The Karnataka government today signed a Memorandum of Understanding with Chhattisgarh to set up a 1,200 MW thermal power project in this state as it seeks to augment generating capacity at lower costs.

The pit-head station - two 600 MW units - is proposed to be established in Godhna in Janjgir district and is expected to be completed by October 2012, energy Department officials of Karnataka said.

The pact was inked by senior officials of the Chhattisgarh State Electricity Department and state-owned Karnataka Power Corporation Limited (KPCL), which will put up the plant, requiring an investment of Rs 6,000 crore.

Karnataka Chief Minister B S Yeddyurappa, who flew in from Bangalore for the ceremony and Chhattisgarh Chief Minister Ramansingh were present on the occasion of signing the MoU, touted as a mile-stone in inter-state cooperation.

Power generated at this pit-head plant, the first by KPCL outside the state, is expected to cost Rs.2.44 per unit compared to Rs.3.90 for a similar venture located in Karnataka, officials said.

Yeddyurappa said it is not economical to locate thermal power stations in Karnataka, which does not have coal or oil unlike Chhattisgarh and some other states. Transporting coal from these states to Karnataka is very costly.

"If we produce power near the pit-head, the cost of power will come down by 30 per cent to 40 per cent", he said.