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87-414: In 1998, MSEB purchased half of Enron's equity stake. In May 1999, the power plant began producing energy. In January 2001 the state of Maharashtra stopped paying DPC and sought to cancel the purchase agreement. In May 2001, the power plant ran into further trouble due to Enron scandal leading to the bankruptcy of Enron and had to stop production. In 2005, it was taken over and revived by converting it into

174-656: A conflict of interest over the significant consulting fees generated by Enron. During 2000, Andersen earned $ 25 million in audit fees and $ 27 million in consulting fees (this amount accounted for roughly 27% of the audit fees of public clients for Andersen's Houston office). The auditor's methods were questioned as either being completed solely to receive its annual fees or for its lack of expertise in properly reviewing Enron's revenue recognition, special entities, derivatives, and other accounting practices. Enron hired numerous Certified Public Accountants (CPAs) as well as accountants who had worked on developing accounting rules with

261-483: A $ 40 billion lawsuit (and were eventually partially compensated with $ 7.2 billion), after the company's stock price, which achieved a high of US$ 90.75 per share in mid-2000, plummeted to less than $ 1 by the end of November 2001. The Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of

348-588: A $ 500 million gain on the swap contracts in its 2000 annual report . The gain was responsible for offsetting its stock portfolio losses and was attributed to nearly a third of Enron's earnings for 2000 (before it was properly restated in 2001). On paper, Enron had a model board of directors comprising predominantly outsiders with significant ownership stakes and a talented audit committee. In its 2000 review of best corporate boards, Chief Executive included Enron among its five best boards. Even with its complex corporate governance and network of intermediaries, Enron

435-450: A 20-year agreement to introduce on-demand entertainment to various U.S. cities by year's end. After several pilot projects, Enron claimed estimated profits of more than $ 110 million from the deal, even though analysts questioned the technical viability and market demand of the service. But in March 2001, the parties withdrew from the contract. Enron continued to claim future profits, even though

522-540: A consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes–Oxley Act , increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients. In 1985, Kenneth Lay merged

609-547: A cover-up. Revelations concerning Andersen's overall performance led to the break-up of the firm, and to the following assessment by the Powers Committee (appointed by Enron's board to look into the firm's accounting in October 2001): "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements, or its obligation to bring to

696-440: A halt. By then, Enron had invested about $ 300 million into the project. Phase one was set to burn naphtha , a fuel similar to kerosene and gasoline . Phase one would produce 740 megawatts and help stabilize the local transmission grid. The power plant's phase one project was started in 1992 and finally completed two years behind schedule. Phase two would burn liquefied natural gas (LNG). The LNG infrastructure associated with

783-515: A loan for the same. Instead the project was financed by Enron, Bechtel, GE and five major lenders, one of which was located in India: The plant was to be constructed in two phases. In March 1995, the ruling Congress Party in Maharashtra lost to a nationalist coalition that had campaigned on an anti-foreign investment platform. In May, hundreds of protesting villagers swarmed over the site to protest

870-420: A modest average of about 2.1%, and its share price had decreased by more than 30% since the same quarter of 2000. Ratnagiri Gas and Power Pvt Ltd Ratnagiri Gas and Power Private Limited (RGPPL) is a Subsidiary of NTPC Limited. The company was established to take over and revive the assets of the defunct Dabhol Power Company . RGPPL owns one of India's largest and only LNG based power plants and

957-585: A post-mortem interview with The Washington Post , she recalled finding "strange transactions", "erratic cash flow", and "huge debt". The debt was the biggest red flag to McLean; she wondered how a supposedly profitable company could be "adding debt at such a rapid rate". Later, in her book, The Smartest Guys in the Room , McLean recalled speaking off the record with a number of people in the investment community who were growing skeptical about Enron. McLean telephoned Skilling to discuss her findings prior to publishing

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1044-432: A recorded conference call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling stammered, "Well uh ... Thank you very much, we appreciate it ... Asshole." This became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offensiveness, with slogans such as, "Ask Why, Asshole",

