Spectrum Power reverses guarantee commission provision to ex MD

The Spectrum Power Generation Limited (SPGL), in its extraordinary general meeting (EGM) held here today, has decided to reverse the provision of guarantee commission, payable to M Kishan Rao, the erstwhile vice-chairman and managing director, and his relatives and group companies, amounting to Rs 38.84 crore as on March 31, 2002.

The provision of the guarantee commission was made in the first annual general meeting (AGM) in favour of Kishan Rao and his family members, in lieu of personal guarantees provided by him on a total loan amount of over Rs 500 crore.

Lenders later disputed the claim citing a clause in the loan agreements. The loan agreements were entered with banks after the AGM, which said no promoter or director of the company will be paid any guarantee commissions.

The AGM of the company was also held just before the EGM on Monday, to adopt the audited results for the year 2002-03, which the board had not been able to consider for approval on account of a stay order by the Andhra Pradesh High Court.

The move comes in the wake of the fact that M Kishan Rao had approached the state High Court on Thursday to stay the AGM and EGM, but no orders were passed by the court until Monday.

Kishan Rao is prominent among the beneficiaries of the provision of the guarantee commission that was effectively voted out by the EGM with a majority vote.

With this EGM decision, the liability on account of the guarantee commission for the company will be wiped out, company sources said.

The approval of audited accounts together with reports of the directors and auditors in today's annual general meeting has also come as a huge relief to the financial institutions.

The lenders led by IDBI were anxious to get the accounts passed as they have roped in SBI Caps to find a strategic investor to buy their enquiry shares along with that of RR Godavari Power Limited of Mauritius.

Banks and financial institutions hold 35 per cent in Spectrum while 32 per cent of equity is held by Indian promoters and the rest is with Rolls Royce, which is also the operations and maintenance partner of the 208-mega watt plant.

IDBI, after taking over the management of the company, has mandated SBI Caps to prepare an offer document tendering its stake to the highest bidder in the open market. SPGL's high-cost debt has increased to Rs 866.98 crore as on March 31, 2003 as compared to Rs 796.44 crore before the end of the previous financial year.

IDBI-led financial institutions are charging interest rates between 19.5 per cent and 21.5 per cent, as the interest is defined as a pass through cost in the fixed part of the tariff according to the Power Purchase Agreement (PPA) signed with the APTransco, the state power utility.

SPGL's problems started initially due to the differences that cropped up among the promoters and then with a series of controversies and court litigations involving M Kishan Rao and his associates. Several cases filed by APTransco have been pending before the Andhra Pradesh High Court.

One of the cases pertains to the inflated capital cost of the project. The power utility has served the notice on the company for the recovery of the extra amount paid by it on account of the alleged excess capital cost (the fixed cost component of the tariff is worked out on the basis of the capital cost of the project).

As per the PPA, the company's debt should have been around Rs 285 crore. SPGL's return on equity plus incentives have gone towards retiring the high-cost debt and has given the shareholders no returns for the last 10 years.

Sources say, Rolls Royce, with two representatives on the committee of directors, has been receiving full payments for its O&M work.