The government will restart the 740 MW, phase-I of Dabhol power project in from May 15 to meet peak hour requirements of power-starved Maharashtra, but the project will be run initially on naphtha as gas supply has still not been tied up.

"The first phase of the plant would be run from May 15 on naphtha to meet the peak hour requirements," power secretary R V Shahi told reporters on the sidelines of a seminar in New Delhi.

Shahi said 34,000 tons of naphtha was already in stock which would help the 740 MW unit produce electricity for three hours everyday for two-and-a-half months.

Running the plant on naphtha would help the state reduce electricity shortages during the peak summer months. The state is around 4,500 MW power-starved, with the shortage in capital Mumbai alone being around 500 MW, resulting in long power cuts across the state.

The first unit would have to be run on naphtha as the new promoters Gail (India) Ltd and NTPC Ltd [Get Quote] have yet to firm up a gas or LNG supply agreement for the plant.

The 1,444 MW phase-II of the plant would be completed by November this year and by then the project could be run on gas, he said. Even if gas supplies were firmed up now, it cannot be used as the LNG terminal was not complete, he added.

The LNG terminal, which was about 80 per cent complete, was expected to be ready by August this year, Shahi said.

Naphtha costs double that of LNG and will push up the cost of electricity generation from the plant, but Maharashtra government has indicated that it will subsidise the Dabhol power to make it more affordable.

According to estimates, Maharasthra State Electricity Board, which will buy power from the plant, will bear a loss of about Rs 190 crore (Rs 1.90 billion) if it runs on naphtha for 3 months.

More than five months after Dabhol's previous owners GE and Bechtel settled their claims with Indian authorities, Dabhol's present owner Ratnagiri Gas and Power Pvt Ltd, jointly promoted by GAIL and NTPC, has not been able to finish the 2184 MW plant and the LNG terminal.

The 740 MW phase-I was shut down four years ago following a payment dispute. The 2.5 million tonnes a year LNG terminal is still only 70 per cent complete.

General Electric and Bechtel had agreed to help GAIL-NTPC complete the project but no contracts have been signed as LNG has not yet been tied-up.

If Dabhol was to restart on LNG as per original schedule, Ratnagiri Gas and Power would need 0.64 million tonnes of LNG in 2006, which would go up to 2.83 mmtpa in 2007 and 5 mmtpa from 2008 onwards. The power plant (740 MW Phase-1 and 1444 MW Phase-II) requires 2.1 mmtpa and the balance 2.9 mmtpa would be used for merchant sale.