An alternate model developed by the Andhra Pradesh government for independent power projects could serve as a benchmark for expediting the financial closure of independent power projects held up due to the lack of a payment-security mechanism.
The state has developed the model for the financial closure of six private projects, including the 520 mw Ramagundam project of the BPL group, the 468 mw Vemagiri project of the Ispat Power group and the 210 mw BSES-promoted project.
While the financial institutions involved in financing these projects have reacted positively to the business plan proposed by the state government, they have also called for the inclusion of some changes in the model, including the rates of return assumed for the projects.
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The model developed by the Andhra Pradesh government indicates measures by which payment can be ensured by the state government for the power bought from these projects, in case APTransco, the state-owned transmission company, defaults on payment, when the state electricity boards refuse to honour their dues. The government is expected to assume part of the responsibility to meet the dues, without going the whole hog with a counter-guarantee.
Currently, all the six Andhra Pradesh projects are beset with the lack of a viable payment-security mechanism, with APTransco not having enough money to purchase the power generated by them. Consequently, financial institutions involved in the projects, led by the Industrial Development Bank of India, had been dithering on coming forward to finance the projects.
In the last meeting of the financial institutions and state government officials on the issue, the former had expressed doubts about the 8-9 per cent return on investments for the projects assumed by APTransco. They were of the opinion that the figures had been overestimated, and consequently asked the state government to rework the returns in more realistic terms, government officials who attended the meeting said. Moreover, the institutions asked for an increase in the Rs 300-400 crore loan promised by the state government to APTransco for tariff balancing, officials said.
Financial institutions have also asked the state government to expedite the execution of at least two projects, Jegurupadu and Spectrum.
This is because the two projects are the only ones that have been extended an escrow cover by the state government.