However, the price at which GAIL has contracted to buy the gas is not known. The power plant will resume operations from October 2006 on imported naphtha on which the government recently gave Ratnagiri Gas and Power, the current owner of Dabhol, a 100 per cent duty waiver.
The new tariff for power generated by the plant will be decided by the Maharashtra Electricity Regulatory Commission by the middle of September.
Earlier, RasGas had refused to sell gas to RGPPL saying that as the erstwhile Dabhol Power Company had reneged on its contracts with "sister company" Oman Gas, it would not be in a position to supply gas to Dabhol.
However, with the Centre pitching in with back room diplomacy with the Qatar government, RasGas has finally come around, the sources said.
They pointed out that gas supply is not the only issue facing the company: It still has to resolve the issue of getting gas to the plant in the absence of a functional LNG terminal.
"The only other way is to pipe the gas to the plant. But for that the Panvel-Dabhol spoke of the Dahej-Uran gas pipeline has to be ready. Although GAIL has promised to get the pipeline ready by April, it has not begun any work yet," said a senior official in the state government's energy department.
He also said the pipeline, once completed, can be used to supply LNG to industrial users in Gujarat and Maharashtra, as per DPC's original plans. The LNG regassification plant at Dabhol has a total capacity of 5 million tonne, against the plant's requirement of 2.1 million tonne.
The other issue plaguing the Dabhol plant is the reluctance of financial institutions to continue footing the bill for the plant's repairs.
The original estimate of Rs 850 crore (Rs 8.5 billion) for complete repairs and refurbishment of the plant was revised to Rs 1,400 crore (Rs14 billion) and again to Rs 2,000 crore (Rs 20 billion).
This, financial institutes feel, is too high, especially as Mahadiscom is unwilling to let the fixed cost of power from the plant go beyond 93 paise.
MSEDCL's contention is that the additional cost should be borne by the lenders. The current estimates would push up the fixed cost substantially beyond 93 paise, which the FIs are unwilling to bear.
But with the work on the LNG terminal and breakwater yet to begin, the sources said timeframe was another factor that could push up costs further. The estimated timeframe for the completion of work on the LNG terminal and breakwater is around three years.
As a compromise, the power ministry has suggested that the breakwater, which was to be built at the site, should be dropped.
The cost of completing the breakwater, which was 55 per cent complete when the plant was taken over by RGPPL, would be around Rs 560 crore (Rs 5.6 billion).
However, GAIL had pointed out in an internal presentation to the ministry that the shipping channel at the site could not be used without a breakwater.