Mumbai: Ratnagiri Gas and Power Pvt. Ltd (RGPPL), which operates the Dabhol power plant, expects to turn profitable in fiscal 2011. RGPPL, earlier known as Dabhol Power Co., was conceived in the 1990s and was originally promoted by Enron Corp., the failed US energy company. In an interview, RGPPL managing director A.K. Ahuja and Jitender Balakrishnan, an adviser to IDBI Bank Ltd who was involved in the project from the start, discuss its prospects. Edited excerpts:
You are now functioning at almost full capacity. How sustainable is this? This question is in context of whether your gas supplies are fully tied up or not, whether your power purchase agreements with the state board are all in place.
Ahuja: Right now, we are generating about 1,850MW and by tomorrow we will touch maximum possible capacity of 1,940MW, subject to some variations.
My power purchase agreement (PPA) for full capacity is tied up with the government of Maharashtra... As far as the gas agreement is concerned, we are tied up with Reliance (Industries Ltd) from the KG (Krishna-Godavari) basin and we have got a commitment from the government of India for full capacity 8.5 mscmd (million standard cubic metres per day) of gas. Right now we are consuming 7.8 mscmd of gas...we are committed to generate full capacity from next week onwards. The gas is not an issue.
When are you going to start making money on this project?
Ahuja: (In) 2009-2010, we are almost break-even, rather making a small profit. Next year onwards, we will start making a profit; this company will start earning return on equity of 14% and that’s what we agreed with the stakeholders, NTPC and GAIL, promoters of this company, and lenders as well as government. Fourteen per cent return on equity is assured from 2010-2011 and from 2011-2012 onwards...
Riding on optimism: RGPPL managing director A.K. Ahuja (left) with IDBI Bank adviser Jitender Balakrishnan.
Twenty years after this project was conceived, do you think it’s finally going to pay back its investors? Let me run some approximate numbers by you and correct me if I am wrong. I am told that most of the ultra mega power projects (UMPPs) that are currently being worked upon, of 4,000MW capacity and above, have an approximate project cost of Rs16,000 crore. This project of approximately 2,000MW capacity has cost more than Rs12,000-14,000 crore. Will we be in a position to qualify Dabhol as a success three-four years down the line?
Balakrishnan: As far as the cost is concerned, the cost is almost Rs12,000 crore as compared to some of the UMPPs of 4,000MW for roughly about Rs14,000-16,000 crore. I must mention that this is not just a power plant. It has also got a liquefied natural gas (LNG) facility, which most of the other UMPPs do not have... So the actual potential of this plant will be realized when we go for expansion from the existing 1,940MW to probably another 2,000MW. The actual potential will be realized at that time because a large amount of infrastructure has already been laid down.
How many years will it take for this project to be considered a financial success?
Balakrishnan: Mr. Ahuja says that we have already started to break even. So I assume that by about next year and year after we should be having a project which will give us the returns. In any case, you will be getting returns of 14%, as far as the equity holder is concerned. As far as the term lending institutions are concerned and the banks are concerned, we are already receiving our interest payments.
What about the money that you have lost in the interim as you tried to rework this project?
Balakrishnan: You must understand that the problems of Dabhol actually started with the going out of Enron. Enron faced its own problems and it had to move out.
It took almost a couple of years after that when the project had slowed and gone off track that the lenders took over the assets, somewhere in 2005, under Ratnagiri Gas and Power.
What is the timeline for the 2,000MW expansion?
Ahuja: We are first thinking of 1,500MW in two modules of 750MW. There is still demand for power, the only issue of expansion is the gas supply. Right now gas supply for domestic gas is not available for expansion. So we have to fall back on LNG. LNG (on) long-term contract is very costly, it is about $4 per mmBtu (million metric British thermal units)... So we have sought a comfort letter from the government of Maharashtra and from Maharashtra Distribution Co. If they buy this power at this cost then capacity expansion will take another two-and-a-half years... Once they make commitment to buy this power, 50% of 1,500MW, then I can start capacity addition programme.
I am just a sceptical journalist, you are the optimistic lender. You tell me if you are saying that this is finally the time when we can say that everything we expected to achieve through this power project is finally coming true?
Balakrishnan: Yes, I am not only the optimistic lender, I am also an optimistic shareholder in this project. I think we are going to make a lot of money on that. I believe very strongly that the time has come for this project to do well.