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BW Businessworld

An Expensive Repair

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Ratnagiri Gas and Power (RGPPL) is learning a rather unpalatable truth. It costs a lot more to fix a mistake 18 years down the line than the original project cost. Worse, even after spending a lot of money, and five years of effort, it is still not sure of achieving all the goals it has set.



We are talking of the jinxed Dabhol power project. The 1,940-MW mega power plant is still grappling, rather unsuccessfully, with its contentious antecedents. NTPC and GAIL had formed a joint venture in 2005 to take charge of the company, but their efforts to breathe life into the three generation blocks have run into umpteen problems.



But no one was expecting a smooth run. Not after the many roadblocks this project has faced. The first phase (740 MW of naphtha-based power) started in 1992, but ran into a storm of protests when it was alleged that the plant and its power was too expensive. Then, when it started producing power, it could not find buyers. Even when the price for power was re-negotiated, its erstwhile promoters — Enron, GE and Bechtel — could run it for barely a year with just one of the three power blocks in the plant running.



The more-expensive second phase, or the LNG plant, was not even completed when the company shut down. The Rs 4,000-crore LNG complex was only 50 per cent complete, even though the Rs 13,000-crore power project complex was physically in place. The bigger problem was ensuring gas supply for its turbine.



 In both pricing of power and arranging gas supply, the state-run NTPC and GAIL have inherent advantages. But the challenges they faced in resuscitating RGPPL in the past five years were of a different nature. The plant that was designed to be the world's largest gas-fired plant had been dysfunctional for years and it was an uphill task to get the turbines going again. They were able to get it up and running in November 2006.



Now, finally, the LNG complex is ready — 18 years after the project started. The power plant, too, is running and the cooling water complex is being upgraded. However, at a conservative estimate, it will take another 4-5 years to get the plant running at its full capacity.



Will Dabhol still be relevant by then? Yes, but its relevance is likely to go beyond Maharashtra. The state has over 5,000 MW of power plants in the pipeline and most are likely to come up before the Dabhol plant becomes fully operational. But RGPPL can sell power to other states. Besides, the LNG terminal that is part of this mega project can — with a few more baseload stations — become a major hub for gas supply in the future.



Takeover To Makeover

Click here to view enlarged graphRGPPL took charge of the Dabhol plant on an as-is basis. This meant that it had to pump in huge investments to set up the infrastructure that was not there, over and above the $900 million that the previous owners had put in. NTPC and GAIL have a 60 per cent share (each having put in Rs 592 crore as equity); another 24 per cent is owned jointly by IDBI, SBI, ICICI Bank and Canara Bank through a combined equity investment of Rs 500 crore and the balance equity is held by the Maharashtra State Electricity Board (MSEB).



Currently, RGPPL is focusing on the 2.3-km jetty in the Arabian Sea — a crucial part of the supply chain for importing gas. The man-made ‘breakwater' holds back the sea, thus allowing large ships to dock safely. "They (the erstwhile promoters) finished only 700 metres as against 2.3 km of total length. Another Rs 500 crore has to be spent on this," says A.K. Ahuja, managing director of RGPPL. It will take another three years to complete.



That time frame is making RGPPL nervous. Now that the LNG terminal is ready, it costs a lot to keep it idling. In fact, the maintenance cost of the plant machinery is so high that RGPPL is willing to seal long-term import contracts for LNG at $11/mmbtu (million British thermal unit), a rate that is much higher than the $6/mmbtu it pays to get gas from the Krishna-Godavari basin through the Panvel-Dabhol pipeline.



 


 


RGPPL is even ready to pay a premium for immediate supply. "We will get ships with smaller quantities," says Ahuja. As against ships that can carry 89,000 cubic metres of LNG, these ships will carry a load of around 60,000 cubic metres of gas. This "quick arrangement" of LNG is expected to be at $16/mmbtu.



Unlike in the Enron days, however, high input costs will not derail Dabhol power. Under a tolling arrangement, the price of gas for the power plant would remain at $6/mmbtu, resulting in a regulated power tariff of Rs 3.9/unit. GAIL, on the other hand, can sell gas from the KG basin pipeline to other customers at differential prices to recoup the difference between the LNG price and the domestic gas price.



