Sunday, March 04, 2007

The Dabhol Return - On Track

For years we lamented that while Maharashtra was suffering from severe power shortage, the state-of-the-art 2 GW gas-powered Dabhol power plant was rotting. Though the power shortage will remain for now, Dabhol at least is set to make a comeback at optimum capacity - despite problems that still remain.

Maharashtra will likely get some relief from its power woes in the next month or two when Dabhol starts supplying power from its 700 MW first phase which is already complete. The pipeline supplying gas will be ready in April while the second phase is expected to be ready in time for the summer bringing on line another 700 MW. By December the third phase will come on line too which will push the total capacity to 2100 MW. The power being supplied at Rs 3.3 (US$ 0.075) per unit will be considerably lower than the Rs 8.3 it proposed to pay, and almost Rs 9 it ultimately agreed to pay to buy naphtha-powered electricity from AP.

While the State Govt is eagerly waiting for the 2100 MW Dabhol will bring on line by December, Ratnagiri Gas & Power Pvt. Ltd. (RGPPL), the present owners of Dabhol may have other plans than to sell all of that power to the Govt at the contracted rate. The reasons are purely economic.

The deal to sell power to the Govt at Rs 3.3 was struck when gas prices were in the $2-$3 range. Now that price is in the $7-$8 range, "making the plant financially unviable". This in addition to current cost over-runs on the project of around Rs 1,000 crore (~$225m). The financial institutions supporting the project are expected to shell out close to Rs 1,800 crore (~$400m) for a full refurbishment of the plant. To make good the losses, the owners hope to sell the output of phase 3 at Rs 4 per unit after rolling that phase off into a merchant plant. For its part the Maharashtra Govt has offered to fund a Rs 450 crore shortfall in funds for the project.

The decision currently lies with the central govt which has formed an empowered Group of Ministers (eGoM) for the purpose. Though led by Pranab Mukherjee, it has 4 ministers from Maharashtra and that in true triumph of politics-over-economics might well swing the scales in favor of the state. Meanwhile the Central Govt is also considering a proposal to sell the third phase off to a private developer.