Financial Daily from THE HINDU group of publications
Friday, Sep 16, 2005
Financial Daily from THE HINDU group of publications Friday, Sep 16, 2005 |
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Petroleum Industry & Economy - Power Dabhol revival plan may trip on costlier LNG — `Tight' market likely to push up power cost Alok Mukherjee
New Delhi , Sept. 15 FRESH question marks have arisen on the revival of the Dabhol power plant in Maharashtra with the empowered Group of Ministers (eGoM) now confronted with a likely tariff of Rs 2.75 per unit against the earlier estimate of Rs 2.30 per unit. At the last week's eGoM meeting, GAIL, which is to tie up fuel supply for the project, reported that the LNG market was "very tight'' and was expected to ease only from 2009 onwards. GAIL representative at the meeting also pointed out that when the restructuring process was initiated, the cost of crude was around $34 per barrel, while the current price is around $60 per barrel. Consequently, LNG can now be available at $4.5 per mmbtu (million metric British thermal units) to $5 per mmbtu, thus, pushing up the end price of power from the project to Rs 2.50-Rs 2.75 per unit. GAIL had originally proposed gas supplies at $3.65 per mmbtu. So far, LNG supplies have been tied up only for phase one of the project from Qatar at a rate that would translate into a final tariff of around Rs 2.50 per unit. However, the deal has not yet been finalised, with the necessary documentation likely to be completed by the end of this month or early October. It remains to be seen whether Qatar maintains its initial price offer or would press for renegotiations in view of the current global situation. To circumvent the problem, the Ministry of Power tried to pass on the increase in the final tariff to the financial institutions and the Maharashtra State Electricity Board (MSEB). However, the financial institutions, mainly ICICI and IDBI, clearly told the eGoM that the institutions had only agreed to bear any increase in the projected completion cost, through suitable financial restructuring, and would not be in a position to give similar comfort for increase in fuel cost. Faced with this situation, the Power Ministry informed the eGoM that some attempt to resolve the situation could be possible if the tariff increase was limited to Rs 2.50. But, with GAIL, now proposing a further increase to Rs 2.75 per unit, the issue would be difficult to resolve, the Ministry is understood to have said. The Ministry reiterated that the entire exercise had been initiated on the assurance by GAIL that gas would be available at $3.65 per mmbtu, and if the price was increased now, the resultant final tariff would not be acceptable to MSEB. Owing to the complicated nature of the problem, the eGoM has for the moment deferred a resolution of the fuel price issue, and has instead decided to go ahead with other aspects of reviving the Dabhol project. In this context, it was noticed that the plant completion schedule presented by GAIL was well beyond the target date for revival of the project. Consequently, a suggestion has been mooted to involve Petronet LNG Ltd in the revival process, either through equity participation in the Ratnagiri Gas and Power Private Ltd or through technical assistance for plant completion and procurement of gas. A final decision in this regard is to be taken by the Ministry of Petroleum and Natural Gas in consultation with GAIL.
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