Lanco chairman forewarns banks about Rs 500 cr guarantee invocation move

Bank Guarantees for an EPC contract won by Lanco were invoked by its customer Hindustan Power

Last Updated : Jul 03 2017 | 9:08 PM IST

Lanco Infratech chairman L Madhusudhan Rao on Monday wrote a letter to its bankers urging them not to honour the encashment of bank guarantees (BGs) worth of Rs 500 crore by New Delhi-based Hindustan Power Projects Private Limited.

These BGs were issued by a group of banks, including State Bank of India (SBI), on behalf of Lanco for an EPC contract pertaining to the execution of 2,520-mw coal fired power project being developed by Hindustan Power in Anuppur district of Madhya Pradesh. BGs are to be encahsed by the developer in case the EPC contractor failed to execute the project.

In his letter, a copy of which was reviewed by this reporter, Rao alleged that the letters of invocation submitted by Hindustan Power were in complete contravention to the terms of the contract agreement.

"Hindustan Power has submitted these BGs for encashment with malafide intent of securing funds to mitigate its own financial difficulties not related to these contract agreements while taking advantage of situation wherein Lanco Infratech is being referred to NCLT," Rao stated.

Hindustan Power, formerly known as Moser Baer, has implemented the first phase of 1,200 mw project through its SPV i.e. MB Power Madhya Pradesh Limited (MBPMPL) While coal for the project has been sourced from South Eastern Coalfields and water is sourced from River Son. The project was executed by Lanco.

Lanco chairman has also made several allegations against Hindustan Power's promoters on issues related to the project as well as an alleged tussle took place between the two companies during a long term power purchase agreement (PPA) bid invited by Uttar Pradesh Power Utility way back in 2013.

Citing these instances wherein Rao himself admitted to have been acted under coercion from Hindustan Power, Lanco chairman has gone to the extent of requesting the banks to file a CBI complaint against the company.