International Expansion: Energy Ass

International Expansion: Energy Asset Construction and Management
As Enron expanded beyond the natural gas pipeline business, it also reached beyond U.S. borders. Enron International, a wholly owned subsidiary of Enron, was created to construct and manage energy assets outside the United States, particu- larly in markets where energy was being deregulated. The unit’s first major project was the construction of the Teesside electric power plant in the United Kingdom, which began operation in 1993. Enron subsequently entered contracts to construct and manage projects in Eastern Europe, Africa, the Middle East, India, China and Central and South America. These projects represented significant investments in these economies.
While the privatization of energy producers and deregulation of energy markets created demand for the management of energy assets outside the United States, Enron faced some distinctive risks in entering these new markets. Some of the international projects were for the construction and management of pipelines, where Enron had a core competence, but many others were not. Could the company’s core expertise be extended to other types of energy assets, such as power plants? Also, international diversification, particularly in developing economies such as India and China, exposed Enron to political risks. For example, the Dabhol power project in India represented the single largest foreign direct investment project until that time in India, and it attracted considerable political opposition and controversy. Given its limited business experience in developing economies, did Enron have expertise in managing the risk that any returns would be taxed or its asset expropriated after construction of the plant? Even if Enron was successful in the international energy market, questions could be raised about whether the company could create a sustainable advantage over competitors that later sought to enter the market. Many existing players had expertise in managing the construction and operations of power plants.