The Maharashtra State Electricity Board has asked the Power Finance Corporation to further reduce its lien on MSEB receivables so that an escrow cover can be extended to the Reliance group promoted 447mw Patalganga power project.
The board has to seek permission from PFC before granting escrow covers to any independent power producer in the state. For, PFC has the first right to draw upon the boards' revenues in the event of any default in payments.
Last year, PFC had reduced its lien to enable MSEB to extend escrow guarantees to the second phase of the Dabhol power project and Ispat group's Bhadrawati power project.
However, the board did not ask for a reduction to cover the Patalganga project as the Memorandum of Understanding for the project had been signed in the early 90s when escrow accounts were unheard of and the company was willing to finance the project on the basis of a letter of credit.
Later, Reliance also sought an escrow cover. The state and MSEB said the project should not be granted escrow cover as it was not a part of the original agreement.
Thereafter, the state agreed to give a "default escrow" limiting it to the debt repayment period of the project after the developers disclosed that the project could not be financed without the comfort of an escrow. A default escrow is different from the normal escrow structure and money would flow into the escrow account from the board only after the developer claims default.
Power Play
* Reliance entered into an agreement with Maharashtra electricity board before the intrdouction of the escrow cover facility
* Later, Power Finance Corporation asked the boards to take premission before extending an escrow cover, since the corporation had struck an unlimited first charge deal with some of the SEBs
* MSEB asks PFC to reduce line for only two projects
* MSEB later also agrees to provide escrow cover to Reliance, but limited to the debt repayment period. This is because the project cannot be funded on the strength of the letter of credit.
* MSEB asks PFC to incorporate the Reliance project for the escrow cover
