A Case Study Example for Dabhol Power Company, Power Station and Port Facilities

Date:  2021-03-29 15:15:59
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The location of the Dabhol Power Company, power stations, and port facilities is in Maharashtra, India. Today, the company goes by the name Ratnagiri Gas and Power Private Limited (RGPPL). Since 2013, the company shut down due to demand for natural gas. Precisely, the Enron bankruptcy scandal led to the downfall of the Dabhol Power Company.

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Background

Enron became a part of the Dabhol Power Company, power station, and port facilities when the government of India announced an invitation to international project developers in the countrys energy sector. Enron signed the memorandum with the state of Maharashtra for projects such as gas pipeline, port facilities, gas supplies in Qatar, and LNG tanker. Enron raised 1.9 billion in debt from Indian government banks, credit agencies, commercial lenders, and Overseas Private Investment Corporation. Even so, Hansen, OSullivan, and Anderson assert that India approached the World Bank for support in the Dabhol Company but in April 1993, it affirmed that the plant was not economically feasible (1).

Hansen, OSullivan, and Anderson avow that a $2.9 Billion Dabhol power project investment became a tragedy by late 2001 (1). Later, the Maharashtra State Electricity Board (MSEB) stopped its cash flow to the power company. Hansen, OSullivan, and Anderson articulate that in May 2001, the power company decided to send a letter of arbitration to MSEB because of the slow and defaulted payments (1). Besides, the authors explain that MSEB wrote back to request a sanction to block the arbitration and disavow the power purchase agreement (Hansen, OSullivan, & Anderson 1). More so, due to insufficient income, the company shut down its 740 MW phase 1 powered station in June 2001 and laid off all their employees (Hansen, OSullivan, & Anderson 1). After the shutdown of phase 1 of the power plant, lenders stopped to provide funds for the completion of phase II of the project. After the controversy the power plant phase I shut down in May 2006 due to lack of naphtha supply. In 2007, Qatar began to supply LNG to the plant. By 2015, the company was in debt again of up to Rs. 10,500.

Some concerns about the power plant include political and policy attacks as well as environmental concerns. Moreover, Dabhol Fact Sheet affirms that some Indian officials had concerns about the economy of their country (7). According to Hansen, OSullivan, & Anderson, the officials claimed that the tons of gas produced by the plant would drain $250 million dollars from India's foreign reserve (7). Apparently, the Dabhol project had many controversies from the start.

Problems

The capacity for power in the Dabhol Power Company was inadequate to meet the requirements for India. Besides, some problems that faced the power company include financial and technical risks, corruption-related issues, lack of foreign investments, as well as environmental concerns.

Solution

The best resolution for the company is to improve its marketing strategies. On a broader perspective, a good marketing strategy streamlines any project development. More so, a good marketing strategy enhances organizational stability. Most importantly, the two companies should not have signed an MOU within a short time. They should evaluate all the risks and benefits associated with the project carefully. More to the point, the company has to draft all its strategies right, consult with other power companies and learn how to run power businesses effectively.

Recommendations

The first recommendation for the Dabhol Power Company is to have a transparent bidding process for their contracts. Second, the company should carry out adequate environmental assessments. Third, the company should consider political risks and re-examine whether their projects have any disputes in regards to the contracts. Fourth, MSEB should stand up for its first agreement because Enron gave the company an equity stake. Finally, the company should always be on the lookout for the impacts of the project on local communities and the consumers of the power plant.

Works Cited

Dabhol Fact Sheet. Background on Enrons Dabhol Power Project. Minority Staff U.S House of Representatives Committee on Government Reform, 2002. Web. 26 Nov. 2016.

Hansen, Kenneth, OSullivan, Robert C., and Anderson, Geoffrey W. The Dabhol Power Project

Settlement. What Happened? and How? Dabhol Infrastructure Journal, N.d. Web. 26 Nov. 2016.

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