner and chose to directly deal with each level of government, it tried to maintain a neutral and distant position. However, with the deeply political agenda of parties criticizing the project, Dabhol may have been spared by not being viewed as a "purely foreign investment". A reputable local partner (e.g., Tata group) appeals to the Indian people's principle of swadeshi, of being able to patronize in part, an Indian-generated electricity supply. The local partner, upon negotiation, may take care of local factors like asking the government to try to remember its objectives in entering into foreign fast-track projects (Dabhol), and to re-evaluate them critically. This is also a good time to raise the appropriate rate of return given that Enron has a large capital intensive project coupled with an uncertain political environment.Although the DPC project is becoming less and less profitable, saving it will allow Enron to pursue more smoothly its other interests in India, including its pipeline project with the Gas Authority of India. It is not only money at stake but Enron's reputation for its capability and character to do business globally.

Features of PPP model in rail project& Issues in Dabhol Power Project

BySakthivel Balakrishnan

Features of PPP Model in Rail Project:Key drivers for PPP model in Infrastructure:

Increase investment and operational efficiencies in the provision of infrastructure services; maximizing revenue being an important secondary objective Incentives structure to provide more efficient services is more robust for the private sector Furthers the objective of efficiency through competition for the market Substantial reduction in O&M costs and higher efficiency in railway projects Increased viability due to spreading & sharing business risks Shortage of Funds/Need for Private Capital Proper Sharing of Risk Maximum Asset Utilization Innovation may happenApplicable Laws:

RAILWAYS ACT, 1989& RAILWAY BOARD ACT, 1905 Allows private railways Systems. Railway Board EstablishmentINDUSTRIAL POLICYRESOLUTION, 1991 Train Operation Can Only Be Done By The Public Sector, While All Other Activities Of Design, Construction, Financing, and maintenance Can Be Undertaken Through Private Participation

PPP models in fixed rail infrastructure:

BUILD/OPERATE/ TRANSFER (BOT) (Annuity) Ownership of assets continues with Private developer. MOR awards a concession of 12 years, during which Private developer gets annuity twice a year. After termination, assets transferred to concerned Zonal Railways.

BUILD OWN OPERATE New line and gauge conversion projects. Operation in most cases is undertaken by IR under a contract as is the case with maintenance of gauge conversion projectsPRIVATE RAILWAYS Private participation in design, construction, financing, maintenance and operation of rail services under contract or concession arrangementROLLING STOCK MANUFACTURING JV New coach & other stock/parts factories and loco manufacturing units in Joint Venture with Private SectorChallenges in PPP model implementation:

Need for a focussed policy & approach for implementation of PPP models in development of Railways infrastructure Political risk Land acquisition Avoid creation of private monopolies as an alternative to public monopolies Ensuring private sector participation in Formulation of policy & regulations Focusing primarily of quality and return to government vs. Increased cost/concession due to reduced competition

Issues in Dabhol Power Project:Right to Information: The Enron Power Project has totally ignored the right of the people to know The Enron Power Project at Dabhol, Maharashtra, is a good example of how withholding information regarding public authorities from the people can cause great prejudice to public interest and allow corruption to thrive.High Capital Cost due to lack of competitive bidding: The capital costs of Enron Power Project (as per their PPAs) were much higher than those known to be incurred both abroad and in India where international competitive bidding did not take place. The deal was negotiated exclusively between the Maharashtra government and Enron. The project costs and power tariffs were higher than other power projects in India, and the cost of electricity from the DPC project would significantly inflate prices in other areas. The cost of power from this Project would be Rs.2.40 per unit based on a Dollar rate of Rs.30 which rate would increase with the increase in the price of Dollar since the price of electricity from this Project was largely denominated in Dollar.Delays in Project Completion: For several reasons, for example, high costs, environmental impacts, and perception of financial irregularities, there have been protests against the power plant. Litigation, as also renegotiation of Power Purchase Agreements (PPAs) have caused long delays in project completion, so that construction has not been completed as scheduled.Unacceptable PPA terms - not viable for the SEBs: The MSEB promised to buy all the high-priced power produced by Enron, whether there was demand or not, and even if cheaper power were available from its own generating plants. These contracted annual payments to Enron would amount to half of Maharashtra's entire budget expenditure. The DPC was assured a post tax return of 16 percent on capital investment, and there was no limit on the capital expenditure Enron could make. Indian economists calculated that the after-tax rate of return would actually be 32 percent, about three times the average rate in the US. There were counter guarantees from the state and central governments for payments which would have been due to DPC from the MSEB. However, the contract shields Enron from Indian jurisdiction as all disputes must be settled under English law in England. An assurance was given that the project would not be nationalized. The project authorities carried out no environmental impact assessment. The power purchase agreement between the DPC and MSEB was initially kept secret from the public.High returns sought by Equity Investors: Risk of cost overrun while construction is borne by EPC contracts and also that of plant underperformance. Risk while operating and maintenance is borne by O&M contractors. Hence the premium of 8 to 12 percent which is being paid to equity holders is apparently unjustified as equity holders and debt holders bear the same risk. Therefore the argument that equity investors require the high return in developing countries because of higher risk faced doesnt work. High returns sought by equity investors leads to high risk.

