The prospects of achieving the financial closure of the 1013.2 mw Mangalore Thermal Power Project in Karnataka has brightened.
Sources said that the Karnataka government has assured the Central government and other parties involved in the project that it will become capable of making timely payments through privatisation of distribution and other power sector reforms by the time the project gets commissioned.
Commissioning of the project is targeted at 33 months from the financial closure.
In a meeting convened by power secretary AK Basu here today, it has been decided that the domestic financial institutions, the state government and Mangalore Power Company will concretise a payment security mechanism to ensure the Central government adequate comfort for issuing counter-guarantee, said sources.
The meeting was attended by senior Union power ministry officials and representatives from the Mangalore Power Company besides the Karnataka government and the Union finance ministry.
Mangalore TPP is one of the eight fast-track projects for which the Central government has committed counter-guarantee.
Sources said that the Karnataka government's stand that it will not be able to give any escrow cover for the project, had diminished the prospects of the project.
However, the possibility of a payment security mechanism in place of escrow now has brightened the chances of financial closure, they added.
The original signatories to the MoU on the project, Cogentrix Energy Inc, have withdrawn from the project.
The company has transferred its entire interest in the project and the executing agency Mangalore Power Company to their partners China Light and Power (CLP) Company.
CLP International is now pursuing the project by including an Indian partner, Tata Electric Companies with 30 per cent equity.
The provisional cost of the project is pegged at Rs 4,221.91 crore.
The Union Cabinet approved counter-guarantee to the project on December 22, 1999.
Sources said that under the conditions of counter-guarantee, the Karnataka government can provide adequate comfort level through alternative payment security mechanism in place of escrow.
They added that the state was at present considering various options including the recently adopted mechanism by the financial institutions for financing IPPs, under which the FIs will not insist on the opening of a legally binding escrow account by the state electricity board in favour of IPP before financial closure.
The state government/SEB will open the escrow account three months before commissioning.
To protect the interests of the lenders till the time the project comes on stream, the financial institutions have to be given first charge on the revenue of the SEB or the successor entity on or before the financial closure.
