Govt looking into gas supply for Dabhol

The government has started working on options to handle the projected high-cost power from the Dabhol power project. Electricity from the project, likely to restart from July 2006, will cost Rs 2.50 to Rs 2.75 a unit "" 20 per cent more than previous estimates. This is because it has not been able to finalise a gas supply agreement with GE and Bechtel for the revival of the project.

The petroleum ministry has conveyed to the empowered group of ministers dealing with the project that some discussions on LNG supply were held with Qatar but nothing could be finalised.

Procurement of LNG has become problematic because for the project restructuring, the claims of all offshore stakeholders have been dealt with, but those of the LNG suppliers - AD Gas Company and Oman Gas Company "" are still pending.

Under a settlement reached with GE and Bechtel "" offshore equity promoters of Dabhol Power Company "" the Centre agreed to a caveat that if any third party claimants initiate a case against them, they will have a right to bring up the claims against the Indian government in international courts under bilateral investment treaty or in Indian courts.

The largest third party claimants in this project are the LNG suppliers and shipping charter contractors.

The petroleum ministry thinks that if no settlement is reached with the two suppliers, sourcing gas from West Asia will be adversely affected. Then, the alternative sources will be Australia, Iran and Indonesia. But, with Iran, the pipeline negotiations will hinder sourcing gas.

Under the restructuring model, the power tariff is based on a fixed cost of 93 paise per unit and a variable cost of Rs 1.37 a unit. The variable cost is based on the LNG price of $3.65 million British thermal unit. Though LNG supply has not been finalised, under the prevailing rates, the LNG price will be higher than this.

"Nothing can be finalised till we get the rate at which gas will come," said power ministry officials. With higher-than-anticipated LNG price, the actual fuel cost will be higher than the estimates. To keep power tariffs within the Rs 2.30 per unit range, the only option will be to reduce the fixed cost.

If capital cost was to be reduced, the financial institutions would have to take a hit, and if operation and maintenance costs were to be reduced, the operators would have to take a hit, said an official. He added that the more feasible option was that the Maharashtra government raise the additional money required to buy the power.