Lessons Learnt and issue scheme: What are the important lessons of the DABHOL power undertaking for other strategic enterprises in India? How do you turn to the hazard inherent in such tremendous planetary undertakings? How do you immunise against such hazards? If you are suggesting a new undertaking of this nature what other strategic. fiscal and regulative enterprises would you urge for such undertakings to win? The important lessons learnt from the DABHOL power undertaking are: 1. The dependance on a individual purchaser is ever hazardous particularly when the duties exceed the capacity of the purchaser. The investors should recognize the fact that though focal point on favourable footings to increase stockholder value is primary they should non disregard the capacity of the purchasers. Besides it is ever better to happen alternate purchasers before make up one’s minding to do such big graduated table investings. 2. Though MSEB was forced by fortunes to come in into contract with payments in US dollars. it could hold hedged the rupee depreciation by utilizing foreign exchange contracts.
3. No affair how much you use risk extenuation tools. if there is cardinal defect in the techno- commercial rating of the undertaking. it is ought to neglect. Enron’s vested involvements in procuring LNG supply lead to high duty which was non executable to be paid by the consumers. The undertaking is designed for base burden whereas Maharashtra suffers to provide peak burden. The take-or-pay PPA did increase the overall mean cost by five times which can non be afforded by MSEB or base on balls through to stop consumers. 4. Lack of transparence. unfastened and competitory command and undertaking leads to bad trades. The contract was signed DPC with exclusive dialogue without affecting the rivals. There was a deficiency of transparence and legitimacy among consumers. The politicians exploited the deficiency of legitimacy for their vested electoral involvements. 5. Unethical and corrupt patterns make any concern proposition unsustainable in the long tally. 6. The fiscal establishments and commercial Bankss can non merely trust on the warrants to fund substructure undertakings. They should hold expertness who can understand the techno-economic feasibleness of the undertaking before continuing to fund such big graduated table substructure undertakings.
7. The history. concern. financials. achievements. activities and country of operations of counter party must be exhaustively analyzed before subscribing any contract or understanding. Some of the major hazards built-in in such tremendous planetary undertakings are: 1. Expropriation Risk- Infrastructure undertaking assets are chiefly fixed to land and they provide basic indispensable services that Governments supply to their citizens. Governments hence have political justification for taking over such assets. 2. Regulatory or Policy Risk- The autonomous Government can alter the revenue enhancement policies. responsibilities and levies and other charges which may adversely impact the returns of the investors. This sort of hazard is really hard to observe as Government uses its regulative powers and makes such alterations legitimate backed by force of jurisprudence. 3. Breach of contract-The concentration nature of purchasers may promote paying cut downing monetary values for the end product. Such state of affairs may originate due to assorted economic grounds like currency devaluation. budgetary shortage. and economic downswing.
In such state of affairss the Government can non run into their duties and are forced to transgress contracts. 4. Political Risk- Hazards such as Political Force majeure originating due to events like politically motivated force. wars. terrorist act etc. Some schemes to extenuate the hazards in such planetary undertakings: 1. Buying merchandises like Political hazard insurance which insures losingss originating from autonomous armed robbery hazards. Some public insurance suppliers are Overseas Private Investment Corporation ( OPIC ) . World Bank ’ s Multilateral Investment Guarantee Agency ( MIGA ) Asian Development Bank ( ADB ) . European Bank for Reconstruction and Development ( EBRD ) etc. 2. High Debt reduces the chance of crowned head armed robbery since the undertaking has committed hard currency flows to run into. 3. Alliance with Government objectives- The investors have to understand and aline the underlying aims of the Government in such big graduated table undertakings. In Dabhol Power instance the Government of India invited foreign investing to better the ailing Power sector in the state.
The aim of Government is to hike the Power sector which is important for Industrial development and GDP growing. But the aim of Enron was to gain unreasonable returns on investings and unafraid supply contracts of LNG. Hence the undertaking failed. 4. Local Community support- While it is of import to derive support and assurance of political leading at state degree it is really of import to earn strong local community support. In Dabhol Case the Central Government forced the State authorities to come in into Contract but the State political parties were opposed to it as exploited the undertaking to their political involvements. Lapp is the instance with TATA motors and SIngur where the province authorities alloweion party exploited d the land acquisition without the support of local community and the resistance party exploited the issue to come into power. 5. Competitive and sensible returns- While it is natural for the Investors to anticipate high returns mentioning high state hazard they besides should understand that the end product monetary values are positively related with high returns and hence they increase the chance of political hazard. Hence it is really of import to gauge returns which are just and sensible.
Other than these major hazards other hazards associate with undertakings can be listed and evaluated by utilizing a Risk Breakdown construction ( RBS ) . The RBS has several classs and sub classs. The investors can measure each hazard class based on the chance of happening. impact and precedence and assign weights. The RBS can be used to measure both Pre-construction. Construction and Post Construction stage.