Electricity from Dabhol power project in Maharashtra, which is likely to restart from July 2006, will cost Rs 2.50 to Rs 2.75 a unit, 20 per cent more than previous estimates as natural gas prices have firmed up.

GAIL, which has been tasked with sourcing of fuel to fire the plant, anticipates the price of liquefied natural gas (LNG) for the project to be in the range of $4.5 to $5 per million British thermal unit, implying a tariff in the range of Rs 2.50 per kilowatthour to 2.75 per kwh (unit).

"When the restructuring process was initiated the cost of crude oil was $34 per barrel as compared to the current price of nearly $70 per barrel. The LNG market is presently very tight and is expected to case only from 2009 onwards," GAIL said in a presentation to the Empowered Group of Ministers on September 8.

• The Dabhol Saga

GAIL had previously estimated a generation cost of Rs 2.30 per unit as it was confident of sourcing LNG for $3.65 per mBtu.

Sources said so far LNG has only been tied for Phase-I (740 MW) from Qatar at a rate which will translate into a final tariff of around Rs 2.50 per unit.

Ratnagiri Gas and Power Pvt Ltd, the special purpose vehicle promoted by GAIL and National Thermal Power [Get Quote] Corp for takeover of Dabhol project, would import 0.64 million tonne per annum of LNG in 2006, which would go up to 2.83 mmtpa in 2007 and 5 mmtpa from 2008 onwards.

The power plant (740 MW Phase-1 and 1444 MW Phase-II) requires 2.1 mmtpa and the balance 2.9 mmtpa would be used for merchant sale, sources said.

GAIL anticipates it would be able to complete the LNG terminal in 12 months from the date of possession of the plant.

Sources said that at the EGOM, chaired by Defence Minister Pranab Mukherjee, Power Secretary R V Shahi stated that the power purchase agreement has broadly been agreed upon by RGPPL and Maharashtra State Electricity Board.

However, it would be possible to sign the PPA only after the finalisation of the gas (fuel) supply agreement.

NTPC would restart the Phase-I by July 2006 and complete the 85 per cent completed 1444 MW Phase-II by end 2006. The EGOM approved the provisional capital cost of Rs 10,038 crore (Rs 100.38 billion) for the restructured Dabhol Power Project.

The petroleum ministry would examine the possibility of involving Petronet LNG Ltd [Get Quote] in the project restructuring, sources said.