Enron's curse

The revival plan for the Dabhol power project is floundering because long-term gas supply is still uncertain

Noor Mohammad Delhi
The plan to revive the Dabhol power project in Maharashtra and cut power generation cost is facing serious difficulties, with long-term gas supply for the project remaining elusive even as the entire generation capacity is expected to be commissioned soon. It seems that fuel prices are the project's nemesis. The cost calculations of Enron, the original developer of the project, were upset by the unexpected rise in the international naphtha prices, leading to its eventual closure. This time, high gas prices are threatening to nullify the government's efforts to revive the Dabhol project. The central government has already faced charges from certain quarters that it took the decision to revive the project under pressure from foreign lenders and other stakeholders and that a new, similar-sized power plant could have been set up at just Rs 7,500 crore as against the total expenditure of Rs 12,500 crore likely to be incurred on the Dabhol project. And if the 'revival plan' fails to bring down generation cost for the project, the critics will only become shriller.
When National Thermal Power Corp (NTPC) and GAIL Indian Ltd took over the abandoned Dabhol power project in July 2005 under the financial restructuring plan finalised by the government, hopes were raised that it would soon become operational and provide a big relief to Maharashtra facing unprecedented power shortages. But now the Rs 12,500 crore-project seems to be foundering, with affordable gas still not in sight even as the entire generation capacity is set to become ready for operations soon.
Against the 2.2 million metric tonne per annum (MMTPA) of gas requirement, the plant— which was formally renamed Ratnagiri Gas and Power Pvt Ltd (RGPIL) after the new promoters took over — has tied up 1.5 MMTPA re-gasified LNG supply from Petronet LNG Ltd's Dahej terminal in Gujarat. This gas supply is enough to fire 1,100 MW capacity. But this contract is valid up to September 2009. Where the gas will come from to fire the plant after that, no one knows.
NTPC has already rejected the idea of diverting cheaper gas supply from domestic sources.
Under the circumstances, the only possibility is buying gas from the spot markets where prices are currently ruling at around $13 per million metric British thermal unit (MMBTU). But Maharashtra has rejected the idea of buying power generated with costly LNG supplies from spot markets.
Now, a cost escalation of Rs 1,495 crore is also expected in reviving the project. That will necessitate a further hike in tariff for the project where power supply is already costly.
Planning Commission Deputy Chairman Montek Singh Ahluwalia has already expressed concern over the escalation in the cost of completion of the project. ”The initial estimate was to deliver power at Rs 2.30  per unit from the project but now that has gone up to Rs 3.06 per unit,” he noted with concern in a recent inter-ministerial meeting.
Meanwhile, developers and the lenders led by IDBI are fighting over who should bear cost escalation of Rs 1,495 crore likely to be incurred in reviving the project. The group of ministers (GoM) constituted by the Prime Minister's Office (PMO) to monitor revival of the Dabhol power project has taken the matter up for resolution. But as neither side is ready to budge, the GoM is having a tough time playing its role.
Tired of the lack of progress in resolving the matter, External Affairs Minister and ministerial panel chairman Pranab Mukherjee asked in a recent meeting, “Why are the project promoters not sorting this issue out with the lenders at their own level? The GoM was constituted to supervise revival of the project, an objective that had been achieved, and now Ratnagiri Gas and Power Pvt Ltd — a legal entity that has the authority to operate independently — should take responsibility of running its affairs.”