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MPC's fate depends on escrow cover

Mar 11, 2000

Mangalore Power Company (MPC) which plans to set up a 1,000 mw thermal based project in the west coast is in a state of flux. ICICI Ltd the lead financial arranger for MPC has clarified its stand that if the Karnataka Power Transmission Corporation (KTPC) does not provide an escrow cover for the project it will not be in a position to fund the project. Financial Institutions (FIs) have made it very clear that unless they get a separate escrow cover for the power projects from the state electricity boards they will not fund them. This is because of the large dues of the State Electricity Boards (SEBs) and hence FIs do not want to run into the risk of higher non-performing assets. ICICI is the sole lead financial arranger for the rupee component of the debt which works out to US$ 200 m. KTPC the state electricity board of Karnataka does not have any escrowable capacity because of its dues from various state and private sector agencies.

The equity component of the project is being funded by CLP Power International Ltd and Tata Electric Company (TEC). TEC has taken a stake in this project after the withdrawal of Cogentrix. Cogentrix stated that they would reverse their decision only if the central government gave the project a counter guarantee and the Karnataka government adhered to the terms of the PPA signed in November'97.

As the Karnataka power sector has been in a state of flux, questions are being raised about the viability of independent power producers (IPP) ventures. IPPs in India have not taken off because of the fact that SEBs are financially weak. As the IPPs are financially dependant on SEBs for their dues hence IPPs are considered riskier. Hence the FIs in India are averse to funding IPPs unless guarantees are available to them from the state government.

As the power sector reforms have been very slow, many foreign power companies have lost interest in the Indian power sector. Though things are slowly changing the Indian power reforms have a long way to go. An example of the reforms is the government's decision to go ahead with the reforms in Uttar Pradesh where it plans to split the SEB into three parts covering transmission, generation and distribution. This step has been taken despite the strong opposition by the workers unions.

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