1131-778: A reporter at The Wall Street Journal bureau in Dallas wrote a story about how mark-to-market accounting had become prevalent in the energy industry. He noted that outsiders had no real way of knowing the assumptions on which companies that used mark-to-market based their earnings. While the story only appeared in the Texas Journal, the Texas regional edition of the Journal, short-seller Jim Chanos happened to read it and decided to check Enron's 10-K report for himself. Chanos did not think it made sense that Enron's broadband unit appeared to far outpace

1218-655: A separate investment. CalPERS was interested in the idea, but only if it could be terminated as a partner in JEDI. However, Enron did not want to show any debt from assuming CalPERS' stake in JEDI on its balance sheet. Chief Financial Officer (CFO) Fastow developed the special purpose entity Chewco Investments, a limited partnership (L.P.) which raised debt guaranteed by Enron and was used to acquire CalPERS's joint venture stake for $ 383 million. Because of Fastow's organization of Chewco, JEDI's losses were kept off of Enron's balance sheet. In autumn 2001, CalPERS and Enron's arrangement

1305-487: A series of rules dictate whether a special purpose entity is a separate entity from the sponsor. In total, by 2001, Enron had used hundreds of special purpose entities to hide its debt. The company used a number of special purpose entities, such as partnerships in its Thomas and Condor tax shelters, financial asset securitization investment trusts (FASITs) in the Apache deal, real estate mortgage investment conduits (REMICs) in

1392-399: A then-troubled broadband industry. He also noticed that Enron was spending much of its invested capital, and was alarmed by the large amounts of stock being sold by insiders. In November 2000, he decided to short Enron's stock. In February 2001, Chief Accounting Officer Rick Causey told budget managers: "From an accounting standpoint, this will be our easiest year ever. We've got 2001 in

1479-404: A variation on Enron's official slogan "Ask why". By the late 1990s Enron's stock was trading for $ 80–90 per share, and few seemed to concern themselves with the opacity of the company's financial disclosures. In mid-July 2001, Enron reported revenues of $ 50.1 billion, almost triple year-to-date, and beating analysts' estimates by 3 cents a share. Despite this, Enron's profit margin had stayed at

1566-510: A variety of assets including gas pipelines, electricity plants, paper plants, water plants, and broadband services across the globe. Enron also gained additional revenue by trading contracts for the same array of products and services with which it was involved. This included setting up power generation plants in developing countries and emerging markets including the Philippines ( Subic Bay ), Indonesia and India ( Dabhol ). The bull market of

1653-591: A year. This plant was taken over by Ratnagiri Gas and Power Private limited in July 2005. The power plant Phase I which was renamed Ratnagiri Gas and Power Pvt Ltd (RGPPL) started operation in May 2006, after a hiatus of over 5 years. However, the Dabhol plant ran into further problems, with RGPPL shutting down the plant on 4 July 2006 due to a lack of naphtha supply. The Qatar based company RasGas Company Ltd. started supplying LNG to

1740-696: The Financial Accounting Standards Board (FASB). The accountants searched for new ways to save the company money, including capitalizing on loopholes found in Generally Accepted Accounting Principles (GAAP), the accounting industry's standards. One Enron accountant revealed "We tried to aggressively use the literature [GAAP] to our advantage. All the rules create all these opportunities. We got to where we did because we exploited that weakness." Andersen's auditors were pressured by Enron's management to defer recognizing

1827-692: The Lehman Brothers Repo 105 scheme in the 2008 financial crisis , or the currency swap concealment of Greek debt by Goldman Sachs. In Enron's case, Merrill Lynch bought Nigerian barges with an alleged buyback guarantee by Enron shortly before the earnings deadline. According to the government, Enron misreported a bridge loan as a true sale, then bought back the barges a few months later. Merrill Lynch executives were tried and in November 2004 convicted for aiding Enron in fraudulent accounting activities. These charges were thrown out on appeal in 2006, after

