Fate of Dabhol Power project hungs in balance

Tuesday, 27 May 2014 00:07 Harikumar B
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DabholThe fate of the oft-stricken 1,967 Mw Dabhol power project in Maharashtra hangs in balance, with the state distribution company having served a notice to the former for termination of their power purchase agreement (PPA).Maharashtra State Electricity Distribution Company, usually referred to as MahaVitaran, has told Ratnagiri Gas & Power Pvt Ltd (RGPPL, formal name of what is better known as Dabhol) that the PPA has been vitiated by frequent closures and rise in rates following higher-cost gas being used for generation.

RGPPL is a joint venture of NTPC and GAIL, which have 30 per cent each of the equity. The Maharashtra state electricity board's holding company and financial institutions have the remaining stock. The company was established to take over and revive the assets of the defunct Dabhol Power Company. RGPPL owns India's largest gas-based power plant and a liquefied natural gas (RLNG) regasification terminal at Dabhol.

The project has been closed since December 28, 2013, for want of gas, and if the situation continues, could be termed by the financial lenders as a non-performing asset. Last week, the RGPPL board discussed the termination notice and agreed to soon send a reply.

Both RGPPL and MahaVitaran hope the new Narendra Modi government at the Centre would intervene to keep the project going. The latter needs 8.5 million standard cubic metres a day (mscmd) of gas to operate fully at 1,967 Mw capacity. Of this, 7.6 mscmd had been assured from Reliance Industries' D6 block in the Krishna-Godavari basin (KG-D6) and 0.9 mscmd from marginal gasfields of Oil and Natural Gas Corporation (through GAIL).

A MahaVitaran official, who did not want to be identified, told Business Standard: "The PPA was based on the Government of India's assurance that gas from KG-D6 will be supplied at $4.20 a million British thermal units (mBtu). That was the pillar for our agreement after the project was revived in October 2005 and commissioned in May 2006. The project is frequently closed due to non-availability of gas and if the price is increased to $8.20 a mBtu (as is supposed to happen), the tariff (rate for power supply) will further rise and the purchase become financial non-viable. MahaVitaran was drawing power at Rs 4.40 a unit from RGPPL. If RGPPL decides to procure RLNG at $16 a mBtu from the open market, the tariff will increase to Rs 8-10 a unit. This will deteriorate MahaVitaran's finances. Therefore, a termination notice has been served."

The official noted MahaVitaran was currently drawing power at Rs 3.08 a unit from power exchanges and it had about 20 long-term PPAs to tackle power demand in the state. "Besides, RGPPL did not give firm generation schedules. MahaVitaran has effectively tackled the power scenario even during the ongoing summer, despite the closure of Dabhol," he said.

R V Shahi, former Union power secretary, said: "Maharashtra has perhaps the largest demand base for power and can definitely absorb some costlier power along with what they buy from a number of cheaper sources. The problem with Maharashtra in the past 10 years has been lack of distribution sector reforms. Domestic gas pricing decisions have suffered because of direct involvement of the petroleum ministry. It would have been better if the petroleum ministry had distanced itself and left it to the regulatory mechanism. Unfortunately, the petroleum and natural gas regulatory board was never allowed to function well, due to truncated authority and huge interference by the ministry."

Source- Business standard