Financial institutions and state electricity boards have opposed the escrow arrangement proposed for mega power projects.
In a meeting held last week between the states and the Standing Independent Group, the states said the escrow mechanism suggested for the mega projects would erode the state electricity boards' ability to extend escrow cover to IPPs coming up within their respective states.
The controversy centres around the proposal to use the projected and existing industrial load as a source of revenue to make projects bankable.
The SIG, which was constituted by the power ministry to formulate a policy for mega projects, had suggested using the existing and projected industrial load to guarantee the offtake of power from the mega projects.
The government is planning to issue `power-bonds' to fund the escrow-guarantee mechanism for mega projects. The bonds will be subscribed to by the industrial consumers who will use the power from the projects.
The states and FIs have argued that at present, the boards are in the process of extending escrow cover to projects on the basis of the same anticipated industrial load. If this industrial load is weaned away by mega projects, the states will be unable to extend cover to their own projects.
In an escrow deal, the SEB sets aside a certain stream of revenue for the IPP concerned. The corpus of this account depends on the comfort level sought by the IPP and FIs and ranges from 30-45 days of receivables.
Even in one of the financially sounder states like Tamil Nadu, present tariff projections show that the SEB can support power projects with a combined capacity of only around 2,500 mw.
