The Maharashtra State Electricity Board has agreed to pay more than the targeted Rs 2.30-a-unit for power from the Dabhol project in the event of an increase in the variable cost of generation.

It will also forgo its return on equity in the Ratnagiri Gas and Power Private Ltd for five years from the date of commissioning. RGPPL is a special purpose vehicle created for reviving the project.

A power purchase agreement between RGPPL and MSEB was expected to be signed next week, officials said today. The Rs 2.30-a-unit estimate of tariff is based on the assumption that the landed price of gas will be $3.50 per mmbtu.

"However, as gas at this price is unlikely to be available, the fuel cost is expected to go beyond Rs 1.20 a unit," said sources involved in the process for restarting the plant.

The regasification capacity was estimated to add 17 paise to the cost of power per unit, while the fixed cost was estimated at 93 paise a unit, sources said.

MSEB is putting in Rs 265 crore (Rs 2.65 billion), which will be in the form of zero coupon preferential shares. It will earn a return after five years in the form pass-through by way of an increase in capacity charges.

In case there are changes in these conditions due to MSEB's refusal or any other reason, the Indian lenders to the project will have to absorb the impact.

Officials told Business Standard that these were the conditions levied by GAIL and National Thermal Power [Get Quote] Corporation, which are holding around 27 per cent equity each in the SPV. Indian financial institutions also hold as much, and the balance is held by MSEB.

However, the other demand of the two PSUs that duty be waived for merchant natural gas to be sold by them has been rejected.  "The exemptions granted to them will be valid only for the gas used for the power plant. The Cabinet Committee on Economic Affairs decided that there would be no exemption for gas sold to other consumers," said the official.

The liquefied natural gas terminal, attached to the power plant, will have a spare regasification capacity of 2.9 million tonnes out of a total of 5 million tonne.

Seeking a concessional package, GAIL had said the viability of the restructured Dabhol project critically depended on the successful merchant sales of the balance quantity of LNG and, therefore, Customs duty on this quantity should be waived.

The CCEA, which considered the revival package for RGPPL yesterday, has granted a mega-power status to the plant. This will make the plant eligible for Customs duty concessions on import of equipment.

But the concessions will be made available if at least 5 per cent of the power generated by the plant are sold outside the state. The plant is scheduled to become operational by 2006.