Politics, Institutions and Project Finance: The Dabhol Power Project

Case Solution

Grace Loo, Paul Lejot, Frederik Pretorius
University of Hong Kong ()

This case deals with the development and financing of the Dabhol power station in the Indian state of Maharashtra. This project was controversial from the start for three main reasons: the developer (the now defunct Enron Corporation) tried to minimize its capital commitment to the project; the economics of the project depended on high final prices relative to prevailing (subsidized) price levels; and both project and financing transactions did not provide adequate protection against political upheaval. For practical reasons, it can be seen as an example of failed project finance. In this case, it examines in particular how project promoters and donors may mismanage the risks associated with developing such enterprises in a politically volatile environment. Basically, the difference between operational risk management and project risk management and mitigation in an insecure institutional environment should be shown.

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