NTPC Ltd and Gail India is likely to exit the beleaguered Dabhol power project ( Now known as Ratnagiri Gas & Power Pvt Ltd (RGPPL)) in Maharashtra if the government hives off the adjacent LNG import terminal and sells it to a third party. The boards of the two companies have said the power project is viable only if the LNG terminal is included in the total project. Both the boards have asked the government to protect their equity in the event the LNG terminal is sold off.
The NTPC board in a recent meeting has resolved that LNG terminal should be maintained as an integral part of the power plant to get maximum benefits out of the project. It has also decided that in the event of a sell off, the promoters’ equity need to be protected, an official source said. A similar resolution was passed by the co-promoter Gail board recently. A committee of secretaries (CoS) recently favoured hiving off the 5 million tonnes LNG terminal to a third party so that funds from the sale could be used for wiping off the company’s rising debt obligation. NTPC and Gail, who have the right of first refusal on the sale of the terminal, believe that the LNG plant is an integral part of the power project and selling it off would upset the revenue structures for the project. The report cited a source familiar with the development as saying that “NTPC wants the 2,150 MW gas-fired power plant and the LNG terminal to stay together and is against its hive off.” Project revival cost of Dabhol now stands at INR 23,640 crore. At the time of takeover of Dabhol, the project revival cost was INR 8,700 crore.
“The sale of the LNG terminal was considered to wipe off debt of the power project. But, the promoters feel that the terminal itself would a revenue stream that along with the power project could ensure smooth operations,” the source said.
The new development comes at a time when the Maharashtra-based power project is struggling to bring the plant to run at full capacity. In fact, the capacity of the power project has already been stripped down to 1,885 mw from the proposed 2,150 mw due to technical reasons. The plant also encountered turbine failure in one of its units that has resulted in delays and it still faces problems over long term supply of gas to run the project.
The two companies have maintained pressure on the government not to hive off the LNG terminal. Earlier, they agreed to infuse Rs 950 crore in RGPPL equity capital (Rs 475 crore each) on the condition that the terminal would not be sold to a third party.
Source close to the development said a view is developing among the members of the empowered group of ministers (EGoM) that the LNG plant could be hived off and the sale proceeds could be used to pay off some of the outstanding debt. Lenders to the power project have a total exposure of almost Rs 7,000 crore.NTPC and gas utility GAIL India hold 28.33% equity stake each in Ratnagiri Gas and Power Private Limited, the company that now runs Dabhol power plant.
History of Dabhol
Enron had a $3 billion investment in the Dabhol power plant. The project began in 1992, and the liquefied natural gas- powered plant was supposed to supply energy-hungry India with about one-fifth of its energy needs by 1997. It was one of Enron's largest development projects ever (and the single largest direct foreign investment in India's history). The company owned 65 percent of Dabhol; the other partners were Bechtel, General Electric and State Electricity Board. Left parties and power sector unions had warned at the beginning that the energy produced by the plant would be too costly, and Enron proved them right. Power from the plant was 700 percent higher than electricity from other sources.
Enron had promised India that the Dabhol power would be affordable once the next phase of the project was completed. But to cut expenses, Enron had to find cheap gas to fuel it. They started burning naphtha, with plans that they would retrofit the plant to gas once it was available.
Originally, Enron was planning to get the liquefied natural gas (LNG) from Qatar, where Enron had a joint venture with the state-owned Qatar Gas and Pipeline Company. In fact, the Qatar project was one of the reasons why Enron selected India to set up Dabhol: it had to ensure that its Qatar gas did not remain unsold. In April 1999, however, the project was cancelled because of the global oil and gas glut. With Qatar gone, Enron was back to square one in trying to locate an inexpensive LNG supply source.