Enron / Dabhol Power Project
Risk Mechanism
A major power project was advanced through one-to-one negotiations with a preferred sponsor, limited transparency, lack of competitive bidding, inflated capital-cost concerns, and unusual contractual concessions, distorting project selection and structuring outside a transparent, criteria-based process.
Case Summary
The Government of Maharashtra review of the Dabhol Power Project found that the project was negotiated directly with Enron without competitive bidding, that negotiations lacked transparency, that capital costs were inflated, and that unusual concessions had been granted. The review concluded that the one-to-one negotiation process deprived the state of competitive comparison and contributed to an uneven agreement and major public-finance controversy.
Risk Lesson
This case demonstrates how direct negotiation with a preferred sponsor can weaken project appraisal and structuring when demand, cost, tariff, and concession assumptions are not independently tested. It highlights warning signs such as absence of competitive benchmarking, confidentiality around negotiations, unusual concessions, inflated capital-cost concerns, and tariff commitments not clearly grounded in public-interest criteria.
Reference
Human Rights Watch. (1995). Report of the Cabinet Sub-Committee to Review the Dabhol Power Project. The Enron Corporation: Corporate Complicity in Human Rights Violations. Available from: https://www.hrw.org/reports/1999/enron/enron-b.htm