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1914-498: The Sanctions against Iran were imposed, the FBI blocked the plan, and it was forcibly cancelled. A proposed 400 mile extension from Multan to New Delhi would bring some of the gas into India's network of gas pipelines at a cost of $ 600 million. A sea route from Gwadar , Pakistan, to Dabhol, India, was never considered despite both locations being coastal towns. In 1992, Enron approached

2001-557: The United States Bankruptcy Code . Enron's $ 63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until the WorldCom scandal the following year. Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison, including former CEO Jeffrey Skilling. Then CEO and Chairman Kenneth Lay was indicted and convicted, but died before being sentenced. Arthur Andersen LLC

2088-544: The natural gas pipeline companies of Houston Natural Gas and InterNorth to form a multi-billion dollar company. Just a year later, they then changed the name to Enron. In the early 1990s, he helped to initiate the selling of electricity at market prices and, soon after, Congress approved legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue. After producers and local governments decried

2175-495: The 1990s helped to fuel Enron’s ambitions and contributed to its rapid growth. Enron's stock increased from the start of the 1990s until year-end 1998 by 311%, only modestly higher than the average rate of growth in the Standard & Poor 500 index . However, the stock increased by 56% in 1999 and a further 87% in 2000, compared to a 20% increase and a 10% decrease for the index during the same years. By December 31, 2000, Enron's stock

2262-560: The 5 million tonnes per year LNG Block (Commissioning cargo ‘LNG Pioneer’). The vessel carrying 1,38,000 cubic meters of Liquefied Natural Gas (LNG) docked at the jetty brought back the memories of the Enron’s aborted Dabhol Power Company's (DPC) power project. The DPC project was later taken over by the Central Government which renamed it as RGPPL which began operations in May 2006. The RGPPL successfully began re-gasification process of

2349-538: The LNG Terminal at Dabhol was going to cost around $ 1 billion. In 1996 when India's Congress Party was no longer in power, the Indian government assessed the project as being excessively expensive and refused to pay for the plant and stopped construction. The Maharashtra State Electricity Board (MSEB), the local state-run utility, was required by contract to continue to pay Enron plant maintenance charges, even if no power

2436-606: The LNG regasification terminal at Dabhol . The Ratnagiri Gas and Power company was made by the Government of Maharashtra and Government of India in 2005 to rescue the controversial and nearly defunct Dabhol power company , a gas powered electricity provider owned by Enron Corporation . In 1992, Enron Corporation signed a deal to build a gas powered power station at Dabhol, from which the government of Maharashtra would purchase electricity for 20 years. The project remained controversial from

2523-514: The Merrill Lynch executives had spent nearly a year in prison, with the 5th U.S. Circuit Court of Appeals in New Orleans calling the conspiracy and wire fraud charges "flawed". Expert observers said that the reversal was highly unusual for the 5th Circuit, commenting that the conviction must have had serious issues in order to be overturned. The Justice Department decided not to retry the case after

2610-561: The RGPPL (Ratnagiri Gas and Power Private Limited), a company owned by the Government of India. Starting in the mid-1990s, Unocal and its partners planned to build a 1,000 mile gas pipeline from Turkmenistan to Multan , in Pakistan at a cost of about $ 2 billion. Also considered was a route from Iran to Multan which was seen as feasible due to Iran's huge oil and gas reserves. However, In 1996 when

2697-627: The Steele deal, and REMICs and real estate investment trusts (REITs) in the Cochise deal. The special purpose entities were Tobashi schemes used for more than just circumventing accounting conventions. As a result of one violation, Enron's balance sheet understated its liabilities and overstated its equity , and its earnings were overstated. Enron disclosed to its shareholders that it had hedged downside risk in its own illiquid investments using special purpose entities. However, investors were oblivious to

Dabhol Power Company - Misplaced Pages Continue

2784-407: The accounting employed when a company issues stock at a public offering , then booked the notes payable issued as assets on its balance sheet while increasing the shareholders' equity for the same amount. This treatment later became an issue for Enron and its auditor Arthur Andersen , as removing it from the balance sheet resulted in a $ 1.2 billion decrease in net shareholders' equity. Eventually

