The Dabhol Power Project
Analyze and comment on the contractual operational risk management/mitigation arrangements that underpinned the original Dabhol Power Project.
Power Purchase Agreement is signed between the electricity generator and the utility company. Power purchase agreements cover the arrangements for making Power Available‖. PPAs details generation capacity, capacity payment, structures, tariffs, project duration etc. The clauses and terms of PPAs essentially prescribe how risks are spread between parties to the Project.
RISK Analysis – MSEB & GOI:
Independent Feasibility study: Neither the central government nor the Maharashtra government undertook any kind of independent technical assistance or conducted a financial appraisal of the project. The Dabhol Power project was never subjected to a competitive tender. Enron Corporation alone was identified as being the project developers.
Volume RISK - Unwanted Capacity: Dabhol plant was planned as a base load power station when Maharashtra faced electricity shortage only during peak hours. New unwanted capacity would compel MSEB to replace cheaper coal-fired power output with a source that was as much as five times more costly. regulatory RISK: Even after World Bank’s & CEA’s suggestion on the project as “Not economically viable”, “did not meet a least-cost test”, “The Maharashtra – Enron MoU was unduly favorable to Enron”, “Withheld clearance of the project in the grounds that the tariff was overly high”. Maharashtra government urged the central government to give clearance the project & central government succumbed, despite CEA clearance for such project being mandate by law.
Fuel Supply RISK: The Dabhol plant utilized distillate oil, the risk that the IPP would not have sufficient quantities of fuel needed for the power plant. Also MSEB had not verified whether the price of fuel was economical and the fuel supplier was not bound to provide minimum quantity of fuel. It is interesting that Enron at the time had invested in a
Power Purchase Agreement is signed between the electricity generator and the utility company. Power purchase agreements cover the arrangements for making Power Available‖. PPAs details generation capacity, capacity payment, structures, tariffs, project duration etc. The clauses and terms of PPAs essentially prescribe how risks are spread between parties to the Project.
RISK Analysis – MSEB & GOI:
Independent Feasibility study: Neither the central government nor the Maharashtra government undertook any kind of independent technical assistance or conducted a financial appraisal of the project. The Dabhol Power project was never subjected to a competitive tender. Enron Corporation alone was identified as being the project developers.
Volume RISK - Unwanted Capacity: Dabhol plant was planned as a base load power station when Maharashtra faced electricity shortage only during peak hours. New unwanted capacity would compel MSEB to replace cheaper coal-fired power output with a source that was as much as five times more costly. regulatory RISK: Even after World Bank’s & CEA’s suggestion on the project as “Not economically viable”, “did not meet a least-cost test”, “The Maharashtra – Enron MoU was unduly favorable to Enron”, “Withheld clearance of the project in the grounds that the tariff was overly high”. Maharashtra government urged the central government to give clearance the project & central government succumbed, despite CEA clearance for such project being mandate by law.
Fuel Supply RISK: The Dabhol plant utilized distillate oil, the risk that the IPP would not have sufficient quantities of fuel needed for the power plant. Also MSEB had not verified whether the price of fuel was economical and the fuel supplier was not bound to provide minimum quantity of fuel. It is interesting that Enron at the time had invested in a