Six private sector power projects in Andhra Pradesh, with a total generation capacity of over 1,500 mw, are likely to achieve financial closure soon.
The projects include the gas-based Vemagiri (370 mw), NCC (232.4 mw), GVK-II (360 mw), Gautami, Kondaseema, and the coal-based BPL (520 mw). These were stuck for quite some time as the state had no escrow capacity to offer to financial institutions (FIs).
To find a solution to the problem, the FIs recently developed a payment security mechanism under which there would be concurrent charge of FIs and banks on the revenues once the projects achieved financial closure.
Under the mechanism, the state would turn the charge on revenue to escrow, one month before the commissioning of the project. The escrow capacity will be created with the help of power sector reforms during the construction period.
Accordingly, the state government and the FIs have agreed to sign a memorandum of agreement under which Andhra will commit itself to milestones-linked power sector reforms.
Sources said that Andhra Pradesh objected to one of the provisions of the agreement which stated that failure to implement reform milestones would be treated as default.
They added that with the FIs showing their willingness to remove this clause from MoA, decks had been cleared for the financial closure of the six projects.
The FIs, however, are not in favour of financing all the projects at one go. In the first stage, two or three projects with a total capacity of 600 MW were likely to receive the FIs
