India's Ratnagiri Plans Expansion of 2,000-Megawatt Dabhol Power Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--Ratnagiri Gas And Power Private Limited (RGPPL) (Ratnagiri, Maharashtra) has announced plans to invest about $1.72 billion to increase the capacity of the company's Dabhol power plant by 2,000 megawatts (MW). Earlier, the company had planned to augment the power-generating capacity of the facility by 2,150 MW, but scaled back after problems relating to equipment supply. Project officials have indicated that the project has been allotted 1,700 acres of land, of which about 900 acres is available for construction.

GAIL India Limited (BSE:532155) (New Delhi) and NTPC Limited (BSE:532555) (NTPC) (New Delhi) hold a 29.65% stake in RGPPL, while the state government of Maharashtra holds a 15% stake. The remainder is held by financial institutions and state-owned banks. The consortium acquired the project, which earlier had been promoted and developed by Enron International.

Project officials have indicated that it would not be possible for RGPPL to fund the project. Union Power Secretary HS Brahma has stated that either the state government of Maharashtra or NTPC will be able to invest in the augmentation project. The option of a joint venture between NTPC and the state government is also being explored.

In June, RGPPL signed an agreement with Reliance Industries Limited (BSE:500325) (RIL) (Mumbai) for the supply of 2.7 million standard cubic meters per day of gas for the project. Gas supply from RIL's Krishna-Godavari basin is expected to begin in October.

The expansion of the Dabhol project is expected to help reduce the power deficit in India's western region, which is facing acute power shortages of about 12.5%. Maharashtra's power deficit is about 17.6%. During April to August 2009, the state registered an electricity supply of 42,098 kilowatt-hours (kWh) for demand of 51,090 kWh.

Industry experts have observed that although the expansion project has been announced, the original 1,950-MW Dabhol power plant is yet to be fully commissioned. Presently, only 950 MW of total generating capacity is operational. The company is confident of commissioning the power plant by March next year. Initially, the 1,950-MW project was estimated to cost about $2.16 billion, which was later revised to $2.59 billion. According to the latest reports, the final cost of the project is expected to be about $2.63 billion.

In a related development, the liquefied natural gas (LNG) terminal at the Dabhol power plant complex is expected to be operational by November. The initial date of commissioning was set for March. The delay has been attributed to bad weather, which led to formation of silt at the port. The LNG terminal is expected to provide gas to the Dabhol power plant and other domestic companies. This is the third terminal on India's west coast, after Hazira and Dahej in Gujarat. The proposed 5 million-ton-per-year re-gasification plant at the terminal will be part of the power plant project. The terminal is expected to be fully operational by 2011. RGPPL is optimistic that the terminal could generate annual revenues of $32.39 million, despite initially operating at one-fifth of the total capacity.

RGPPL also has received expressions of interest from eight companies to decide on the pricing for re-gasification services. The interested companies include RIL, NTPC, Indian Oil Corporation Limited (BSE:530965) (IOC) (New Delhi), GAIL, and Reliance Natural Resources Limited (BSE:532709) (RNRL) (Mumbai). RGPPL is likely to send out requests for proposals shortly. The selected company can utilize and bring its cargo to the re-gasification facility at the terminal on a tolling basis.

The Dabhol power project has a long, tumultuous history. In 1992, the Indian government invited Enron International to explore opportunities to develop the Indian power sector. Enron was then the world's leading energy company, with more than 22,000 employees and turnover in excess of $100 billion. A memorandum of understanding was subsequently signed between the Indian government and Enron to develop a large power plant complex with a capacity of 2,000 MW to 2,400 MW, spread across 1,700 acres in the Anjavel village in Ratnagiri district of Maharashtra. Maharashtra State Electricity Board (MSEB) (Mumbai) was expected to hold a 10% stake in this venture. In 1993, a power purchase agreement for 2,015 MW was signed between Dabhol Power Company and MSEB. The state elections in 1995 brought the Shiv Sena to power, which decided to stall the project, citing high costs and rampant corruption. The same year, Dabhol Power Company re-negotiated the deal, increased the planned power generating capacity of the project to 2,184 MW, and gave MSEB a 30% stake.

Following seven years of struggle, the first phase of the power plant started operations in 1999 with a capacity of 740 MW. However, the following year, the state government of Maharashtra decided to scrap the project due to high tariffs and increasing input costs. This was followed by the MSEB defaulting on payments for three months. In 2001, Enron decided to issue an arbitration notice to the Indian government after MSEB did not make a payment of $21.72 million for the month of December 2000. In late 2001, Enron filed for bankruptcy, which put the project in limbo. In October 2005, RGPPL decided to take over Dabhol Power Company.

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