November 7, 2016

Govt to revive Dabhol power plant, split parent firm RGPPL

The Union government has decided to revive the long-stricken Dabhol power plant by arriving at an arrangement in consultation in key stakeholders, Power Minister Piyush Goyal said today.

The Union government has decided to revive the long-stricken Dabhol power plant by arriving at an arrangement in consultation in key stakeholders, Power Minister Piyush Goyal said today.

The gas-fired 1,967 megawatt plant has remained shut since January last year for want of fuel after a decline in production at KG-D6 basin left it stranded.

But Goyal today said the project’s parent company, Ratnagiri Gas & Power Private Ltd (RGPPL), held a board meeting today where several issues were resolved and the project is expected to begin operations from November.

As part of the arrangement, RGPPL will be demerged into two separate companies owning the currently-defunct power plant and its LNG terminal, respectively. 

The central and state governments will provide financial support to the project, GAIL  will provide gas under the government’s recently-launched gas supply scheme for stranded power plants while NTPC  will operate it.

The Indian Railways will enter into a long-term power purchase agreement with the company at a price of Rs 4.7 per unit. 

RGPPL was formed jointly by NTPC and GAIL in 2005 to revive the controversial Dabhol plant in Maharashtra after it was shut down following a political controversy related to the pricing of its power sale deal with the state distribution company and after its erstwhile foreign promoter Enron went bankrupt.

RGPPL has debt of about Rs 8,500-9,000 crore, owned by banks such as SBI (Rs 1,750 crore), IDBI Bank (Rs 2,000 crore) and ICICI Bank (Rs 1,250-1,500 crore), among others, according to a Religare research note. 

Currently, NTPC and GAIL together hold about 51 percent stake in RGPPL; lenders, having converted part of their debt into equity, own about 35.5 percent while MSEB owns the remaining 13.5 percent.

Shedding light on the arrangement, IDBI Bank Deputy MD BK Batra told CNBC-TV18 that lenders and promoters (NTPC-GAIL) will jointly invest an additional Rs 1,000 crore in the demerged LNG company to help ramp up its capacity. 

IDBI’s own share of investment in the LNG plant would come to about Rs 125-150 crore.

The decision to demerge the LNG terminal — though an old proposal — is a sensible one, said former power secretary Anil Razdan.

“It makes perfect sense to make the LNG terminal a viable one because they were not able to get the required draft for six months of the year. So, if they need an investment of about Rs 1,000 crore, then the major partners should put in equity to make it a profitable venture,” he said.

On the power company front, IDBI’s Batra said the aim would be able to bring it up to a level where it is able to service its debt under the RBI’s 5/25 scheme.

Razdan hailed the government’s decision to allow Railways to buy power from the plant, saying that the government should now ensure the plant recieves enough gas for it to be able to go up to 50-60 percent capacity.

“The amount of gas they will currently get [under the stranded power plant scheme] will only cover about 350 megawatts,” he added.

The move to allow Railways to buy power is a “win-win”, former power secretary RV Shahi said. “The Railways’ cost of power procurement is quite high. With gas prices softening, there is further scope for the price to be reduced,” he said. 

“This is a big example of how everyone has come together to revive an asset and how we can get other productive assets up and running,” ICICI Bank CMD Chanda Kochhar told CNBC-TV18. 

“We should thank the FM, PMO, Railways and the Maharashtra government who have worked together to make this happen. Lenders worked with existing shareholders like NTPC and GAIL to revive Dabhol,” the ICICI chief added. 

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