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Reliance to supply gas to Dabhol at $5.4 per unit

Reliance to supply gas to Dabhol at $5.4 per unit
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First Published: Tue, Mar 03 2009. 11 55 PM IST
Updated: Tue, Mar 03 2009. 11 55 PM IST
New Delhi: Reliance Industries Ltd (RIL), engaged in a legal battle in the Bombay high court with power generator NTPC Ltd over the supply of gas, is close to signing an agreement to supply gas to Ratnagiri Gas and Power Pvt. Ltd (RGPPL), formerly known as the Dabhol Power Co., at around $5.40 an mBtu (million British thermal units) including levies.
NTPC has a significant stake in RGPPL. Interestingly, the case between state-owned NTPC and RIL has to do with the price at which the latter will supply gas from the Krishna-Godavari (KG) basin to the former. NTPC claims the two companies agreed to a price of $2.34 an mBtu.
The imminent deal between RIL and RGPPL, confirmed independently by a senior RGPPL executive and a senior NTPC executive, both of whom do not want to be identified means that the Mukesh Ambani led company will supply gas to RGPPL at well over twice the price that is being disputed in the Mumbai court, and which NTPC refuses to budge from.
The executive at NTPC, which owns 28.33% of RGPPL said NTPC and RGPPL were two different legal entities. “Supplying gas to RGPPL is a government decision. This has got no bearing on the case with RIL.”
GAIL (India) Ltd also owns 28.33% of RGPPL, and the balance is owned by state-owned banks, the Maharashtra government, and some financial institutions.
RIL is locked in two lawsuits with NTPC Ltd and Reliance Natural Resources Ltd, or RNRL, owned by Mukesh Ambani’s estranged younger brother Anil Ambani. The two firms want gas to be supplied at $2.34 per mBtu for 17 years and claim they have agreements with RIL for the same. RIL wants to sell at $4.21 per mBtu set by the government.
The Bombay high court has temporarily allowed RIL to sell gas from its fields in the KG basin.
RIL said it would need more time to respond to an e-mail query from Mint.
“RIL has already submitted the draft agreement for gas transportation and supply to us last week, which we are studying. The gas at this price starting April will help us in checking the tariff as this will be cheaper than the current price that we are paying to run the plant. While the price for gas is $4.2 per mBtu, the final value is inclusive of the cost of transportation and tax,” said the senior RGPPL executive.
The tariff for the Dabhol project is currently Rs3.60 a unit, with the gas priced at around $6 per mBtu.
The decision to supply gas to RGPPL was taken after a December meeting of a so-called empowered group of ministers, or e-GoM, a government body that is allowed to take key policy decisions and is usually tasked with deciding on controversial issues such as the supply of gas from RIL’s KG basin finds. Following this decision, the ministry of petroleum and natural gas said in a statement: “Government has accorded priority to Ratnagiri Power Project Ltd. along with fertilizer units. It has been decided that RGPPL be supplied 1.4 mscmd (million standard cubic metres a day) during January to March 2009 and 2.7 mscmd during April to September 2009, subject to commencement of production, within the overall allocation of power sector (18 mscmd) decided earlier. Further, 8.5 mscmd would be supplied to RGPPL after September 2009 from the production from RIL’s KG D6 field.”
The statement added that “it has been decided that the verdict of the court should be awaited” in the case involving the “NTPC-RIL sale price”.
In a related development Tata Chemicals Ltd executive director Kapil Mehan told Press Trust of India that the fertilizer maker would likely sign on Friday an agreement to buy gas from RIL.
Reviving RGPPL
Meanwhile, General Electric Co. (GE), which has been sparring with RGPPL over the supply of allegedly defective turbines, may absorb the revival cost of the project, said the RGPPL executive.
“It will be some sort of commercial package. A GE team is coming on 17 March with a package that will comprise of contractual service agreement, guarantee for the machines, some free repairs along with part bearing the revival cost among others.”
The project cost was originally estimated at Rs10,038 crore, which was revised to Rs11,998 crore. The latest revisions peg the project cost at Rs12,182 crore.
In response to specific queries on the “revival package”, a GE spokesperson said in an email, “GE continues to support the Dabhol Power Plant revival project and we are committed to continue working closely with our customer to complete the revival of the plant as quickly as possible.”
The project has been controversial from the time of its inception. It first ran into trouble over the price at which it would sell power to Maharashtra where it is located.
Then, when its parent Enron collapsed, Dabhol Power Co. was acquired by the government and some lenders who have since been working to revive it.
PTI contributed to this story
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First Published: Tue, Mar 03 2009. 11 55 PM IST