Tatas Set To Buy Tetley For 200m

The Maharashtra government has decided to give default escrow cover to the 447 mw Reliance promoted Patalganga project. This decision came in when the government realised that giving permission for third party sale was a bad option.

This was disclosed by Maharashtra State Electricity Board (MSEB) chairman A Basak. "Reliance wanted to enter into third party sale agreements with high tension (large consumers of electricity) and commercial consumers. Besides, they also wanted MSEB to do the metering and billing on their behalf. This is worse than granting permission for third party sale," he said.

Cash flows from high tension and commercial consumers constitute the bulk of MSEB's revenues. The state electricity board cannot do without these revenues as power to farmers is supplied free. MSEB, like other electricity boards in the country, recovers this amount primarily from industries by charging them a high tariff. However, Reliance spokesperson had no comments on the issue.

The MoU for the Patalganga power project was signed in early nineties when escrow accounts were unheard of. Reliance sought for such comfort only later. MSEB and the state government has adopted the line that the project should not be granted escrow cover as it is not a part of the original agreement. They, however, offered third party sale to the Reliance project. This means, in the event of MSEB failing to pay its bills, Reliance can directly sell power to certain consumers.

Subsequently, the state government and the MSEB have changed their stance. The state Cabinet has recently decided to offer default escrow cover to the project. Explaining the reason for reversing the decision Basak said, "it is in the state's interest that the project comes up. Reliance executives informed us that the project is not feasible without some kind of comfort as lenders will otherwise not help''.

If the Reliance group accepts default escrow cover, the curtain will ring down on a long process.

The state government has signed the power purchase agreement on the basis of an in principle clearance accorded by the Central Electricity Authority (CEA). Later on CEA questioned the cost of the project and demanded that the capacity be hiked to 447 mw from 410 mw. Then began the negotiations on the escrow account.

The Patalganga project already enjoys a state government guarantee but has no counter-guarantee.