Indian Railways starts procuring power from Dabhol project

This will save Indian Railways Rs 1,000 crore annually on its energy bill

In a landmark development, cash-strapped Indian Railways on Thursday started buying power from the ailing Dabhol power plant in Maharashtra run by Ratnagiri Gas and Power Project (RGPPL), using its status of distribution licensee. This is in contrast to the current system of sourcing power from discoms at higher rates of average Rs 6-7 per unit.  

To begin with, the national transporter has started purchasing 300 Megawatt (Mw) power at a rate of Rs 4.70 per unit — against the rate of Rs 8.50 per unit charged by Maharashtra State Electricity Distribution Company (MSEDCL) — helping railways save Rs 600 crore.

The quantum of power purchased would be ramped up to 500 Mw gradually to net savings of Rs 1,000 crore annually on railways’ annual electricity bill of Rs 12,000 crore. “This power is almost Rs 4 per unit cheaper in comparison to the present tariff paid by (the) railways in Maharashtra. This initiative of saving energy cost by procuring power through open access as distribution licensee is in line with the Rail Minister Suresh Prabhu’s mission to improve Railways' financial health using innovative methods,” the rail ministry said in a statement.

RGPPL, which operates the 1,967-Mw plant, is owned jointly by the National Thermal Power Corporation, GAIL, Maharashtra government and a handful of lenders. The project has a long history of stress due to unavailability of cheaper domestic gas. The railways’ bilateral pact with RGPPL will help the plant and the associated lenders, mostly government-owned banks.

Prabhu has announced plans to reduce the cost of railways’ big-ticket expenditure items including the Rs 30,000-crore energy bill, including electric traction bill of Rs 12,000 crore. He had announced cutting down the cost by Rs 3,000 crore in this year’s Budget speech by procuring power at economical tariff from generating companies, power exchanges and through bilateral arrangements.

The railways move to switch to generating companies as source of power from discoms had led state governments to approach the Central Electricity Regulatory Commission (CERC) which had last month allowed railways’ deemed licensee status. “This will tremendously improve the financial viability of Railways in a great way. If one takes into account the future expansions and high speed trains the saving will be much higher,” the ministry said.

While the railways will buy the power from RGPPL at Rs 4.70 per unit, the Centre will add an additional Rs 1.45 per unit as subsidy, allowing RGPPL to garner a net Rs 6.15 per unit from the sale of power. The amount will be collected directly in an IDBI Bank account, which will then be used to pay fuel, operation and maintenance expenses, and the balance will be retained by lenders for servicing the company’s loans.