Politics, Institutions, and Project Finance: The Dabhol Power Project.Risk Breakdown StructurePrepare a risk Breakdown Structure assessing the main categories of risks. The risk breakdown structure is a hierarchical framework presenting possible sources of risk, used to structure risk identification and qualitative assessment. [ (Simon, 2007) ] Risk Categories are a common listing of sources of risk. Depending on the size of the project, one might employ a Risk Breakdown Structure (RBS). The main categories of risks assessed for the Dabhol Power Project are: technical, management, commercial and external risks.Risk Breakdown Structure (Simon, 2007)Prioritizing RisksFrom this RBS, develop a prioritized list of the top three (3) risks (potentially most critical).There are several quantitative techniques exist. The sensitivity analysis, decision tree analysis and the simulation techniques are a few means prioritizing risks. The first step is to determine the probability and impact of the risks. Qualitative and quantitative risk analysis are means to rate the risks. Qualitative risk analysis is a process that determines what impact the identified risks will have on the project and the probability that they will occur. Rank orders risks in priority order according to their effect on the project objectives. (Kim Heldman, 2005) The Probability scales are created by using high for critical risk, medium for significant risks and low for negligible risks. For example, high score on the probability or impact scale would be considered critical. This means the risk will occur frequently, has occurred on past project, and conditions exist for it to recur. (Kim Heldman, 2005) The Monte Carlo analysis is the most common simulation technique and requires the use of a computer and software written for this purpose. Monte Carlo looks at schedule and cost risks individually and from the perspective of the whole project. (Kim Heldman, 2005) Prioritizing the top three risks for this project are: technical, management and commercial risks.

Nature of RiskDescribe the nature of each risk, why the risk is significant to project success andassess the factors that are causing the risk.The three main risks in the Daghol Power Project are technical, management and commercial risks. (1) Technical risk is associated directly with the knowledge base being employed and its technical aspects including such things as understanding, reproducibility and the like. In this project, Dabhol Power the technical risk is in the planning and the bidding process of the project. (2) Management risk refers to future conditions or circumstances that exist outside of the control of the project team that will have an adverse impact on the project if they occur. Whereas an issue is a current problem that must be dealt with, a risk is a potential future problem that has not yet occurred. [ (TenStep) ] Project management processes, such as risk analysis are critical to project success. Examples like test and acceptance, changes in the middle of the project or additional requirements could cost money are management risks. (3) Commercial risk a company takes by offering credit with no collateral is a common term in the business world. The lack of financial resources from the central government to finance part of the project is a risk factor for success of this project. They dont have the financial experts to evaluate these companies.A reactive project manager addresses issues when they occur. A proactive project manager addresses potential problems before they occur. This is the art of risk management.

ReferencesKim Heldman, P. (2005). Project Manager's Spotlight on Risk Management. San Francisco: Jossey-Bass.Simon, D. H. (2007). Practical Project Risk Management; The ATOM Methodology. Vienna: Management Concepts, Inc.TenStep, I. (n.d.). TenStep. Retrieved Nov. 18, 2012, from 7.0 Manage Risk: http://www.tenstep.com/open/7.0Managerisk.htm1

