EBs impede private sector projects

By V. Jayanth

CHENNAI, DEC. 1 If many of the Independent Power Producers (IPPs) have not been able to achieve financial closure in time and get on with their projects, the reasons are not far to seek. Both the Centre and the private sector hold the State Electricity Boards (SEBs) and the State Governments responsible for the ``tardy progress.''

The foremost problem which has unduly delayed financial closure for power projects, despite progress on other fronts, has been identified as the ``poor financial health'' of the SEBs, which do not have the ``financial capability to support more than a few projects,'' according to an assessment by the Ministry of Power.

Almost all the financial institutions seek a bankable escrow to finance the IPPs. But the States do not have enough escrow space to accommodate all the IPP applicants. In some cases, even the escrowable capacity claimed by the State Governments have not been accepted by the financial institutions. This has also resulted in some litigation.

The delay in the finalisation of various contracts, including a Power Purchase Agreement, fuel supply agreement and a transportation agreement has held up some projects, while some promoters complain that State Governments have got into the habit of wanting to renegotiate already concluded purchase agreements.

After taking into account all these problems, the Centre came up with a revised mega power policy in 1998, since some of the pending proposals involved dealing with more than one State and their SEBs. Investors preferred to deal with a single entity and demanded ``higher comfort levels,'' resulting in delays and difficulties. That led to the creation of the Power Trading Corporation and then the securitisation of dues from the SEBs.

Industry sources said that the Ministry of Power drew up a modified security mechanism as an alternative to the escrow mechanism to provide financial comfort to the lenders and IPPs. Consequently, financial institutions are being nudged to move away from escrow and link IPP financing to actual milestones in power sector reforms by each State.

These milestones include unbundling or corporatisation of the SEBs, privatisation of distribution, tariff rationalisation, setting up of State Electricity Regulatory Commission, determination of supportable capacity after assessing the demand- supply position of power, professionalisation of SEB management, energy audits, 100 per cent metering and billing, reduction in Transmission and distribution losses, improvement in plant availability, renovation and modernisation of existing power plants, payment of subsidies by the State Governments and an action plan to clear the overdues to the Central undertakings.

The Crisis Resolution Group, headed by the Power Minister, has been meeting regularly to review the scenario and consider follow up action.

As a sequel to these deliberations, financial institutions and States have been asked to shortlist private power projects which could be taken up so that all formalities are completed quickly and financial closure achieved at least by March 31, 2001.

About 20 IPPs have been shortlisted for this purpose, and a majority of them have been held up on account of problems with the escrow from State Governments. They include Ramagundam thermal station (520 MW) in Andhra Pradesh; Maheshwar HEP and Bina thermal plant in Madhya Pradesh; Patalganga and Bhadravati in Maharashtra; North Chennai Stage II in Tamil Nadu; Jamnagar in Gujarat; Rosa and Vishnuprayag in Uttar Pradesh and the Balagarh thermal project in West Bengal.

Since 1991, 57 private power projects to generate nearly 30,000 MW were cleared. But till now, 22 projects with a capacity of 4818 MW have been commissioned and another 19 projects with a capacity of 5296 MW are in various stages of implementation, according to the Power Ministry.

But capacity addition from the private sector has not come up to expectations, because of the financial bottlenecks. During the Eighth Plan, the private sector contributed only 1430 MW against double that target. For the Ninth Plan, a target of 17,500 MW was set, but then reduced to just 8363 MW during the mid-term review. Perhaps only 7,000 MW could materialise eventually, going by present indications.

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