Enron Corp. - University of California | Office of The President

(4) The New Power Company
597. New Power, as noted in 485-488, became an impaired asset which defendants went
to great lengths to keep off of Enron's financial statements. As the investment deteriorated from the
amount the Enron Defendants had marked it up to, no impairment was recorded as Enron used its
own stock's value to act as an illusory hedge. In this way, Enron was able to avoid taking a huge
writedown of $544 million until the end of the Class Period.
(5) India-Dabhol Power Plant Project
598. In the early 90s, as economic reforms were opening up India's economy, Enron
Development became involved in building a 2015 megawatt gas-fired combined cycle power project
near Dabhol, India. However, the construction costs resulted in such huge cost overruns such that
to ever recover its investment, Enron would have to charge electricity rates so far in excess of
existing rates in the region that such rates would never be collected. Consequently, the valuation of
Dabhol was grossly inflated and should have been written down as alleged below. Originally, the
first phase was to begin construction in 94 and begin commercial operation in early 97. The second
phase was to begin construction in 95. The project was dogged with problems from the beginning.
In 95, after $300 million in work had been completed, the project was halted due to political changes
in India. Enron had to agree to lower the rates it would charge for power once it was online to get
it started again. However, even by 02, the project was still not finished.
599. By late 01, Enron and its partners had invested more than $1 billion in building
Dabhol, but these costs were not recoverable. The problem was that the rates envisioned for
consumers in India were several times higher than other rates in the country. Additionally, Enron
continued to have regulatory/political problems in finalizing the project.
600. As The Wall Street Journal subsequently reported:
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