The 1,700-acre Dahej special economic zone (SEZ), where R1,40,000 crore of investments have already been committed by 80 companies, has got a fresh lease of life with the Gujarat government promising to issue the comfort letter required by a Japanese-Singaporean consortium for implementing the 336-million-litre-per-day (75 million gallons) water desalination plant in the SEZ. The initial memorandum of understanding between Gujarat and the Hitachi-led consortium was signed in March 2012. If the comfort letter is issued soon, financial closure can happen in six months, after which it will take another 30 months to set up the plant.
The plant is critical since after 2017 the Gujarat government plans to use Narmada?s water to boost supply for drinking as well as irrigation, which would severely curtail activities in the SEZ. Besides, by then, with more units in the SEZ, water requirements would have risen considerably. While 33 million gallons of Narmada water is being pumped into the SEZ right now, it will be ramped up to 110 million gallons by June 2014. When the Dahej SEZ and the Dahej Petroleum Chemical and Petrochemical Investment Region (PCPIR), of which it is a part, are fully commissioned, the water requirement will be 300 million gallons a day.
Gujarat energy and petrochemicals minister, Saurabh Patel, told FE, ?We will give the comfort letter and go ahead with the project.?
While the final number to be put in the comfort letter is still being worked out and will depend on the final value of the project ? which depends on the final rupee-dollar rate ? sources say the guarantee in the first year is likely to be around R100-150 crore and, once the project is fully built, it will rise to a maximum of R1,000 crore . Based on a 10% discount, the value of the comfort letter is likely to be in the region of R160-250 crore per annum.
Sources said that while the Gujarat government?s comfort letter will probably not need to be acted upon, it will put a ceiling on the payments that the government has to make. In which case, were currency fluctuations to cause prices to rise further, the Hitachi-Itochu-Hyflux ? the last firm is from Singapore ? consortium will have to take some of the risk. Right now, if the Dahej SEZ, which has a weak balance sheet, does not pay for the water, one of its parents, Gujarat Industrial Development Corporation, has undertaken to do so. Since GIDC has a strong balance sheet, the Gujarat government did not see the need for a letter of comfort, but has agreed as the consortium has said this was necessary. In 2000, the Gujarat government had R20,000 crore worth of outstanding guarantees, but it has now been brought down to R5,000 crore, underlining the government?s reluctance to issue new guarantees.
The Dahej sea-water reverse osmosis desalination plant is the largest in Asia ? when the rupee was at 44 to the dollar, the project was to cost R2,600 crore and the delivered cost of water was R37 per kilolitre. Of this, R15 is the variable cost, which will attract the take-or-pay clause and R22 the cost of water. There is an annual 6.25% escalation charge.
Apart from a R24,000-crore petrochemical plant being put up by ONGC Petro additions (OpaL), which will come up in the second half of 2014, units with investments of R27,000 crore are already up and running.
