A ministerial group is mulling a proposal to increase the troubled Dabhol power plant's capacity to 5,000 Mw from the present 2,184 Mw to ensure its long-term viability.

This is significant given that only 750 Mw of the existing capacity of the plant is operational. The cost of reviving the Dabhol power plant (at existing capacity levels) has already increased by around Rs 2,594 crore (Rs 25.94 billion) to Rs 12,897 crore (Rs 128.97 billion). The cost of increasing the capacity has not yet been worked out.

These were among the issues discussed by the empowered group of ministers on Dabhol, headed by External Affairs Minister Pranab Mukherjee, which met here on June 7. An EGoM is a ministerial group whose decisions do not require Cabinet clearance.

The EGoM is scheduled to meet again in the first week of July. By then, Dabhol's owner, the Ratnagiri Gas and Power Pvt Ltd - promoted by public sector NTPC and GAIL - has to finalise details, including the completion cost of the project (at present capacity).

Should the company not meet this deadline, the EGoM will consider hiving off its 5-million-tonne per annum liquid natural gas terminal and increase the cost of power by nearly 3 paise per unit.

The ministerial group has also decided that NTPC would have the first right of refusal for the LNG terminal if it is hived off, as the power utility has agreed to infuse Rs 500 crore (Rs 5 billion) into RGPPL.

At the last meeting, the Cabinet Secretariat had suggested that if none of the government companies in the business -- NTPC, GAIL, Petronet LNG [Get Quote], among others -- match a set reserve price for the LNG terminal, it should be open for bidding by other players in both public and private sectors.

It was also of the view that the LNG terminal "has the potential of being expanded to 7.5 mtpa with minimum additional costs". This would increase revenues from the terminal, making it attractive for potential investors.

The Cabinet Secretariat also said that power from Dabhol could be sold at Rs 2.85-2.90 per Kwh only once the plant starts using gas as fuel.

Using naphtha, Dabhol power is currently sold at Rs 5.01 per unit. Lowering the tariff would require a reduction in customs duty and VAT on the gas that will feed the power plant. GAIL would also have to reduce transportation tariff for the gas flowing through its Dahej-Dabhol pipeline.

However, GAIL officials, who made a presentation at the EGoM, said a further cut was not possible as the company has already reduced the transportation tariff to $0.59 per million British thermal unit, which is below the required rate of $0.77 per mBtu.

Gas is scheduled to reach Dabhol by mid-July and the plant is likely to start operating at full capacity by December this year, when all three blocks start producing power.

The ministers are keen to visit the site this month, but may now visit it in the last week of July.

Meanwhile, the Maharashtra Cabinet today approved reimbursement of value-added tax to Ratnagiri Gas and Power Project Ltd for gas supplied to Dabhol power project.

VAT relief for Dabhol

The Maharashtra Cabinet on Thursday accepted a proposal to give concession in Value-Added Tax to Ratnagiri Gas and Power Pvt Ltd's Dabhol plant on purchase of gas from GAIL India Ltd [Get Quote].

This is expected to put a burden of around Rs 40.17 crore on the state's exchequer annually at the present world price of $ 5.94 million metric British thermal units.

But this loss is insignificant considering the fact that it will reduce the monthly power purchase bill of the state-owned power utility MSEDCL, once RGPPL starts generating power from gas. The work on the Dahej-Uran-Dabhol pipeline is expected to be completed in 7-10 days.

Currently, MSEDCL is buying power from RGPPL at around Rs 6 per unit and its monthly outgo towards RGPPL is around Rs 150 crore (Rs 1.5 billion). However, once the plant starts generating power from gas, instead of the costly fuel like Naphtha now, the bill will reduce to little under Rs 3 per unit.

It may be recalled that, last year, due to acute shortage of power in Maharashtra, it was decided that the Dabhol plant will be run on naphtha, even if gas was not available.

Subsequently, due to differences over the power price and the problems faced in land acquisition, the work on the Dahej-Uran pipeline could not be completed by the original deadline of March 31 this year. As a result, the deadline was extended to May 31.

But in May the Gujarat government issued a 'stop work' notice to GAIL and demanded that the petroleum ministry first sort out issues including the gas price in Gujarat after the completion of the pipeline and royalty to the Gujarat government. This delayed the work by another two to three weeks.