Enron Case Study

5. What were the key criticisms levied by different interest groups against Enron and the Dabhol Power Project? Discuss whether these concerns were valid, given particularly India’s priorities and problems, as a transition economy.
There are many key criticisms levied by different interest groups against Enron and the Dabhol Power Project are:
Criticism on the Federal Guarantee
A World Bank report questioned the guarantee arrangement because, in its opinion, it was nothing more than a loan made by the federal government on behalf of the MSEB if it could not cover its payments to Enron.
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. The new government promptly appointed a group of ministers, known as the Munde Committee, to review the Dabhol project. The Munde Committee report critiqued both the process by which the project had been developed and the terms of the deal.
It found that the initial memorandum of understanding was rushed and one-sided 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.
Criticisms of the Revised Agreement
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. 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. As the Maharashtra St...

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...ck competitive bidding for its principal equipment supplier, General Electric and its construction partner, Bechtel. Some critic suggest that foreign equipment supplier were favored over Indian supplier. However, Enron counter with the argument that it had awarded more than 60 contracts worth more than $100 (Rs3.6 billion) to Indian companies.
Criticism on Import Gas
Besides that, Enron was also subject to criticism because of its plan to import gas for Phase II from its gas processing plant in Qatar. When completed, this plant will be owned by a joint venture between Enron Oil & Gas and the Qatar government. Enron vigorously denied it. The critics suggested that Enron would make excessive profits through transfer pricing and charging arbitrary prices for the fuel. However, from Enron perspective, taking responsibility for fuel supply was a means of reducing risk.