Financial closure of non-counterguaranteed projects in jeopardy
The Union governments advice to the Maharashtra State Electricity Board (MSEB) to refrain from entering into escrow account agreements may stall the financial closure of non counter-guaranteed power projects in the state.
The state has two counter-guaranteed projects Enrons first phase (740 mw) and Ispats Bhadrawati project while the other projects like Reliance and Enrons second phase (1,444 mw) are not backed by a counter-guarantee.
The Dabhol Power Company (DPC) which is promoting Enrons power project in the state does not have an escrow account agreement with the MSEB for the first phase.
Similarly, once the power purchase agreement for the other counter-guaranteed project Bhadrawati is signed without an escrow cover, the Centre runs the risk of the counter-guarantee for the projects being invoked if the Board gives escrow cover to the other projects in the state.
An escrow account agreement is part of the security package for a power developer for investments in the projects, whereby the Board allows the promoter of a project to stake a claim over the Boards revenue for payments due to him for the sale of power.
If the Board does sign an escrow arrangement with other projects, the Centre might be trapped in a situation where it will have to meet the MSEBs liabilities for purchasing power from the Enron phase I and the Bhadrawati project. The escrow arrangement would lead to payments being made to the non-counter-guaranteed projects, leaving the Centre to cover the Boards liabilities towards the counter-guaranteed projects.
The Board has already refused Reliance an escrow cover for its 420 mw Patalganga project while Enron is still having discussions with the Board for extending escrow cover to their second phase (1444 mw).
Enron Internationals Sanjay Bhatnagar hinted that in the event of an escrow cover being denied to the second phase, the promoters would find it difficult to arrange finances for the project.
For Reliances Patalganga project, the Board has only agreed to sign a revolving letter of credit as surety for the payments being made towards the project.
The DPC has not been able to achieve financial closure for the second phase as lenders insist on some sort of security for their investment. The debt that would have to be raised for the second phase works to roughly Rs 3,700 crore while the first phase required a total investment of $1 billion with a debt component of $600 million.
