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The government's plan to make the Dabhol power project in Maharashtra a commercially viable venture remains a non-starter despite various experiments in financial engineering. The project cost continues to rise and with it the electricity tariff. Dabhol's new promoters, Ratnagiri Gas and Power Private Ltd - a consortium of NTPC, GAIL India and the state of Maharashtra - seem clueless about how to salvage their investments. The central government, which earlier preferred to revive the Enron-abandoned power project over selling off its assets and setting up a new capacity, too, seems to have no interest left for mediation in settling disputes between lenders and promoters over who should bear the additional project cost. Apart from the rising cost, the project is also burdened with high fuel price.
That the promoters were in a bind over the project cost was confirmed when they recently approached the electricity regulator, the Central Electricity Regulatory Commission (CERC), for tariff hike even though they had no valid reason to make this move. It was a desperate move to seek CERC's injunction to pass on some of the additional cost to consumers. They petitioned CERC to consider the apportioned cost of Rs 7,562.55 crore for the associated LNG terminal as capital expenditure.

However, their plea had no basis in the existing tariff regulations, the CERC said while disposing of their petition. The regulator also did not find any merit in the argument of the Maharashtra State Electricity Distribution Company that the sweat equity provided by the state government as fiscal sops should be treated as capital cost for tariff hike.

Escalation of project cost is primarily due to the increase in the cost of the terminal and the adjoining breakwater facility. The LNG terminal is expected to be ready by mid-2009. But, work on the breakwater facility might not be completed before 2012.

The project originally envisaged the establishment of a 2,250 MW power project along with an integrated five million metric ton per annum (MMTPA) LNG terminal. At the terminal, 2.1 MMTPA of LNG would be re-gasified after being offloaded at the adjacent breakwater facility in order to run all the three power blocks of the project at full capacity.

Meanwhile, while awaiting commissioning of the LNG terminal, re-gasified natural gas is being supplied to the Dabhol LNG terminal through the Dahej-Uran Pipeline and Dabhol-Panvel Pipeline. But, the cost of LNG is too high.

Source - Hard News