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Politics, Institutions and Project Finance: The Dabhol Power Project  
Product Ref: 07/335C Company: Dabhol Power Corporation
Enrol Corporation

Product Type: Case Industry: Banks & Diversified Financials
Capital Goods

Related Product(s): Teaching Note
This case reviews the development and financing of the Dabhol power plant in India's Maharashtra state. This project was controversial from inception for three main reasons: the promoter (the now defunct Enron Corporation) sought to minimise its capital commitment in the project; the project economics relied on high final output pricing relative to prevailing (subsidised) price levels; and both project and financing transactions failed to protect adequately against political disruption. For practical purposes it may be considered an example of a failed project finance venture. This case explores in particular how risks associated with developing such ventures in a politically volatile environment may be mishandled by promoters and financiers. In principle it aims to illustrate the difference between managing operational risks and managing and mitigating project risks in an uncertain institutional setting.
Functional Area : Finance & Investments

Issues: This case presents an institutional economics analysis of risks facing the developers of project finance ventures. It explains how apparently attractive project ventures may fail when insufficient transactional attention is given to risks and conflicts in the host institutional and political structure. It also highlights a fundamental corporate finance principle that underpins project finance arrangements, namely the assurance of a credible actual or contingent commitment by the promoters.
Length: Text: 13 pages
Exhibits: 0 pages
Country: India

Pub. Year: 2008 Level of Difficulty: 2
This product type is available in the following language(s):      English
Related Information: N/A
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