Financial institutions (FIs) have opposed the Madhya Pradesh government's revised escrow proposal. The state government which is in the process of finalising a list of projects totaling a capacity of 2,561 mw has faced fresh opposition from the FIs as the state government has not incoporated the PPA conditions pertaining to power-offtake.
FIs now want some crucial changes to be made in the escrow proposal so as to make the projects bankable . This move comes after the state government having accepted the FIs proposal to fund projects totalling a capacity of 2561mw.
The FIs had initially opposed the board's proposal to extend escrow to 6 projects totalling a capacity of 3000 mw as they felt that the board could not support more than 2561 mw of projects.
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As there were 13 IPPs in the state which staked thier claim on the escrow cover, the state government decided to resolve the deadlock by auctioning the escrow to projects with the lowest costs.
After a recent meeting held in Mumbai between various state governments and financial institutions, states presented the projects and the capacity they were willing to offer escrow cover.
It is learnt that the Madhya Pradesh state government has based the escrow cover on the basis of 68. 5 per cent PLF, while the FIs want the state government to extend thier escrow cover for the entire PPA conditions. Under the PPA conditions the board is guaranteed to off-take 80-85 per cent of the power from projects.
Sources said that the financial institutions want the escrow cover_- as suggested by them_- to be given on the basis of the PPA conditions and not to be limited to 68.5 percent PLF. (68.5 per cent PLF indicates the level of operation required for a promoter to recover his fixed costs).
Industry sources said that by limiting the escrow cover to 68.5 per cent PLF, the Madhya Pradesh government can support more number of projects within the limited cover of 2561 mw. FIs proposal of 2561 mw was calculated on the basis of 80-85 per cent PLF, "while by reducing this offtake condition, the state government wants to push in more number of projects within this specified band," they added.
Interestigly, FIs have raised similar objections on the escrow proposal sent by the Tamil Nadu government for some of the projects in the state.
Under poor cash-flow conditions from electricity boards, an escrow cover becomes crucial for an IPP.
The escrow account is always maintained at a certain level by the government__ dependent on the comfort level sought both by the promoter and the financer which is around 1.25 times the montly recievables.
An escrow arrangement is the third circle of security for the promoter of a project after direct payments and letter of credit. The promoter invokes the escrow guarantee only after first two security measures fail.
In the event of the escrow arrangement also failing to meet the promoters' requirements, he can invoke the fourth circle of security _-which is the state government guarantee.