SOS for the fuel

However, there is some good news. The Centre, along with the state government, is trying hard to restart the first phase of the project8212;740 mw8212;by the night of April 30. Over the course of the next ten days, the entire block will be supplying peak power to the state.

With effective load management8212;already initiated by the Maharastra State Electricity Regulatory Commission8212;shortages would come down.

But the good news ends there, for now. As per the strategy, Ratnagiri Gas and Power Private Ltd RGPPL will be using the residual naphtha left behind by Enron. After blending the old naphtha available at the plant site 47,000 KL with new 54 blend, there is enough fuel to keep the plant running 8 hours a day for just 50 days.

The primary fuel for the plant is Liquefied Natural Gas LNG and not naphtha. Despite the 8220;best efforts8221; by GAIL a co-promoter in RGPPL along with NTPC and through opening of diplomatic channels to secure gas, the government of India has not been able to get any firm commitment for LNG supplies over the past year.

Going by indications and current global LNG market, sources say that the situation is not expected to change till February 2007. Added to this, sources also say that the LNG terminal is yet to be completed and orders for supplies have just been placed by RGPPL.

In short, after lengthy negotiations on a settlement with GE, Bechtel, foreign lenders, OPIC, etc and after paying out more than 500 million to take over the assets of Dabhol Power Company through a slew of separate companies created for this specific purpose last year, after having relaxed the LNG shipping policy allowing both domestic and international ships to transport LNG into the country, after having amended the Income Tax Act and getting it cleared by Parliament to extend tax sops to the power project, there is still no clarity when the plant will actually be running full steam.

The blame game has already started between the Ministry of Power and Petroleum Ministry as sources say it was on the assurance that LNG needed for the plant would be available8212;at 3.65/mmbtu million metric British thermal units8212;that the government pressed ahead with the settlement and expedited the restart process.

The Petroleum Ministry also has its version of the story. The LNG market changed drastically with new buyers coming in and therefore the expected sources of supply such as Qatar, Oman, etc dried up. For a plant that needs 5 MT of LNG, RGPPL, after scouting many options for LNG supply ranging from Australia, West Asia and, Malaysia, was at best given a promise of supplies from spare capacities. This is not only a risky option but doesn8217;t meet the demand.

Supply of LNG involves an entire set of complex arrangements where it takes at least one year to get the first tranche of LNG from the day a commitment is made. For instance, each specialised ship that carries LNG costs more than 300 million and orders have to be placed well in advance.

So when officials in-charge of the restart process say 8220;as of now, the firm commitment is zero8221; there is lot to worry about.

Restarting the power plant and then shutting it down in two months is something both the Centre and state government want to avoid. The way out being considered 8220;at the highest level8221; is to go back to naphtha. Remember, naphtha is only a secondary fuel used in emergency situations and going by the current price of naphtha Rs 30,000/tonne, the resultant power tariff is going to be phenomenally high.

Using residual naphtha and taking it on a zero cost basis still results in a power tariff of Rs 4.25 per unit. While the power company does not want to make any profit from the 50-day operation, even this tariff can increase if the regulator turns down the decision to follow the zero cost pricing of naphtha and asks for some nominal rate. If naphtha is to be priced at Rs 30,000/tonne, power tariff will be close to, say Rs 10/unit, depending on the usage.

The Centre has already proposed more concessions. Official sources say that discussions are under way to reduce the price of naphtha through lowering of duties and provide a special price for the project or probably the power sector because other projects like NTPC are also hit on account of non-availability of gas. But even a 50 per cent reduction in the price of naphtha here may not help.

The only solace for the state government and the Centre is that Maharashtra and the western region is facing severe shortages and people may be willing to pay Rs 5-6/unit for peak power. However, this has to be very carefully played out because there could be severe backlash if people accept higher tariffs but still fail to get adequate power.

Another option being considered is to ask Petronet LNG to divert some its 2.5 MT of additional gas from Qatar towards the project. The government can do this but runs the risk of Petronet itself defaulting on its commitments.

But all these are temporary solutions. Till we have a lasting solution for fuel supply, the project will just be a model plant providing temporary relief.