2871-609: The agent model. Enron's method of reporting inflated trading revenue was later adopted by other companies in the energy trading industry in an attempt to stay competitive with the company's large increase in revenue. Other energy companies such as Duke Energy , Reliant Energy , and Dynegy joined Enron in the largest 50 of the revenue-based Fortune 500 owing mainly to their adoption of the same trading revenue accounting as Enron. Between 1996 and 2000, Enron's revenues increased by more than 750%, rising from $ 13.3 billion in 1996 to $ 100.7 billion in 2000. This expansion of 65% per year

2958-632: The appearance of reported earnings to meet Wall Street's expectations. Stock tickers were installed in lobbies, elevators, and on company computers. At budget meetings, Skilling would develop target earnings by asking, "What earnings do you need to keep our stock price up?" and that number would be used, even if it was not feasible. On December 31, 2000, Enron had 96 million shares outstanding as stock option plans (approximately 13% of common shares outstanding). Enron's proxy statement stated that, within three years, these awards were expected to be exercised. Using Enron's January 2001 stock price of $ 83.13 and

3045-542: The article, but he called her "unethical" for not properly researching his company. Fastow claimed that Enron could not reveal earnings details as the company had more than 1,200 trading books for assorted commodities and did "... not want anyone to know what's on those books. We don't want to tell anyone where we're making money." In a conference call on April 17, 2001, then-Chief Executive Officer (CEO) Skilling verbally attacked Wall Street analyst Richard Grubman, who questioned Enron's unusual accounting practices during

3132-463: The attention of Enron's Board (or the Audit and Compliance Committee) concerns about Enron's internal contracts over the related-party transactions". Corporate audit committees usually meet just a few times during the year, and their members typically have only modest experience with accounting and finance. Enron's audit committee had more expertise than many others. It included: Enron's audit committee

3219-402: The bag." On March 5, Bethany McLean 's Fortune article "Is Enron Overpriced?" questioned how Enron could maintain its high stock value, which was trading at 55 times its earnings, arguing that analysts and investors did not know exactly how the company made money. McLean was first drawn to the company's financial situation after Chanos suggested she view the company's 10-K for herself. In

3306-406: The beginning, mostly due to the high cost of electricity (more than 2,000 times what the government was paying per unit for hydro electricity) and corruption at the highest levels. Despite protests, the project was built and began producing electricity in 1998. The Godbole committee report in 2001 presented a scathing criticism of the project and its terms. The plant stopped production in 2001 when

3393-510: The board of directors, as later learned by a Senate subcommittee. The board was informed of the rationale for using the Whitewing, LJM, and Raptor transactions, and after approving them, received status updates on the entities' operations. Although not all of Enron's widespread improper accounting practices were revealed to the board, the practices were dependent on board decisions. Even though Enron extensively relied on derivatives for its business,

3480-785: The chairman of Enron in its last few years, and approved of the actions of Skilling and Fastow, although he did not always inquire about the details. Skilling constantly focused on meeting Wall Street expectations, advocated the use of mark-to-market accounting (accounting based on market value, which was then inflated) and pressured Enron executives to find new ways to hide its debt. Fastow and other executives "created off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them." Enron earned profits by providing services such as wholesale trading and risk management in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities. When accepting

3567-470: The charges from the special purpose entities as its credit risks became known. Since the entities would never return a profit, accounting guidelines required that Enron should take a write-off , where the value of the entity was removed from the balance sheet at a loss. To pressure Andersen into meeting earnings expectations, Enron would occasionally allow accounting companies Ernst & Young or PricewaterhouseCoopers to complete accounting tasks to create

Dabhol Power Company - Misplaced Pages Continue

3654-455: The committee. The United States Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs ' report accused the board members of allowing conflicts of interest to impede their duties as monitoring the company's accounting practices. When Enron's scandal became public, the audit committee's conflicts of interest were regarded with suspicion. Commentators attributed

