Cabinet approves package to re-start Dabhol plant

Vol 9, PW 10 (25 Aug 05) Midstream & Downstream

Efforts to revive the Dabhol power project are closer than ever before to completion.

On 11th August, the cabinet approved a package to get the 2184-MW power station working again after a five-year shut down. One of the measures announced was to grant Mega Power Project status to Dabhol so it can benefit from tariff concessions on imported capital equipment.

This is of little use now as the power station and LNG terminal are almost entirely complete and few imports of capital equipment are required. What is sorely needed but which the cabinet has not yet agreed are tax breaks on imported LNG, which attracts an import tariff of 5%.

Dabhols present owners GAIL and NTPC want this waived to help reduce the cost of power from the plant. A cabinet decision is expected this week.

Delhis revival scheme also provides compensation to earlier owners General Electric and Bechtel, who were demanding a total of $350m. Delhi has agreed to give $145m to GE and $160m to Bechtel.

Both had also asked for full upfront payment, but GE has now agreed to receive $110m upfront and a deferred payment of $35m from the sale of Dabhol latest by 31st December 2006, with interest due from 1st January 2006. Bechtel will receive its full payment upfront.

Both also wanted to be indemnified against third party claims. Delhi rejected this demand but agreed that GE could retain the right to sue India if Oman Gas, Abu Dhabi Gas and Greenfield Shipping take it to court for reneging on a LNG supply deal.

Ditto for Bechtel, except that Delhi has agreed to face suits by other third parties as well, subject to a floor of $1m and cap of $150m for individual claims, and a floor of $1m and cap of $200m for cumulative claims. In Bechtels case, these figures will not include claims by Oman LNG, ADGas or Greenfield Shipping.

Third party claims against Bechtel (that Delhi has agreed to face) will exclude claims by sub-contractors unrelated to the Dabhol project.