Dabhol Power Company (DPC) was promoted in March 1993 as a 100% foreign owned privateunlimited liability company incorporated in India by Enron Corp., USA (Enron), Bechtel EnterprisesInc., USA (Bechtel) and General Electric Co., USA, (GE). In Phase I DPC will set up a combinedcycle power plant with an installed capacity of 695 MW at Dabhol, Guhagar taluk, Ratnagiri district,Maharashtra. The plant will operate on distillate fuel oil and/or natural gas. The power generated bythe plant will be sold to the Maharashtra State Electricity Board (MSEB). The cost of the project isestimated at Rs.3029 crores (US $ 946.55 million). There is also a plan to expand the generatingcapacity from 695 MW to 2015 MW at a later stage under Phase II.The project was initiated in response to the Indian governments invitation in May 1992 of foreigninvestment in the power sector. In June 1992, the Congress government of Maharashtra, lead by ChiefMinister Sharad Pawar, signed a Memorandum of Understanding with Enron, Bechtel and GE. DPCwas made a subsidiary of Enron in March 1993. The critical Power Purchase Agreement (PPA)between DPC and MSEB was signed on December 12, 1993. The other important agreements weresigned in 1994 and early 1995 and work on the project commenced in February 1995. The Congressgovernment in Maharashtra was defeated in the state polls in March 1995 and a new government of theBharatiya Janata Party (BJP) and Shiv Sena came to power. The two parties as a part of their electionmanifesto were committed to terminating the agreement with Enron. A committee lead by theDeputy-Chief Minister recommended scrapping of the project. Finally, the government scrapped theproject on August 3, 1995. Enron subsequently sued the government for damages and simultaneouslyattempted to renegotiate the project with the government.Background on Power in IndiaThere was a realization in the early phase of economic reforms in India that availability of power wouldbecome a constraint on industrial and agricultural growth. Bulk of the power, about 72%, comes fromthermal sources; 26% from hydro sources with a small 2% nuclear component. Power generatingcapacity increased at the rate of 8.4% per annum during the eighties but only 5.2% per annum during theperiod 1990-91 to 1994-95. It is estimated that the rate may fall further to 2-3% during 1995-96 and1996-97. The corresponding decline in the growth rate of power generation was less - from 9.1%during the eighties to 7.3% during the 1990-95 period. This is mainly because hydro-power generationhas been aided by better rainfall and thermal power generation has benefitted from improved plant loadfactors (PLF) or capacity utilization.Most of the power generating capacity is under government control with only about 4.5% in the privatesector. The state governments control about two-thirds of the generating capacity. The centralgovernment owns about 30% through the National Thermal Power Corporation (NTPC) and theNational Hydroelectric Power Corporation (NHPC).India's constitution includes the power sector in the concurrent list. The responsibility for thedevelopment of this sector is vested with both the central and state governments. The Ministry ofPower and Non-Conventional Energy sources, comprising of the Department of Power (DOP) and theDepartment of Non-Conventional Energy Sources, formulates policies regarding the power sector. It isalso responsible for the administration of the Indian Electricity Act, 1910 and The Electricity (Supply)Written by Professor Sidharth Sinha, Indian Institute of Management, Ahmedabad for class discussion. This caseis based largely on the IDBI Detailed Appraisal Note of the Enron Project and other published sources.Teaching material of the Indian Institute of Management, Ahmedabad, is prepared as a basis for class discussion.Cases are not designed to present illustrations of either correct or incorrect handling of administrative problems.Copyright 1996 by the Indian Institute of Management, Ahmedabad.This document is authorized for use only in Project Finance, PGDM, by R. Kannan from August 2012 to November 2012

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Act, 1948 and for undertaking such amendments to these Acts as may be necessary from time to time.The Central Electricity Authority (CEA), constituted under the Electricity (Supply) Act, advises theDOP on technical and economic matters. Besides CEA some important corporations for thetransmission and generation of power, e.g., NTPC, NHPC and the Power Grid Corporation (PGC), havebeen set up in the central sector.The State Electricity Boards (SEBs) are state level authorities who oversee generation, transmission anddistribution of power to various consumer segments within their respective states. The operational andfinancial performance of the SEBs have not been satisfactory and they have accumulated huge lossesover the years. The cumulative losses of the SEBs as per the annual accounts for 1992-93, after takinginto account Rural Electrification subsidy was Rs.2880 crores. The bulk of the losses were contributedby Bihar and Assam with approximately Rs.1000 crores each. The SEBs of Andhra Pradesh, Gujarat,Madhya Pradesh, Maharashtra and Tamil Nadu showed cumulative profits. Because of poor financialperformance SEBs have not been able to utilize multilateral and bilateral assistance. Only 26% of thetotal commitments by the World Bank for the State power sector has been utilized.In the private sector Andhra Valley Power, Tata Power and Tata Hydro- all Tata group companies,Ahmedabad Electricity Company and CESC are the power generating companies. They operate aslicensees of the SEBs and run their own generation and distribution systems. Besides, there are somelarge captive power stations linked to local grids which are owned by both public and private sectorenterprises. Renusagar Power is a private sector captive power generating plant for the Birla GroupAluminium company HINDALCO. BSES and Surat Electricity are power distribution companieswhich have a private sector holding. BSES has now entered into power generation also.As per CMIE estimates the average energy shortage in 1993-94 was 7.3%. While shortages in theNorthern and North Eastern states were close to the national average, they were much higher in theSouthern and Eastern states. In the South the energy shortage was 12.5% while the peaking shortagewas 21.8%. In the East the energy shortage was 32.4%. Only the Western states had a lower thanaverage deficit of only 0.2% with a peaking shortage of 7.6%. It must be noted that the actual shortagebased on unrestricted demand would be much higher. Apart from inadequate capacity shortages havebeen due to a low PLF (Plant Load Factor or capacity utilization) and transmission and distributionlosses. The average PLF was 54% in 1990-91 and has increased to 60% during 1994-95. The PLF forcentral sector plants was higher than average at 70% for 1993-94. The main reasons for the low PLFare erratic supply of the main feedstock-coal; old plant and equipment; and poor maintenance. Theaverage transmission and distribution (T&D) losses are about 22% against an international average of10%. The much higher T&D losses in India mainly reflects the theft of power.Private Sector Initiative in the Power sectorA fresh initiative began in the late eighties to involve the private sector in power generation. Thegovernment has formulated a policy to encourage greater participation by privately owned enterprises inelectricity generation, supply and distribution. Enterprises can be set up either as licensees or asgenerating companies and the surplus electricity from the captive power plants can be offered for sale tothe SEBs. The government has attempted to attract private power sector participation by implementingreforms in the financial, administrative and legal environment relating to setting up of power projects.The details are given in Appendix 1.