3741-454: The company use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance. Furthermore, some speculative business ventures proved disastrous. The combination of these issues later resulted in the bankruptcy of Enron, and the majority of them were perpetuated by the indirect knowledge or direct actions of Lay, Skilling, Andrew Fastow and other executives such as Rebecca Mark . Lay served as

3828-401: The company's finance committee and board did not have enough experience with derivatives to understand what they were being told. The Senate subcommittee argued that had there been a detailed understanding of how the derivatives were organized, the board would have prevented their use. Enron's accounting firm, Arthur Andersen, was accused of applying reckless standards in its audits because of

3915-465: The company's financial statement footnotes. The special purpose entities had been used to pay for all of this using the entities' debt instruments . The footnotes also declared that the instruments' face amount totaled $ 1.5 billion, and the entities notional amount of $ 2.1 billion had been used to enter into derivative contracts with Enron. Enron capitalized the Raptors, and, in a manner similar to

4002-555: The country as well as performance of newly repaired rotors. As of 2016, the company continues to operate at a colossal loss, selling expensive electricity to either the state owned MSEDCL or India railways for survival. In September 2015, the company had a total debt of nearly Rs. 10,500 crore. In a bid to try and revive the loss making plant, the Company owning the power plant RGPPL was split into two separate Power ( RGPPL ) and LNG entities ( Konkan LNG Private Limited (KLPL) ), one to manage

4089-671: The customer records destroyed. At the beginning of 2001, the Enron Corporation, the world's dominant energy trader, appeared unstoppable. The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. Its ties to the Bush administration assured that its views would be heard in Washington. Its sales, profits and stock were soaring. —A. Berenson and R. A. Oppel, Jr. The New York Times , October 28, 2001. On September 20, 2000,

4176-451: The deal resulted in a loss. Enron used special purpose entities—limited partnerships or companies created to fulfill a temporary or specific purpose to fund or manage risks associated with specific assets . The company elected to disclose minimal details on its use of "special purpose entities". These shell companies were created by a sponsor, but funded by independent equity investors and debt financing. For financial reporting purposes,

4263-438: The derivative contracts worth $ 2.1 billion lost significant value. Swaps were established at the time the stock price achieved its maximum. During the ensuing year, the value of the portfolio under the swaps fell by $ 1.1 billion as the stock prices decreased (the loss of value meant that the special purpose entities technically now owed Enron $ 1.1 billion by the contracts). Enron, using its mark-to-market accounting method, claimed

4350-498: The directors' beneficial ownership reported in the 2001 proxy, the value of director stock ownership was $ 659 million for Lay, and $ 174 million for Skilling. Skilling believed that if Enron employees were constantly worried about cost, it would hinder original thinking. As a result, extravagant spending was rampant throughout the company, especially among the executives. Employees had large expense accounts and many executives were paid sometimes twice as much as competitors. In 1998,

4437-509: The displacement of people that would take place, and a riot broke out. Human Rights Watch and Amnesty International eventually charged the security forces guarding Dabhol for Enron with human-rights abuses; Human Rights Watch blamed Enron for being complicit. On August 3, the Maharashtra state government ordered the project to be halted because of "lack of transparency, alleged padded costs, and environmental hazards." Construction ground to

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4524-455: The equity, also contributed $ 22 million to fund the entities. Enron transferred to "Raptor I-IV", four LJM-related special purpose entities named after the velociraptors in Jurassic Park , more than "$ 1.2 billion in assets, including millions of shares of Enron common stock and long term rights to purchase millions more shares, plus $ 150 million of Enron notes payable " as disclosed in

4611-660: The fact that the special purpose entities were actually using the company's own stock and financial guarantees to finance these hedges. This prevented Enron from being protected from the downside risk. In 1993, Enron established a joint venture in energy investments with CalPERS , the California state pension fund, called the Joint Energy Development Investments (JEDI). In 1997, Skilling, serving as Enron's chief operating officer (COO), asked CalPERS to join Enron in

