Reliance EGen, the special purpose vehicle set up by Reliance Energy to develop the 3,500 mw combined cycle power project in Dadri, Uttar Pradesh, will go in for international competitive bidding to ensure lower fuel costs.

Reliance, which is to supply power generated at the plant to Delhi, UP and other adjoining states, aims to provide power at less than Rs 2 a unit.

The group had earlier said the project will be a major captive source of consumption of gas from flagship Reliance Industries' KG basin gas wells, and will consume almost 20-25 per cent of the gas generated from the Dhirubhai Ambani wells.

The Dadri project's gas requirement will be about 17-18 mmscmd and for another 20 years. This constitutes almost 20 per cent of India's current gas production, and, hence, could see a significant participation from global energy majors.

Sources in the know said that even Reliance Industries will participate in international competitive bidding, and will only enter into a long-term fuel supply pact with Reliance EGen if its pricing is the lowest. Reliance spokesman was not available for comment.

Reliance Energy chairman Anil Ambani had earlier stated that the company was weighing options on setting up similar-sized gas-based power projects in other states as well.

Sources said the move is driven by the fact that cost of gas comprised almost 60 per cent of the overall power generation cost, and even increases over time.

"It is hence essential to keep fuel costs minimal to keep cost of power at a competitive level," industry sources said.

National Thermal Power Corporation was the first to call for an international competitive bidding for its gas-based projects, but this is the first time the country is set to see competitive play in the highly regulated gas market.

With new LNG terminals coming up, and large new gas discoveries by Reliance and Oil & Natural Gas Corporation, India will see a significant surplus of gas in the coming years, industry sources said.