A major dispute between the power ministry and its petroleum counterpart on the future of the Dabhol power project has come to the forefront, with the latter pushing for hiving off its gas supply terminal.

The power ministry has opposed the proposal, saying it will affect the project adversely in terms of future revenue flows. Instead, it has mooted the idea of divesting a 40 per cent stake in the liquefied natural gas terminal in order to raise Rs 1,000 crore (Rs 10 billion).

The power ministry and the NTPC-led Ratnagiri Gas and Power are not in favour of a "distress sale," as it will affect the synergies of the Dabhol plant.

"The LNG terminal has a facility for merchandising 2.9 mt of LNG. Moreover, the facility can be extended by 3 mt, taking the total merchandising capacity to 5.9 MT," power ministry sources said.

Ratnagiri wants equity participation in the LNG terminal, rather than an outright sale.

"The company mooted the idea of divesting around 40 per cent stake in the LNG terminal in order to bring in Rs 1000 crore, as this will help in long-term energy tie-ups for the project," sources added.

An empowered group of ministers has decided that if Ratnagiri Gas and Power does not succeed in having the plant up and running to full capacity by December 2007, the entire facility will be sold to a private company.

The petroleum ministry has suggested sourcing gas from Reliance's blocks in the KG basin at $5 per million metric british thermal units for the 2100-Mw power project. The ministry is of the opinion that sourcing gas from KG basin will ensure a power tariff of Rs 2.30 per unit, as originally planned.