4698-411: The firm might never have received the money, with this income increasing financial earnings on the books. However, because in future years the profits could not be included, new and additional income had to be included from more projects to develop additional growth to appease investors. As one Enron competitor stated, "If you accelerate your income, then you have to keep doing more and more deals to show

4785-538: The first nonfinancial company to use the method to account for its complex long-term contracts. Mark-to-market accounting requires that once a long-term contract has been signed, income is estimated as the present value of net future cash flow. Often, the viability of these contracts and their related costs were difficult to estimate. Owing to the large discrepancies between reported profits and cash, investors were typically given false or misleading reports. Under this method, income from projects could be recorded, although

4872-403: The government could not pay for its electricity costs. In 2002, Enron became bankrupt. In 2005, the plant was taken over by the Government of Maharashtra . The company was established on 8 July 2005, with GAIL and NTPC each holding just over 25.51% of its equity. The Maharashtra State Electricity Board (MSEB) and financial institutions hold the remaining stock. RGPPL has operationalised

4959-452: The government of Maharashtra with the idea of setting up a 2,184 Megawatts LNG powered plant at Dabhol, Ratnagiri. LNG for the project would be imported from Qatar through a 20 year contract with Enron, and the electricity produced would be purchased by the Government of Maharashtra for 20years. However, the World Bank found issues with the feasibility of the project and hence refused to give

5046-608: The illusion of hiring a new company to replace Andersen. Although Andersen was equipped with internal controls to protect against conflicted incentives of local partners, it failed to prevent conflict of interest. In one case, Andersen's Houston office, which performed the Enron audit, was able to overrule any critical reviews of Enron's accounting decisions by Andersen's Chicago partner. In addition, after news of SEC investigations of Enron were made public, Andersen would later shred several tons of relevant documents and delete nearly 30,000 e-mails and computer files, leading to accusations of

5133-401: The invariable fluctuation of future energy prices. Enron's downfall was attributed to its reckless use of derivatives and special purpose entities. By hedging its risks with special purpose entities which it owned, Enron retained the risks associated with the transactions. This arrangement had Enron implementing hedges with itself. Enron's aggressive accounting practices were not hidden from

5220-557: The largest seller of natural gas in North America by 1992, its trading of gas contracts earned $ 122 million (before interest and taxes), the second largest contributor to the company's net income. The November 1999 creation of the EnronOnline trading website allowed the company to better manage its contracts trading business. In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated

5307-456: The mismanagement behind Enron's fall to a variety of ethical and political-economic causes. Ethical explanations centered on executive greed and hubris, a lack of corporate social responsibility, situation ethics, and get-it-done business pragmatism. Political-economic explanations cited post-1970s deregulation, and inadequate staff and funding for regulatory oversight. Enron made a habit of booking costs of cancelled projects as assets, with

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5394-403: The misuse of mark-to-market accounting , special purpose entities , and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives misled Enron's board of directors and audit committee on high-risk accounting practices and pressured Arthur Andersen to ignore the issues. Shareholders filed

5481-468: The next year Enron reviewed its options. On February 23, 1996, the then government of Maharashtra and Enron announced a new agreement. Enron cut the price of the power by over 20 percent, cut total capital costs from $ 2.8 billion to $ 2.5 billion, and increased Dabhol's output from 2,015 megawatts to 2,184 megawatts. Both parties committed formally to develop the second phase. The first phase went online May 1999, almost two years behind schedule, and construction

5568-471: The office from other departments (instructing them to pretend to work hard) to create the appearance that the division was larger than it was. This ruse was used several times to fool analysts about the progress of different areas of Enron to help improve the stock price. Enron division Azurix, slated for an IPO , initially planned to bid between $ 321 million and $ 353 million for the rights to operate water system services for areas around Buenos Aires . This

