On January 30, the top brass of the beleaguered Ratnagiri Gas & Power Private Ltd (RGPPL)-the new avatar of Dabhol Power Company (DPC)-and Power Secretary R.V. Shahi were closeted for hours with Cabinet Secretary B.K. Chaturvedi. Its promoters-NTPC (National Thermal Power Corporation) and GAIL (Gail India Ltd), which hold 28 per cent equity each in RGPPL-wanted, among other things, Chaturvedi to intervene and get Operations & Maintenance (O&M) contractor Bharat Heavy Electrical Ltd (BHEL) to reduce its revised offer for the revival of the mothballed plant.

BHEL's bill for restarting the 740 mw Block II of the Dabhol project, that had been lying idle for five years: Rs 214 crore. "If this figure is extrapolated across the entire project, the cost of restarting the three blocks (I, II and III) will swell to Rs 870 crore," Shahi explained to the Cabinet Secretary. "Only three years back, the Belgium-based Tractabel, a consultant appointed by Dabhol's lenders, had estimated that it would cost Rs 214 crore to revive the entire project (Blocks I, II and III)," Shahi told Chaturvedi. The obvious inferences: BHEL's bill is unreasonably high (see Is BHEL Overcharging?), and that "such a high cost of revival will result in very high tariffs". Counters a top BHEL official: "You just cannot extrapolate the figures for reviving Block I to the other two blocks. The rates we have quoted may come down marginally if we get the contract for all the three blocks. But any further delays may lead to higher costs." RGPPL also wants BHEL to supply materials, spares and consumables at prices comparable to what GE and Alstom are charging for NTPC's 645 mw Kawas plant. Here, too, BHEL refuses to play ball. "They (NTPC's Kawas and Dabhol) are not comparable as the former was a greenfield project while the latter is an existing one where lots of overhauling and restoration activities have to be done," says the BHEL official.

But this is only the easier part of the problem. BHEL, after all, is a public sector company, and can be pressurised to fall in line. The supply of liquefied natural gas (LNG), the preferred fuel for the plant, presents a more intractable problem. Why? Because there is no LNG in sight, at least as of now. And even if LNG can be procured from the international market, the plant lacks the facilities to process it. Its 2.1 million tonnes per annum (mtpa) LNG terminal is only 75 per cent complete. GE and Bechtel, the plant's original contractors, have agreed to help RGPPL complete the project, but no agreement has been reached on the issue yet. "We took over the assets (from DPC) towards the end of 2005. We are now studying the extent of damage it has suffered (due to closure) and will commission the balance work once this is over," says O.P. Gupta, General Manager, who has been deputed from NTPC to RGPP;. Yogesh Tripathi, Senior Manager, Punj Lloyd, refuses to set a time frame for completion of the terminal. Punj Lloyd, Whessoe and Aker Kvaerner are the contractors for the revival of the LNG facility. Paul Sullivan, Director (Business Development), Whessoe, says: "The report will be complete around March-end. Based on this report, RGPPL will negotiate a contract with the Whessoe-led team to complete the project."

RGPPL had set an internal target of commencing commercial production of power from July 1, 2006, subject to the availability of LNG. Newly appointed Union Power Minister Sushil Kumar Shinde has, in fact, committed to starting the plant in June. Now, the RGPPL brass is under pressure to start the plant in June this year using the more costly naphtha as fuel. The infrastructure for handling naphtha is not yet ready. GAIL, which is setting it up, has indicated that it may be in a position to deliver within the stipulated time "on a best effort basis". Naphtha, however, will increase the cost of power to over Rs 7.5 per unit, which is the same as Enron's price some five years back. The implication is obvious: if power has to be supplied to end users at Rs 2.30 per unit, the Maharashtra State Electricity Board (MSEB) will have to bear huge losses. Sources connected with the project, however, say the Maharashtra government may not mind this, as it currently pays over Rs 7 per unit for power drawn from NTPC's Kawas plant during peak hours.

But running the Dabhol plant on naphtha will not be viable over the long term; it has to switch to LNG at the earliest. Five months after RGPPL took over Dabhol's assets, GAIL, which has the contract for sourcing the fuel, is still to tie up any long-term LNG contracts. The spot prices of LNG, which soared to a high of $13-15 (Rs 585-675) per MBTU (million British thermal unit) in August-September last year, are currently ruling at the still high levels of $7.5-8.5 (Rs 337.5-382.5) per MBTU. At these prices, power from Dabhol will cost Rs 6 per unit. Even here, there's a fly in the ointment: not much spare LNG capacity is available till 2010 (see Countries Where...). "As things stand today, we have to aggregate LNG supplies from more than one supplier," says an RGPPL exec.

Oman LNG, the original gas supplier for the plant, is playing hide and seek with RGPPL. Sources say Oman LNG refused to sign a confidentiality agreement with RGPPL. "It has also not responded to a spot LNG purchase agreement we sent it in December last year," add sources. Oman LNG has 0.6 mmtpa (million metric tonnes per annum) spare LNG capacity which is critical to RGPPL's plans of switching over to the fuel by September this year. "We will meet Oman LNG in the first week of March to sort out the matter," says an RGPPL executive. Negotiations are also on in this regard with companies in Qatar, Australia, Abu Dhabi, Brunei and several other countries, but "prices quoted by most of the suppliers are as high as $7 (Rs 315) per MBTU."

LNG supplies will definitely be tied up, but they will come at a price that may not look very attractive to RGPPL. The company may also not be in a position to cross-subisidise its power sales as the additional merchant sales capacity (commercial sale of LNG at market rates) of 2.9 mtpa will not become operational before September 2007, which is still about 20 months away. This last bit is crucial. The commercial viability of RGPPL depends critically on operating its 5 mtpa LNG plant at full capacity and generating additional resources from the commercial sale of 2.9 mtpa.

So, five years after the now bankrupt Enron Corporation's Dabhol power project was mothballed and five months after it was taken over by RGPPL, there's still no certainty over whether this mega power project can actually produce electricity at commercially viable rates.