The Maharashtra State Electricity Board (MSEB) plans to extend an escrow guarantee cover to Dabhol Power Company's (DPC) second phase of the power project.
Due to the non-availability of a central cover for the second phase, DPC has held discussions with the state government officials for an escrow cover. Sanjay Bhatnagar of Enron International said that they are currently in the process of assessing the size of the escrow corpus which their project will require .
DPC is promoting Enron's 2184 mw power project in two phases, the first with an installed capacity of 740 mw which has the backing from the centre in terms of a counter-guarantee , while the second phase which has an installed capacity of 1444 mw does not have backing from the centre.
MSEB has two counter-guaranteed projects in the state, DPC's first phase and the Ispat group promoted 1000 mw Bhadrawati project. While DPC's first phase has got a `full-counter guarantee' covering all tariff payments, the Bhadrawati project has got a guarantee covering the foreign debt component on termination. This sort of a guarantee will require the promoters of the seek an escrow cover from the state government.
Crisil is in the process of evaluating and estimating the board's escrow capacity. The state government has already been advised to follow the methodology of dedicating receivable flowing from a particular area to finance the escrow cover. This is the same methodology that has been followed in Madhya Pradesh and Tamil Nadu.
An escrow agreement forms part of the security package that a power developer seeks for making investments in the project. Under such an agreement the developer has a certain pool of funds dedicated by the state electricity board towards the project, which can be drawn upon in the event of a default.
The corpus of the funds is however determined by the comfort level that the financiers of the project seek as well as the boards own estimates of the revenue stream.
Interestingly the board has already refused Reliance an escrow cover for its 420 mw Patalganga project. The project is being promoted on the basis of a state government guarantee and a letter of credit. The promoters have however indicated that they will insist on an escrow cover if the state government extends cover to other projects.
The state had initially refused to give an escrow cover to projects in the state, as it increased the probability of the central counter-guarantee being invoked. This is because if the board does set aside some of its revenues, it might not have enough cash to meet the obligations arising from DPC's first phase.
