Loans worth Rs 7,500 crore (Rs 75 billion) to the troubled Dabhol power project of Ratnagiri Gas and Power Private Ltd are set to turn into non-performing assets in a matter of days.

The company has four lenders -- State Bank of India [Get Quote], IDBI, ICICI [Get Quote] and Canara Bank [Get Quote]. According to the Reserve Bank of India norms, these loans would be declared as NPAs if the project is not financially restructured by March 31, 2009.

The restructuring exercise includes a 50 per cent hike in the tariff for sale of power from the project, to be allowed by the Central Electricity Regulatory Commission. The project is expected to become viable after this.

The commission is, however, unlikely to approve the proposed hike before March 31. A senior official from the CERC said: "It is not possible. They have not yet submitted the information sought by us in the last hearing".

RGPPL had earlier approached the commission to allow the company to sell the power generated from the 2,150-Mw Dabhol power plant to Maharashtra State Electricity Distribution Company Ltd at a higher price. MSEDCL is the sole buyer of power from the Dabhol project, at a rate of Rs 3.65 per unit.

In a hearing of the case held in CERC last month, the power regulator had directed RGPPL to submit information on the company's liabilities and its expenses by March 20.

This tariff hike sought by RGPPL would add about Rs 500 crore (Rs 5 billion) to the income. "In addition to the tariff hike, another Rs 300 crore (Rs 3 billion) would come from the PFC loan. This Rs 850 crore (Rs 8.5 billion) would be spent in repairing the turbines," said a senior official from RGPPL.  Four of the six gas turbines at the plant are awaiting repairs.

If RGPPL is allowed by the commission to hike the tariff for sale of electricity from the Dabhol power plant, it would mean that MSEDCL would have to shell out more money for buying the power.

Asked whether MSEDCL agrees to paying a 50 per cent higher tariff for purchasing power from Dabhol, a senior official from the distribution company said: "We would agree for a best solution for everybody. It is understood that while one party would ask for higher tariff, the other would not like to pay more. We are trying to converge everybody's interest".  

Experts believe that the government needs to urgently look at the financial restructuring of Dabhol as "the circumstances surrounding the project are exceptional".

"If these loans are declared as NPAs, it will adversely affect the profitability as well as the capital adequacy ratio of the lending banks as they will have to make provisions for this in their own balance sheets. On the stakeholders' side, if these assets are getting consolidated in the books of account, it will affect the profitability of the parent company," said Kuljit Singh Head, Transaction Advisory Services, Ernst & Young.

Meanwhile, the power consumers in Maharashtra are set to suffer from heavy loads-hedding in the coming months in case RGPPL is not allowed to sell power from the plant at a higher tariff. The company would then not be able to deploy the additional funds for repairing the turbines.