The government of Karnataka is expected to go on an appeal against a high court order on Nagarjuna power project, which stated that the state does not require large projects that would lead to surplus power and unaffordable tariff.
Sources with the government said the state was likely to appeal against a Karnataka High Court judgement, which directed the state to consider giving government guarantee and escrow cover for the Rs 4,500 crore 1100 mw Nagarjuna thermal power project.
The state fears that the high court order could give way for several such petitions from various promoters of power projects with whom the state has signed power purchasing agreements (PPAs).
The order, passed early this month, gave a fresh lease of life not only for the 1015 MW power project near Mangalore, but also for several other projects in the state which have been denied escrow cover following the acceptance of Deepak Parekh committee report by the state government. The committee had suggested the state to reject escrow cover for all power projects.
The Nagarjuna PPA, which included the government guarantee and escrow cover for the project, was signed by the promoters of the project, the transmission arm of the state government and the Karnataka Power Transmission Corporation Ltd on July 23, 1999. But the Deepak Parekh committee gave its report on February 24, 2000. The petitioners pointed out that the committee report is prospective in nature.
This is the second such case after the TanirBavi case, in which the high court. This is second such high court judgment against the state government after the Tanirbavi case, in which, on a writ petition filed by the promoters of the Rs 880 crore Tanir Bavi power project, the court overturned the state's decision to not to give escrow cover to the project. However, in this case, the state didn't go on appeal against the court order.
The high court examined the file pertaining to the power project and said that nowhere had it been mentioned that the escrow cover should not be given to the project.
In the Tanir Bavi case, the promoters had stated that the project will not attain financial closure without the escrow account being made operational. They added that the escrow account assures debt servicing from the lenders and financial institutions. They also said without the escrow account and letter of credit, financial institutions will not lend money for the project, since the project envisages nearly Rs 880 crore investment.
The high court judge, in his ruling in May 2000, year asked the Karnataka Power Transmission Corporation Ltd to get the banker's letter to operationalise the letter of credit and extend the PPA.
