Enron Development Corporation
The case deals with a dispute between Enron Development Corporation (EDC), a division of Houston-based Enron Corporation, and the government of the Indian State of Maharashtra. In April 1995, EDC began construction of a $2.8 billion power plant in the state of Maharashtra. In August 1995, the Maharashtrian government announced that the project (the Dabhol project) was canceled based on the recommendations of a committee set up by the government to review the project. EDC must now determine if a negotiated solution to the dispute can be reached, and how the firm may recoup the $300 million already invested. Dabhol was to be EDC's entry into the Indian market; EDC must now determine what this means for EDC's future opportunities to participate in India's massive development of electricity generating capacity.
The case illustrates the problems facing a division of a large multinational company as it does business in a developing nation. It also illustrates the difficulty of predicting and understanding local political conditions and coping with the threat of project cancellation or forced renegotiation. It also raises issues dealing with the appropriate rate of return for a large capital intensive project in an uncertain political environment including corruption and transfer payment equity.