Hence, what started out as an integrated LNG-cum-power project is now being virtually split into two separate business units with the LNG complex becoming one profit centre and the power blocks another. The main reason for this shift is the high price of LNG coupled with other regulatory issues (price of power is regulated and does not allow for the cost of the LNG terminal to be recovered from the power tariff). Plans are already underway to pipe the LNG unloaded at Dabhol right up to Kochi. Once the breakwater is ready, Dabhol may well become a major hub for gas in the country.



Start And Stop

JHARSH REALITIES: A.K. Ahuja, managing director of RGPPL, estimates the entire plant, including the breakwater, to be ready in the next three yearsust how poor a state the project was in when RGPPL took over in October 2005 is evident from the fact that there wasn't even a blueprint to understand the design of the entire plant.



"It was like a jigsaw puzzle where we had to reconstruct the entire project by putting bits of pieces of information given to us by the erstwhile promoters," laments Ahuja.



Ahuja's problems become apparent as one walks around the plant site. Rows and rows of containers can be seen lying around the ground. Some are open while others are still shut. "We still don't know what is inside some of these containers and what they are meant for," says an official. Further down, a BMW stands abandoned — no one knows who is the owner. In the guesthouse, there are broken dishwashers and microwaves that none of the current caretakers know how to operate. There is even an abandoned Jacuzzi in the auditorium.



RGPPL's priority has obviously not been the upkeep of the area surrounding the plant, but getting the plant ready and running. However, running a plant that had not been generating power for nearly five years was a mammoth task, admits Ahuja.



Chandan Roy, who recently retired as director operations of NTPC and played a key role in the revival of the Dabhol plant, says the years of inoperation led to an information gap. While the erstwhile promoters ran the first block (1999-2001), RGPPL started with the second block, using the naphtha left behind by the previous promoters. The switch from naphtha to gas was not long in coming. By September 2007, Blocks 2 and 3 were using 5.6 MMCMD (million metric cubic metres a day) gas supplied by Petronet.



However, even as fuel supply was arranged, the power plant was facing "catastrophic failures". "While hiccups were expected as the plant was shut for a long time, the magnitude of failures was totally unexpected," says Ahuja. In 2007, one unit of Block 2 failed because the fan blades were shaving off the roots and damaging the entire turbine. The entire unit had to be shut down and sent for repair — to Singapore. A year later, another unit of Block 2 and one from Block 3 faced similar problems.



To avoid further disruptions, RGPPL did a thorough check up of the turbines and found that machines in all the three blocks needed repair. One after another, these machines were shipped to either the UK or Singapore — the service centres for GE turbines — for repair. Currently, a recently repaired turbine is being refitted at the plant. "While the plant has a spare rotor at the site to take care of unforeseen eventualities, the last such repair and refit should be done by the end of this financial year," explains Ahuja.



Click here to view enlarged graphicGE's initial assessment was that such machine failures were the result of corrosion as the plant was shut for a long time. But an executive at the  plant says it may have been a technical error: "When in operation, the blades were oscillating at a frequency well beyond their prescribed level." The truth could be a combination of the two. Power plant experts say that the 9FA series of turbines supplied by GE to Dabhol were the first of their kind. Plus, keeping the machinery shut for over six years, and the variant ambient temperatures could have led to such failures.



In defence of its turbines, GE says in a statement, "Our F-Class technology is an established industry leader for advanced technology, heavy duty gas turbines with a global installed base of more than 1,000 and over 32 million fleet operating hours."



Whatever the reason for the problem, it cost RGPPL dear. Today, the company rates the plant as a 1,940 MW-plant — 210 MW less than what was originally conceived. But going ahead, RGPPL wants to ensure that such problems don't crop up again leading to further losses.



In coordination with GE, the company has put in place the Blade Health Monitoring Service (BHMS) — where engineers will constantly monitor the wear and tear of the machine while it is in operation. As a result, any extreme wear and tear that can lead to a failure will be spotted in advance.



Further, the two companies also have an eight year-agreement whereby GE would assist RGPPL in upkeep and maintenance of these machines. But what happens at the end of this service agreement? By that time, the plant would technically be over 18 years, though it would have run for barely 10 years since 1999. However, plant managers are confident that with proper upkeep and support, the plant would run for another 20 years.



Whether or not their optimism pays off, only time will tell.



bweditor(at)abp(dot)in

 



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