State government sources told The Financial Express that the cabinet gave a green signal for the much-debated project at its Saturday meeting under Sections 18 (A) and 44 of the Electricity Supply Act 1948. The cabinet has also cleared BSES's decision to change the site from Kelwe-Mahim to Saphale following strong opposition by local residents, Shiv Sena, BJP and Nationalist Congress Party.

The company has estimated the per unit cost to be Rs 2.60. The fuel will be procured from local companies. The company would require 250 hectares of land from the state government and it expects to complete the project in 30 months.

The debt-equity ratio will be 67:33 and the company will raise the capitalthrough promoters' contribution, public issue and a rights issue. BSES plans to raise 40 per cent of the total cost from financial institutions.

The company, which will use water from the Surya irrigation project in Thane district, will get approvals from the environment department, central electric authority and Maharashtra State Electricity Board. It will also install the transmission lines.

The cabinet has cleared the project on the basis of recommendations made by the PG Kukde committee which was set up to look into the need for power in Mumbai and eslewhere in the state. The committee has called for the development of this project and capacity addition in phases. Demand projections should be reviewed preferably every two years, according to the committee.

The committee had also warned that Mumbai and the state in general would be power surplus following the commissioning of second phase of 1,444mw by Dabhol Power Company in addition to the proposed 495mw by BSES and 450mw by TEC. The committee hadalso pointed out that the MSEB was bound to lose considerable potential for cross cobsidisation (4,000 million units) in this arrangement "which will adversely affect MSEB's revenue."

The Kukde committee had suggested that the government should make up the loss through subsidy. However, the state planning and finance departments have rejected this recommendations and have questioned the basis on which the committee had given clearance to the BSES project.

Interestingly, TEC in its letter dated June 23, 1999 addressed to the state government has said that it has surplus capacity of 250-400mw arising out of induction of BSES's 500mw Dahanu station which feeds power to Mumbai.

TEC has said that the demand for power has decreased in recent times and after the commissioning of Dabhol phase I and II and other projects previously cleared, "the power supply position in state would be tending to surplus situation even during peak periods."

TEC has said that MSEB has accepted that the situation is heading fora power glut. "Section 19 in conjunction with section 44 of Electricity Supply Act 1948 provides for the conditions under which additional capacity need not be sanctioned," TEC said and added that "TEC therefore will be within their rights to expect that their surplus capacity be fully utilised prior to Government of Maharashtra considering sanction for any additional generation."

Ironically, the Kukde committee has said that creation of additional capacity in Mumbai after the commissioning of BSES's projects would adversely affect MSEB's revenue and it has recommended that surplus power be sold outside the state. However, MSEB had already made it clear that neighbouring states were unwilling to purchase the surplus.

The state's planning and finance departments have said that the project should not be cleared without MSEB's opinion.