Indian Railways may source power from Dabhol Power Plant

The proposal is part of railways’ plan to slash its electricity purchase cost to less than Rs.5 per unit from the present average of around Rs.7 per unit

New Delhi: The Indian Railways plans to buy electricity from the Dabhol plant, offering a lifeline to the 1,967 megawatt (MW) power project now owned by Ratnagiri Gas and Power Pvt. Ltd. The national transporter will, in turn, benefit from lower tariffs.

The proposal to source 500MW from the Maharashtra-based project atRs.4.70 per unit is part of the railways’ plan to slash its electricity purchase cost to less than Rs.5 per unit from the present average of around Rs.7 per unit. “Railways is a remunerative customer for the utilities. It wants to contain its electricity costs. One of the plans being discussed is to supply 500MW from Dabhol at Rs.4.70 per unit,” said a government official, requesting anonymity.

Ratnagiri Gas has lurched from one crisis to another, including high debt and shortage of gas, since the power plant was commissioned in March 2010 after the government took over the assets of Dabhol Power Co., a unit of the now bankrupt US energy firm Enron Corp.  Maharashtra State Electricity Distribution Co. Ltd’s refusal to buy power generated by Ratnagiri is one of the many setbacks faced by the firm. The railways power purchase proposal, if approved, is likely to help revive the firm, which is teetering on the brink of collapse. “The proposal makes sense. It is a win-win for both,” said Sambitosh Mohapatra, partner (power and utilities) at consulting firm PricewaterhouseCoopers in India.

This comes at a time when Ratnagiri Gas has been selected for receiving a subsidy as part of the government’s revival package for stranded gas-based power projects and those getting low quantities of gas from domestic fields. Under the plan, the stranded projects and their lenders will be able to import liquefied natural gas and cash-strapped state power distribution companies will be financially supported to buy electricity from them.

The railways is leveraging its position as the largest consumer of power in the country to bring down its electricity costs. The national transporter needs about 12 billion units of electricity a year, with consumption growing an average 5% per year. Its power bill is estimated at Rs.11,000 crore for the current fiscal.

NTPC Ltd and GAIL (India) Ltd own 28.91% each in Ratnagiri Gas, the Maharashtra government has a 15.33% stake and the rest is owned by banks and financial institutions, including IDBI Bank Ltd, State Bank of India,ICICI Bank Ltd and Canara Bank.

An NTPC spokesperson confirmed the development. In an emailed response on Thursday, the spokesperson said, “PPA (power purchase agreement) with Railways is expected to be approved in a weeks’ time… waiver of State Transmission Charges (STU) and cross subsidy are being considered for resolution by Govt. of Maharashtra.”

Lenders are looking to revive the Dabhol project and ensure it doesn’t become a bad loan on their books. NTPC had earlier warned its parent, the power ministry, that its investment in Ratnagiri Gas might have to be written off—a significant loss of money and face.

Queries emailed to spokespersons for the power ministry and the Indian Railways remained unanswered till press time.

The railways plans to reduce electricity bills by nearly a third by seeking competitive bids from power producers, sourcing from electricity exchanges and reaching bilateral arrangements. This plan was articulated in this year’s railway budget.

“Although a bulk consumer, railways pays extremely high charges for traction power,” railway minister Suresh Prabhu said in his budget speech. “It is proposed to procure power through the bidding process at economical tariff from generating companies, power exchanges and bilateral arrangements. This initiative is likely to result in substantial savings of at least Rs.3,000 crore in next few years.”