Dabhol project revival only after Centre's help

MahaVitaran continues to oppose conversion of RGPPL’s debt of Rs 405 crore (Rs 4.05 billion) into equity

Despite fall in gas prices the revival of the 1,967-MW Dabhol power project will have to wait till a high-powered committee appointed by the Centre submits its report.

Gas prices have fallen to $10 per million British thermal unit. But the fate of the power project, run by Ratnagiri Gas and Power Pvt Ltd, will hang in balance till the committee takes a decision on gas pooling, reduction in certain taxes and providing per unit subsidy.

Even though the power will be available at around Rs 4 per unit, RGPPL will have to take the Maharashtra State Electricity Distribution Company (MahaVitaran) on board as the gas will be sourced other than KG D6.

MahaVitaran has a power purchase agreement with RGPPL as it draws about 95 per cent of the power from the Dabhol project, which has been closed since December 28 last year for want of gas.

Besides, RGPPL needs to convince MahaVitaran on the project lenders’ proposal to convert debt into equity equivalent for interest dues worth Rs 405 crore (Rs 4.05 billion).

MahaVitaran is opposed to such a proposal and has argued that it was against the equity sale at par at Rs 10 though it enjoys the first right of purchase.

RGGPL board is expected to give its approval for the conversion of loan into equity at its meeting slated this week.

As of now, the RGPPL’s equity is worth Rs 2,965 crore (Rs 29.65 billion).

The equity holders include NTPC (32.86 per cent), GAIL India (32.86 per cent), IDBI Bank, ICICI Bank,SBI and Canara Bank together (16.87 per cent) and MSEB Holding Company (17.4 per cent).

With the conversion of debt into equity equivalent to interest dues of Rs 405 crore, the equity would increase to Rs 3,370 crore (Rs 33.7 billion).

Of the total debt of Rs 8,500 crore, RGPPL had so far repaid Rs 4,000 crore (Rs 40 billion) to the project lenders since the project was revived in April 2006.

A senior state government official, who has been in constant touch with the Centre for the restoration of Dabhol project while protecting the MahaVitaran’s financial interests, told Business Standard: “A high-powered committee comprising secretaries of the finance, power and petroleum ministries is currently looking at a slew of measures for the revival of gas based power projects across the country including Dabhol project.

The committee is exploring various options including gas pooling, cut in some taxes and per unit subsidy.

However, till the government acts based on the high power committee’s report, the revival of Dabhol project is not possible soon.”

RGPPL official admitted that there has been no assurance on gas supply from the Centre.

However, he admitted that falling gas prices is a big positive.

He informed that the conversion of debt into equity equivalent for interest dues worth Rs 405 crore (Rs 4.05 billion) is being discussed at the forthcoming board meeting.

“This will avoid conversion of Dabhol project into a non-performing asset by the lenders for the moment.

"But the real solution is restoration of gas supply for the project to run and revive RGPPL’s finances,” he said.

However, a Maharashtra government official said: “The state government and MahaVitaran are strongly opposed to the conversion of debt into equity.

"Even though MahaVitaran has the first right of purchase, the price will be decided by RGPPL and it is not acceptable. It is now sold at Rs 10 at par but during purchase if RGPPL increases it to Rs 12-14 it not acceptable to MahaVitaran.”

The official said MSEB Holding Company may be short changed since the value of its holding is diluted and lenders would get the benefit when RGPPL’s financial health improves. He said it is quite easy to sell equity but selling asset is difficult task.

When the restructuring of the Dabhol project took place in 2006, MSEB Holding Company had received equity at premium to the face value.