Escrow Waiver Mooted For Mangalore Project

The power ministry has recommended to the finance ministry that the escrow cover norms for providing counter-guarantee to the $1.2 billion Mangalore power project should be waived. This is in line with the Karnataka government's request for the same.

"A formal letter is awaited in this regard," a top official of the state energy department told Business Standard.

In a letter to the power ministry, Karnataka had said the Centre should not insist on a state government escrow as a pre-requisite for a central counter-guarantee, since the state electricity board was not financially sound to provide guarantee to any independent power project in the state. Also, a state-sponsored committee had recommended against providing escrow cover to all IPPs in the state.

 

Earlier, in a written reply in Parliament, the power ministry said ICICI Ltd, the lead financial arranger for the promoters, was willing to look at an alternative model for funding the project. Prior to this, ICICI had ruled out funds for the project unless the state electricity board provided an escrow cover.

The Centre's counter-guarantee for the 1,000 mw fast-track thermal project is based on the escrow cover extended by the state government. In the case of the Mangalore project, the counter-guarantee will have to be reissued and another power purchase agreement will have to be signed, since promoters and several other parameters have changed.

Also, as the total cost of the project has changed due to cost overrun, the $900 million engineering, procurement and construction (EPC) contract is expected to go in for rebidding. The EPC contract was awarded to Black & Veatch in 1996. But since then, the main promoters of the project, Cogentrix, walked out and later the state government decided not to give escrow cover to any power project in the state.

CLP Power International and Tata Electric Company (TEC) are the main promoters of the Mangalore project. TEC picked up a 30 per cent stake in the project after Cogentrix walked out, citing delays in its commissioning as reason.