Opic In Talks For Back-Up Ppa

The Overseas Private Investment Council (OPIC) is negotiating with an independent power producer and a state electicity board (SEB) to enter into a separate "backup" power purchage agreement (PPA) with consumers in order to attract foreign funds to the project.

The move aims to give a level of comfort to foreign lenders who have now turned wary of the escrow mechanism. The backup PPA allows the power producer to sell energy directly to industrial customers and also collect revenues in case the SEB in question defaults. The backup PPA signed over and above the PPA with the SEB gives the power producer a right to wheel power to customers across government controlled transmission lines.

 

According to OPIC officials, both OPIC and a foreign commercial bank are considering long-term debt financing for this project. Once the backup PPA is signed, power distribution will be open to private producers. Currently, power distribution is the monopoly of the state.

The backup PPA is been worked out as international lenders as growing uncomfortable about SEB risk. However, every SEB has customers who are capable to paying for electricity at a price sufficient to cover the cost of financing new generating capacity.

The official said that a rational lender should be prepared to provide long-term debt for an independent power project if the project and the lenders will have unimpeded access to revenues from these customers.

The official says that several structures under consideration will not provide meaningful credit support for the obligations of the SEBs and the states. Most of these structures are in the nature of an escrow account into which the SEB places funds received from indentified customer groups.

The money in the escrow account is equal to the payments owed to the power producer for 30 or 90 days. In some cases, a comfort letter replaces the excrow. In certain escrow accounts, the power producer also has a charge over the ecrow account.

The OPIC official has stated that in theory the revenues from the identified customer or group fo cusotmers would be allocated to the payment of the power producer.

However, in case the SEB defaults, the power producer or its lenders do not have the legal right to collect money beyond the sitting balance in the excrow account. According to the OPIC officials, this type of account structure does not meet the test of providing the power producer and its lender with unimpeded access to the customers who have the ability to pay if the SEB defaults. Hence this structure is unlikely to attract foreign lenders.

It is in this contest that the OPIC is working toward a back PPA. Sources however feel that the state governments might be apprehensive about signing such a PPA, which gives unimpeded access to some of the revenue streams of the SEB. It is pointed out that finally tariff reforms is the only answer to the SEBs' problems.