Fis Reject Tn'S Escrow Proposal For St-Cms

Financial institutions (FIs) have not accepted Tamil Nadu government's escrow proposal for the ST-CMS promoted, 250 mw Neyveli fast track power project.

FIs want some crucial changes to be made for the escrow proposal to be made acceptable. These changes pertain to the power purchase agreement (PPA) conditions of power offtake from the project.

After signing the counter-guarantee for the ST-CMS project on Friday, the Tamil Nadu state electricity board chairman MB Pranesh that the state government was yet to finalise the extent of escrow cover for the project and will be done once the financial institutions evaluate and clear the proposal.

 

This escrow arrangement is crucial for the project as the promoters plan to raise funds for the project on the strength of the counter-guarantee and the escrow support.

At a recent meeting held in Mumbai between various state governments (including Tamil Nadu) and FIs, states presented the projects and the capacity they were willing to offer escrow cover.

Sources said that financial institutions want the state governments to extend their escrow cover to the PPA conditions and not to limit to 68.5 percent PLF (68.5 per cent PLF indicates the level of operation required for a promoter to recover his fixed costs).

The entire problem centres around the state electricity boards having contracted to off-take 80-85 per cent of the power from projects but limiting the escrow cover only upto the extent of 68.5 per cent PLF.

The Tamil Nadu government in its proposal to the FIs has also based its estimate of the capacity it can support on the basis of 68.5 per cent PLF.

Based on these estimates, the state government feels it can support around 4000 mw of private power projects, while Fis feel that the actual capacity that the state can support is in the range of 2000-2500 mw only.

Sources said that "we have not accepted the proposal....of which the issue of contracted off-take is an important element."

Sources added that some states have accepted to extend the escrow cover upto the contracted amount, but other states (like Tamil Nadu) are yet to accept these condition.

Apart from asking the escrow cover to be extended upto the contracted amount (80-85 per cent PLF), Fis also want the escrow cover to be 1.25 times of the monthly reicevables.

Such an arrangement brings down the estimates of capacity that the state governments can support.

The escrow arrangement is the third circle of security for the promoter of the project after direct payments and letter of credit. The promoter invokes the escrow guarantee only after first two security measures fail.

In the event of the escrow arrangement also failing to meet the promoters' requirements, he can invoke the fourth circle of security ---which is the state government guarantee.

The escrow account is maintained at a certain level by the government---- dependent on the comfort level sought both by the promoter and the financier which is around 1.25 times the monthly recievables.