Power companies in Madhya Pradesh will divest part of their equity to the public in an attempt to lower project costs so that they become eligible for the limited escrow cover being offered by the state government.
The Aditya Birla group, which is setting up the 500 mw Bina project, has decided to divest 50 per cent of its equity to the public. Daewoo, which is promoting the $1.4 billion, 1000 mw Korba project, also plans to divest part of its stake to the public.
Daewoo executives said even though they had not decided the extent of divestment, it would be at least 26 per cent. They also said their coal supply agreement for the project would be finalised by August 18.
The Soros-promoted 500 mw Pench project may also see divestment of promoter stake.
The Bina project is a joint venture between PowerGen of the UK and the Birlas with a total equity of Rs 675 crore. The 50 per cent divestment in the project amounts to Rs 337 crore.
The state government is using an escalation factor of 4.255 per cent on the foreign exchange component and a 7 per cent factor on the rupee component of the projects. Using these criteria, it will evaluate the tariff for the next 30 years and shortlist projects for escrow facility.
The state government will re-evaluate project costs after power producers submit their revised estimates by August 17.
Projects with huge foreign funding will have to reduce their foreign equity holding to reduce the impact on tariffs.
As the state government will evaluate the impact on the dollar escalation under the heads of return on equity, interest on loan and principal loan, power producers, by reducing their foreign equity, will be able to cut the impact of the escalation in the dollar value.
The Pench project has a foreign debt component of 70 per cent along with a 100 per cent foreign equity component.
Industry sources said the state government's policy goes contrary to the power policy of attracting foreign direct investment into the power sector.
Faced with the constraint of a limited escrow capacity of 2,561 mw, the state government decided to re-evaluate tariffs of 13 projects _ totalling a capacity of 4,000 mw _ for awarding escrow cover.
This comes after financial institutions refused to fund six projects totalling 3,000 mw that the state had shortlisted in December 1997 for escrow cover. The FIs felt the state government could not support more than 2,500 mw of power projects.
