Finance Ministry has expressed concern over the increase in completion cost of the beleaguered Dabhol power project and demanded freezing the investment needed for completing the power block and LNG unit.

The completion cost, which was estimated at Rs 870 crore (Rs 8.7 billion) when Indian lenders and a consortium of NTPC and GAIL took over the 2,150 MW gas-fired power plant, was put at Rs 1,960 crore (Rs 19.6 billion) in September 2006 and has now been further revised to Rs 2,144 crore (Rs 21.44 billion), excluding Rs 220 crore (Rs 2.2 billion) for mandatory spares.

The Finance Ministry in a letter to the Power Ministry stated that the lenders - IDBI, ICICI Bank [Get Quote], SBI [Get Quote], Canara Bank [Get Quote] and IFCI - had made a commitment to do financial structuring in the event the completion cost exceeds Rs 870 crore (Rs 8.7 billion) to ensure that the project cost does not exceed Rs 10,038 crore (Rs 100.38 billion).

Accordingly, the lenders had absorbed increase in cost by waiving interest during construction of Rs 466 crore (Rs 4.66 billion).

"The commitment made by the lenders to absorb increase in completion cost cannot be indefinite and open ended. Further, the lenders cannot be held responsible for any delay in the implementation of the project and the consequent increase in costs," the letter said.

Vinod Rai, the then financial services secretary, in a letter dated January 4, 2008 to Power Secretary Anil Razdan demanded that the project cost be frozen at Rs 2,364 crore (Rs 23.64 billion), including cost of mandatory spares and contingencies. "The company (RGPPL) needs to recognise the interest liability, post the originally envisaged commercial operation dates, as a firm liability," he wrote.