Power Bonds Planned For Mega Projects

The government is planning to issue power-bonds for mega power projects to fund the escrow-guarantee mechanism.

Infrastructure Development Finance Corporation (IDFC) is expected to stand guarantee to these bonds, which would have a moratorium on interest payments during the construction phase of a project. The bonds would give the promoter a cushion for three months of power sales by the IPP.

The escrow mechanism for mega projects has been formulated by the standing independent group (SIG), set up by the Union power ministry. According to the scheme, power from the projects would be sold to industrial consumers (or high-tension consumers) who, in turn, would subscribe to the bonds.

 

In one of the most complex mechanisms for tariff payments towards the mega IPPs, the SIG has suggested that both Power Grid Corp and the state electricity boards be used as wheeling agents - to transmit the power from the project to the consumer.

The entire transaction of power sales, from the IPP up to the consumer, would be carried out by a power trading corporation, which would charge tariffs from the consumer and pay the PGC and the concerned SEB for wheeling power, as well as the IPP which produces the power.

The tariff that the trading corporation would charge from HT consumers would include both wheeling charges and a certain nominal profit for itself.

The SIG has argued that power from the mega power projects would be sold mostly to upcoming HT consumers and the financial status of SEBs would, therefore, not be harmed. The boards, in turn, would be expected to make profits from the transaction as they would no longer have to absorb the costs of buying power.

The power ministry has already identified three mega-projects - with an additional generating capacity of around 5,000 mw -at Pipavav (Gujarat), Krishnapatnam (AP) and Cuddalore (Tamil Nadu).

Sources disclosed that these states have already agreed to the escrow mechanism suggested by the SIG.

The projects would have all the required clearances before bids for them are invited. They would also have the escrow guarantee in place before the bids are invited.