Turbine Malfunction to Defer Revival of 2,150-Megawatt Dabhol Power Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Ratnagiri Gas and Power Private Limited (RGPPL) (Ratnagiri, Maharashtra) is likely to borrow $60.3 million from Power Finance Corporation Limited (BSE:532810) (New Delhi) to repair two gas turbines at the beleaguered 2,150-megawatt (MW) Dabhol power plant. The government of Maharashtra has agreed to guarantee the loan, for which RGPPL will have to pay a guarantee fee of 2% to the government.

The two 9FA gas turbines under repair were procured from General Electric Company (NYSE:GE) (Fairfield, Connecticut). However, no comprehensive service or maintenance agreement has been signed with the supplier. Although there had been no initial response from GE in this matter, in a recent positive move to revive the project, GE agreed to share 50% of the repair costs. As part of the contract, GE will also provide a guarantee of 87% machine availability. An agreement is likely to be signed in the next two weeks.

The turbines have been facing mechanical problems and repairs for a while. While generators with a capacity to produce 1,815 MW were revived, another set of turbines capable of generating 1,110 MW has been plagued with mechanical failures. GE has advised preventive shutdown for turbines, which each have a capacity to produce 370 MW, in order to install the Blade Health Monitoring System. The 740-MW Phase I of the power plant was able to generate only about 300 MW of power until December 31, 2008, because of the faulty functioning of the turbines.

Another hurdle faced by the project is the reluctance of insurance companies to renew policies because of frequent tripping and repairs of rotors and turbines. RGPPL has insured assets worth $1.8 billion but has to pay a premium of $9.05 million by May this year towards insurance of two gas turbines. A consortium of insurance companies led by National Insurance Company Limited (Kolkata, West Bengal) provided the coverage. The consortium is now hesitant to renew the policy and has not taken any action in response to the request for renewal.

The complete revival of the 2,150-MW plant has been put off until July 2009. While the plant may not be fully operational, it is expected to generate 1,850--1,900 MW of power by July this year.

The Dabhol power project has a long and tumultuous history. In 1992, the Indian government invited Enron International (Houston, Texas) 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 signed between the Indian government and Enron to develop a large power plant complex spread across 1,700 acres with a power generation capacity of 2,000-2,400 megawatts in Anjavel village in the Ratnagiri district of Maharashtra. The Maharashtra State Electricity Board (MSEB) (Mumbai) was also expected to hold a 10% stake in the venture.

In 1993, a power purchase agreement for 2,015 MW was signed between Dabhol Power Company, which was established for the proposed power plant, and MSEB. The state elections in 1995 brought to power the Shiva Sena political party, which decided to delay the project because of high costs and rampant corruption. The same year, Dabhol Power Company renegotiated the deal and increased the power capacity to 2,184 MW, giving MSEB a stake of 30%.

In 1999, the first phase of the power plant started operations with a capacity of 740 MW. However, in 2000, the Maharashtra government decided to scrap the project because of high tariffs and increasing input costs. This was followed by the MSEB defaulting payments for three months. In 2001, Enron decided to issue an arbitration notice to the Indian government after MSEB failed to 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. RGPPL is a consortium of energy companies and financial institutions led by GAIL (India) Limited (BSE:532155) (New Delhi) and NTPC Limited (BSE:532555) (New Delhi). GAIL and NTPC each own a stake of 28% in RGPPL. State Bank of India Limited (BSE:500112) (Mumbai), Canara Bank (BSE:532483) (Bangalore, Karnataka), ICICI Bank Limited (BSE:532174) (Mumbai), and IDBI Limited (BSE:500116) (Mumbai) hold stakes of 9%, 2%, 7%, and 11%, respectively. MSEB has a stake of 15% in the company.

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