5655-461: The outside equity investor needed for the special purpose entities that were being used by Enron. Fastow had to go before the board of directors to receive an exemption from Enron's code of ethics (as he had the title of CFO) in order to manage the companies. The two partnerships were funded with around $ 390 million provided by Wachovia , J.P. Morgan Chase , Credit Suisse First Boston , Citigroup , and other investors. Merrill Lynch, which marketed

5742-537: The plant in April 2007. The Dabhol Power plant consists of 3 blocks, each consisting of two GE make frame 9 gas turbines and one GE steam turbine. Block 2 commissioning work and Gas turbine 2A trial runs started on 25 April 2007. The Dabhol Power Plant Project was again made operational in April 2009 with 900 MW RLNG fired running capacity but problems continued due to non-availability of operational insurance. Decisions tend to be largely dependent upon political developments in

5829-502: The power plant and the other to try and manage the import of LNG. Enron scandal The Enron scandal was an accounting scandal involving Enron Corporation , an American energy company based in Houston , Texas. When news of widespread fraud within the company became public in October 2001, the company filed for bankruptcy and its accounting firm, Arthur Andersen —then one of the five largest audit and accountancy partnerships in

5916-572: The quality of cash flow or profits, in order to get a better rating for their performance review. Additionally, accounting results were recorded as soon as possible to keep up with the company's stock price. This practice helped ensure deal-makers and executives received large cash bonuses and stock options. Enron was constantly emphasizing its stock price. Management was compensated extensively using stock options , similar to other U.S. companies. This policy of stock option awards caused management to create expectations of rapid growth in efforts to give

6003-543: The rationale that no official letter had stated that the project was cancelled. This method was known as "the snowball", and although it was initially dictated that such practices be used only for projects worth less than $ 90 million, it was later increased to $ 200 million. In 1998, when analysts were given a tour of the Enron Energy Services office, they were impressed with how the employees were working so vigorously. In reality, Skilling had moved other employees to

6090-405: The resultant price volatility and asked for increased regulation, strong lobbying on the part of Enron and others prevented such regulation. Enron changed from being a natural gas producer and supplier to a trader of energy derivative contracts with the assistance of Jeffrey Skilling, who joined the company as a consultant before rising to the position of chief operating officer. As Enron became

6177-414: The reversal of the verdict. In Enron's natural gas business, the accounting had been fairly straightforward: in each time period , the company listed actual costs of supplying the gas and actual revenues received from selling it. However, when Skilling joined Enron, he demanded that the trading business adopt mark-to-market accounting, claiming that it would represent "true economic value". Enron became

6264-412: The risk of buying and selling products, merchants are allowed to report the selling price as revenues and the products' costs as cost of goods sold. In contrast, an " agent " provides a service to the customer, but does not take the same risks as merchants for buying and selling. Service providers, when classified as agents, may report trading and brokerage fees as revenue, although not for the full value of

6351-404: The same or rising income." Despite potential pitfalls, the U.S. Securities and Exchange Commission (SEC) approved the accounting method for Enron in its trading of natural gas futures contracts on January 30, 1992. However, Enron later expanded its use to other areas in the company to help it meet Wall Street projections. For one contract, in July 2000, Enron and Blockbuster Video signed

6438-454: The top 200 highest-paid employees received $ 193 million from salaries, bonuses, and stock. Two years later, the figure jumped to $ 1.4 billion. Before its demise, Enron was lauded for its sophisticated financial risk management tools. Risk management was crucial to Enron not only because of its regulatory environment, but also because of its business plan . Enron established long-term fixed commitments which needed to be hedged to prepare for

6525-400: The transaction. Although trading companies such as Goldman Sachs and Merrill Lynch used the conventional "agent model" for reporting revenue (where only the trading or brokerage fee would be reported as revenue), Enron instead elected to report the entire value of each of its trades as revenue. This "merchant model" was considered much more aggressive in the accounting interpretation than

