Hc Nixes Order Denying Escrow To Nagarjuna Project

The Karnataka High Court has quashed a state government order which ruled out goverment guarantee and escrow cover for the Rs 4,500 crore Nagarjuna thermal power project.

The order passed today gives a fresh lease of life not only for the 1015 mw power project near Mangalore but for several other projects in the state which have been denied escrow cover following the acceptance by the state government of the Deepak Parekh committee report which had rejected escrow cover for all power projects in the state.

The high court also levied a penalty on the state government stating that its order of May 8, 2001 was arbitrary in nature. The order stated that the state was not in a position to give escrow cover, deemed generation or guarantee to the project. The penalty of Rs 10,000 will have to be deposited with the chief minister's drought relief fund.

The state government has been given eight weeks to consider and give all necessary approvals for the power project.

The per unit cost of the project is understood to be below Rs 3. The PPA which included the government guarantee and escrow cover for the power project between the promoters and the transmission arm of the state government, the Karnataka Power Transmission Corporation Ltd (KPTCL) was signed on July 23, 1999 while the Deepak Parekh committee gave its report denying escrow cover on February 24, 2000. The petitioners pointed out that the committee report is prospective in nature.

The order could throw open the doors for several such petitions from various promoters of power projects with whom the state government signed the PPAs.

This is the second such judgment against the state government. In the TanirBavi case, the high court on a writ petition filed by the promoters of the Rs 880 crore Tanir Bavi power project overturned a state government ruling not to award escrow cover to the project.

The high court in its order said the order of the state government and the decision-making process was illegal as it was taken by the competent authority and the delay had caused damage to the petitioner. Hence it levied a penalty of Rs 10,000 which has to be deposited with the chief minister's relief fund.

The HC examined the file pertaining to the power project and said that nowhere had it been mentioned that the escrow cover should not be given to the project.

In the Tanir Bavi case, the promoters had stated that the project will not attain financial closure without the escrow account being made operational.

The promoters also said that the escrow account assures the lenders and institutions' debt servicing and without escrow account and letter of credit, financial institutions will not lend money for the project, since the project envisages nearly Rs 880 crore investment.

The judge in his ruling in May 2000 year asked the Karnataka Power Transmission Corporation Ltd to get the banker's letter to operationalise the letter of credit and extend the power purchase agreement. He also asked the government to extend state support agreement to the power project.