The Union power ministry yesterday made it clear that the R P Goenka controlled CESC Ltd did not require the clearance of the Foreign Investment Promotion Board (FIPB) for its mega Rs 2,060 crore Balagarh power project. The ministry said the company could move the Reserve Bank directly as the project qualified for automatic approval with a foreign equity of less than 74 per cent.
In view of speculation that the FIPB had rejected the project, the power ministrys directive comes as a major breather for the several equity partners and lenders lined up by the CESC. The power utility holds 35 per cent in Balagarh Power Company Ltd the company setting up the project which is scheduled to be commissioned in West Bengal by 2002.
Sources said the board of the International Finance Corporation (IFC) in Washington which is to pick up a stake in the Balagarh Power Company Ltd is expected to discuss the project shortly. The ICICI is to hold 4.4 per cent in the project, Siemens 10.4 per cent and multilateral financial institutions (FIs) are to pick up 15.6 per cent.
In a letter to the CESC yesterday, the joint secretary in the power ministry said the Balagarh project was eligible for automatic approval as the percentage of foreign to total equity was less than 74 per cent. In the Balagarh case, the foreign equity is around 60 per cent.
You had indicated that you would be filing an application with the RBI under the automatic route. Accordingly, it has been decided not to pursue this proposal in the FIPB and the case has been closed, the letter says.
The debt-equity structure of the 2x250 mw Balagarh project stands at 2:1, with 67 per cent of the project cost being financed by debt and 33 per cent by equity.
FIPB clearance had been granted to the project in 1995, with a validity period of two years. On expiry of the period, an application was made to the Secretariat of Industrial Approvals for renewal of clearance. However, in the meantime, by way of a policy change, the government ruled in February 1997 that FIPB clearance was not required for power projects if the foreign equity component was below 74 per cent.
Significantly, while the state power department is otherwise locked in a grim battle with the CESC over a fuel surcharge issue, it has agreed with the power ministrys view that FIPB clearance was not required for the Balagarh project.
An all inclusive EPC contract has already been signed by the company with Siemens AG, Germany. The other equity contributors would be AIG Infrastructure of the US, mining giant BHP Power, IFC and the Asian Development Bank (ADB).
The IFC, ADB and ICICI are also lenders to the project. The ANZ Grindlays Bank and the Dresdner Bank would provide funds for the import portion of the EPC under guarantee from Hermes, the export credit agency of Germany.