6612-404: The transactions were approved by the Enron board, the asset transfers were not true sales and should have been treated instead as loans. In 1999, Fastow formulated two limited partnerships: LJM Cayman. L.P. (LJM1) and LJM2 Co-Investment L.P. (LJM2), for the purpose of buying Enron's poorly performing stocks and stakes to improve its financial statements. LJM 1 and 2 were created solely to serve as

6699-406: The world—was effectively dissolved. In addition to being the largest bankruptcy reorganization in U.S. history at that time, Enron was cited as the biggest audit failure. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth . Several years later, when Jeffrey Skilling was hired, Lay developed a staff of executives that – by the use of accounting loopholes,

6786-539: Was at the high end of what Enron's Risk Assessment and Control Group advised. But as pressure to outbid all others and win the deal grew more intense with the approaching IPO, the Azurix executives decided to up their bid. They eventually bid $ 438.6 million, which turned out to be about twice as much as the next highest sealed bid. But when Enron executives arrived at the Argentine facilities, they found them in shambles, with all of

6873-524: Was discovered, which required the discontinuation of Enron's prior accounting method for Chewco and JEDI. This disqualification revealed that Enron's reported earnings from 1997 to mid-2001 would need to be reduced by $ 405 million and that the company's indebtedness would increase by $ 628 million. Whitewing was the name of a special purpose entity used as a financing method by Enron. In December 1997, with funding of $ 579 million provided by Enron and $ 500 million by an outside investor, Whitewing Associates L.P.

6960-504: Was extraordinary in any industry, including the energy industry, which typically considered growth of 2–3% per year to be respectable. For just the first nine months of 2001, Enron reported $ 138.7 billion in revenues, placing the company at the sixth position on the Fortune Global 500 . Enron also used creative accounting tricks and purposefully misclassified loan transactions as sales close to quarterly reporting deadlines, similar to

7047-408: Was formed. Two years later, the entity's arrangement was changed so that it would no longer be consolidated with Enron and be counted on the company's balance sheet. Whitewing was used to purchase Enron assets, including stakes in power plants, pipelines, stocks, and other investments. Between 1999 and 2001, Whitewing bought assets from Enron worth $ 2 billion, using Enron stock as collateral . Although

7134-545: Was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively closed the firm. By the time the ruling was overturned at the Supreme Court , Arthur Andersen had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. As

7221-420: Was later criticized for its brief meetings that would cover large amounts of material. In one meeting on February 12, 2001, the committee met for an hour and a half. Enron's audit committee did not have the technical knowledge to question the auditors properly on accounting issues related to the company's special purpose entities. The committee was also unable to question the company's management due to pressures on

7308-589: Was priced at $ 83.13 and its market capitalization exceeded $ 60 billion, 70 times earnings and six times book value , an indication of the stock market's high expectations about its future prospects. In addition, Enron was rated the most innovative large company in America in Fortune' s Most Admired Companies survey . Enron's complex financial statements were confusing to shareholders and analysts. In addition, its complex business model and unethical practices required that

7395-521: Was purchased from the plant. The MSEB determined that it could not afford to purchase the power (at Rs. 8 per unit kWh) charged by Enron. From 1996 until Enron's bankruptcy in 2001 the company tried to revive the project and spark interest in India's need for the power plant without success. The project was widely criticized for excess costs and deemed a white elephant . Socialist groups cited the project as an example of corporate profiteering over public good. Over

7482-410: Was started on phase two. Costs would now ultimately climb to $ 3 billion. Then everything came to halt. The MSEB refused to pay for all the power, and it became clear that getting the government to honor the guarantees would not be an easy task. Although Maharashtra still suffers from blackouts, it says it does not need and cannot afford Dabhol's power. India's energy sector still loses roughly $ 5 billion

7569-539: Was still able to "attract large sums of capital to fund a questionable business model, conceal its true performance through a series of accounting and financing maneuvers, and hype its stock to unsustainable levels." Although Enron's compensation and performance management system was designed to retain and reward its most valuable employees, the system contributed to a dysfunctional corporate culture that became obsessed with short-term earnings to maximize bonuses. Employees constantly tried to start deals, often disregarding

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