Abstract
When economic reforms in India opened up the power sector to foreign private power plants, the Enron corporation of the USA was the first foreign firm to offer to build a power plant at Dabhol, a coastal town 250km south of Bombay. In spite of public criticism, Maharashtra State Electricity Board signed a power purchase agreement. Subsequently, even though construction had started, a new state government first cancelled the deal and then renegotiated a new power purchase agreement. The paper tells this story, assesses the economics of the original and renegotiated agreements, examines various objections against the original agreement, speculates on the political economy of the episode and draws lessons for power policy as well as for the various actors involved namely, the central government, state electricity boards and private investors.
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