As a part of this initiative the government cleared eight foreign projects. Details of these projects are inAppendix 2.Project PromotersThis document is authorized for use only in Project Finance, PGDM, by R. Kannan from August 2012 to November 2012

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Dabhol Power Company has been promoted by Enron, GE and Bechtel, all based in the USA.Enron is the holding company for a number of affiliates engaged in the area of oil and natural gasexploration, production, marketing, gas pipeline operation and power plant design, engineering,operation and financing. The main companies of Enron are:Enron Gas ServicesDevelopment and marketing activities for North America including natural gas and liquids marketing,power services, domestic power development and marketing and producer finance activities.Enron Operations CorporationOperation of all Enron's physical assets, Domestic and International.Enron Oil and Gas CompanyDomestic and International Exploration and Production Operations.Enron International Inc.Development and marketing activities for international businesses. This includes development ofintegrated natural gas projects and marketing of natural gas, liquids and electricity. EnronDevelopment Corporation is a part of Enron International responsible for international projectdevelopment activities.Enron along with its affiliates earned a revenue of US$ 7.972 billion for the year ended December 31,1993 on which it earned a net profit of US$ 333 million. Details of the power plants where Enron hasownership/operating interests are given in Appendix 3.Bechtel is an engineering and construction company with presence in various industries like oil/gas,power, engineering, construction and financial services. The sales of the group for the year endedDecember 31, 1992 was US$ 7.8 billion.GE is engaged in the manufacture of aircraft engines, medical and diagnostic equipment/ systems,equipment for electrical generation, transmission and distribution, motors, home appliances etc. It isthe largest manufacturer in the world of steam and gas turbines for power generation. For the yearended December 31, 1993 it earned a revenue of US$ 60.562 billion on which it earned a net profit ofUS$ 4.135 billion.Ownership StructureThe three promoters have set up Mauritius based private unlimited companies - Enron MauritiusCompany (Enron), Power Enterprises Mauritius Company (Bechtel) and GE Capital India PowerMauritius Limited (GE). The Enron company will hold 80% of the shares of DPC and the Bechtel andGE companies will each hold 10% shares. The ownership structure of DPC is shown in Appendix 4.The structure is primarily motivated by tax consideration. Appendix 5 explains the details of the taxsituation motivating the ownership structure.Management

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C is being managed by a board consisting of two directors, viz., Ms. Rebecca P. Mark (39) and Mr.Joseph W. Sutton (47). Ms. Mark, a BA in Psychology and MBA from Harvard University, isChairperson, President and CEO of Enron Development Corporation (EDC). She has been associatedwith the company's project development activities worldwide in power generation, pipelines, liquefiednatural gas and liquid fuels. Mr.Sutton, a Master's degree holder, is presently designated as Principallooking after EDC's activities in Asia and Mid-East region. He is a retired colonel of the US Army.He was associated with the setting up of Enron's power plant in the Philippines. In terms of theshareholder's agreement to be entered into among Enron, GE and Bechtel, the latter two companieswould also be appointing their nominees on the Board of DPC. Ind