Karnataka Told To Give Escrow To Bavi Project

In a landmark judgment, a single bench judge of the Karnataka High Court yesterday ordered the state government to operationalise the escrow account through its state electricity board for the 220 megawatt Tannir Bavi power project.

The Karnataka government earlier decided to stop giving escrow cover to all power projects in the state, following recommendations from a state-sponsored committee which ruled against such financial support.

The judge, however did not pass any strictures against the state government in this regard. He also said the Karnataka Power Transmission Corporation Ltd (KPTCL) should 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.

 

In case the state government implements the order instead of going in for an appeal before the Supreme Court, it will be forced to give escrow support to two other power projects including 103 mw Aatria power project and 28 mw Rayalaseema project which are ready to go in for financial closure.

The single judge bench had last month reserved judgement on a writ petition filed by an independent power producer, Tannir Bavi Power Company Pvt Ltd which had sought escrow cover for its project.

The petitioner, Tanir Bavi Power Company, in its petition against the state electricity board, the Karnataka Power Transmis-sion Corporation Ltd (KPTCL) and the state government stated that the project will not attain financial closure without the escrow account being made operational.

"Escrow account assures the lenders and financial 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 800 crore investment," the petition said.

It also stated that during the bilateral discussions, the state government and the Karnataka Electricity Board (now known as KPTCL), agreed and promised to open and operationalise escrow account and the state government agreed and promised to execute the state support agreement.

However, in its objection statement, KPTCL said under the agreement entered into with the petitioner, the question of the board's payment obligation arises only when the company pursuant to Clause 5 commences supply of energy and not until then.