In 1995, a new government came into power in the Indian state of Maharashtra and canceled a 20-year power purchase agreement with the Dabhol Power Company, a joint-venture formed by Enron, General Electric, and Bechtel. Claiming that the deal was improper and even illegal, the government declared publicly that it would not renegotiate.
When the government recognized that it had no other options to secure power, it began to soften its position. But if renegotiations were to take place, the parties would need a process that would preserve the government’s dignity and prestige. Ultimately, the government chose to appoint a “review panel” consisting of disinterested energy experts to reexamine the project. The panel met with Dabhol representatives and project critics, and then submitted a proposal to the government that contained the terms of a renegotiated electricity supply agreement that both sides accepted.
The use of an expert panel to conduct what amounted to a renegotiation, in lieu of face-to-face discussions between the two sides, served to protect governmental dignity. The panel’s independent status also assured the public that the renegotiated agreement protected Indian interests.