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.

Gas supply, a cause for concern

The government on Wednesday said that issues relating to reviving the beleaguered Dabhol power plant have been resolved but supply of gas remained a major cause for concern.

"All issues relating to consent for reviving the Dabhol plant have been resolved among various stakeholders viz, lenders, NTPC, GAIL and Maharashtra Power Development Company," Power Secretary R V Shahi said.

"In fact, they have already given notice for consent, for which they will be submitting documents before the Mumbai High Court on Thursday or Friday. Simultaneously, they would also file documents with the Debt Review Tribunal as agreement has also been reached among lenders and Ratnagiri Gas and Power Ltd," he added.

NTPC was already finalizing with BHEL and General Electric on restart of phase I and completion of phase II. Similar arrangement was also being worked out for gas terminal front also, the official said.

GAIL is hopeful that by the end of the month they will be able to finalize this as well. Gas supply of 0.7 million tonne, adequate for phase I of 700 MW has already been assured by GAIL, Shahi said. Owing to rise in gas prices, there could be marginal increase in gas price but all efforts will be made to keep the cost of power to the level of Rs 2.33 per kwh, the Secretary said.

The three paise increase in cost of electricity is on account of Maharashtra Power Development Company deciding to have equity rather than preferential share.

Maharastra has already indicated that in view of the changing scenario in gas price, it will partake some of the additional burden. Remaining part of the burden will be left to be adjusted through a process of financial restructuring.

Additonal inputs from PTI