Mar 31, 2000|
Escrow cover - will this issue be solved ?
As per a newspaper article to provide a breakthrough to the issue of escrow cover the power ministry, finance ministry and financial institutions have come together to solve it. The alternative being worked out is reform linked financing of power projects.
The lack of escrow cover of the state electricity boards (SEBs) is an issue in the Indian power sector which needs to be addressed. Many independent power projects are held up because of the poor financial conditions of the SEBs resulting in them not being able to provide escrow cover to projects in their respective states.
What is an escrow cover?
It is a separate account opened by the SEB in order to provide guarantee of repayment of debt to the financial institution. As most SEBs are in poor financial condition they have exhausted their escrow cover limits.
IPPs in states like Karnataka and Tamil Nadu are held up because of the inability of these states to provide escrow cover. Some of the projects that are held up are the Sujana Power Project in Tamil Nadu and the Mangalore Power Company (MPC) in Karnataka.
One of the options is that the respective state government, the respective SEB, and the financial institutions enter into a tripartite for financing of projects and the reforms being taken. The financial institutions and the bank would have the right to recall the loans in the event the state government and the SEB do not undertake the reforms as per the fixed schedule.
Though this measure sounds simple in reality it may not work out. As the SEBs have very poor financial conditions it is not going to be very easy unless they are viable enough to be able to payback the financial institutions incase of a default in the reforms undertaken by the state. They will need to work out on who the final onus for default would lie on, otherwise the financial institutions non performing assets will only go up.
The financial institutions should piece meal fill the financial gap of the escrow cover of the SEB. This would provide an incentive to state governments who undertake the power reforms more seriously than others. This move will provide an impetus to the power sector reforms and make it more attractive for private participation and would encourage Independent power producers (IPPs). This will result in higher interest by foreign and private power companies in investing in power projects across the country.
More Views on News
Mar 30, 2017
NTPC declared results for the quarter ended December 2016. The company reported revenue growth of 10.9% while profits declined by 7.5% YoY.
Nov 23, 2016
NTPC declared results for the quarter ended September 2016. Here is our analysis of the results.
Nov 23, 2016
Power Grid Corp (PGCIL) declared its results for the quarter ended September 2016. The company reported a revenue and profit growth of 28% YoY and 32% YoY respectively.
Sep 29, 2016
Power Grid Corp (PGCIL) declared its results for the quarter ended June 2016. The company reported a revenue and profit growth of 31% YoY and 35% YoY respectively.
Sep 29, 2016
NTPC declared results for the quarter ended June 2016. Here is our analysis of the results.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407