Dabhol Power Company (DPC), the promoters of the 2,184 mw Dabhol power project in Maharashtra, is negotiating for escrow cover based on a 90 per cent offtake for the second phase of the project. Joe Sutton, president and CEO of Enron International, said the escrow will be based on the power purchase agreement conditions whereby the Maharashtra State Electricity Board will be required to absorb 90 per cent of the power produced by the project. DPC is a subsidiary of Enron (India), which in turn is a 100 per cent subsidiary of Enron International.
The first phase of the two-phase Dabhol project has a capacity of 740 mw and a central government guarantee on tariff payments. The second phase, which has a capacity of 1,444 mw, is being executed without any central surety. With this, the escrow cover becomes crucial to the promoters of the project as it provides a certain degree of guarantee for the cash flow.
The extent of the escrow cover is dependent on the PPA which outline the level of operation where the project recovers its fixed costs (this includes return on equity and debt). As the PPA specify 90 per cent offtake from the IInd phase, the promoters must have calculated their recovery of fixed costs at these high levels of operation. Some other IPPs, including NTPC calculate their fixed cost recovery on the basis of 68.5 per cent plant load factor.
In the event of MSEB extending an escrow cover to DPC-II on the basis of 90 per cent offtake, the board will have to build up revenues to the tune Rs 350 crore towards this project by the time its starts commercial operation.
Once the escrow cover is given, other promoters such as Ispat (1,000 mw Bhadrawati project) and Reliance Power (410 mw Patalganga project) will also claim similar escrow cover, which is roughly estimated at around Rs 550 crore.
Reliance was earlier denied an escrow cover as the Centre advised the state government to restrain from entering into an escrow account agreement with projects in the state. This is because the Centre runs the risk of the counter-guarantee for the first phase as well as the Bhadrawati project being invoked. Under an escrow agreement, the board will always have to maintain a certain pool of resources towards projects with escrow guarantees. This inturn reduces the board's own cash flow whereby increasing chances of default.
