Rebidding For Mangalore Epc Contract Likely

With changes in total cost of the $1.2 billion Mangalore Power Project because of cost overrun, the $900 million 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 1,000 mw fast-track project, Cogentrix, walked out of the project and later Karnataka government decided not to give escrow cover for any of the power projects in the state.

According to a quick estimate worked out by the government officials, the state electricity board, the Karnataka Power Transmission Corporation Ltd (KPTCL), will have to cough up around Rs 180 crore every month to buy power from MPC.

 

At present, KPTCL mops up revenue to the tune of around Rs 300 crore every month and its expenses too are in the same region every month. The power purchase bill itself is worth around Rs 250 crore every month. To increase its revenue, the KPTCL would have to increase the number of paying consumers who account for a mere 30 per cent at present.

Officials connected with the project told Business Standard that ICICI Ltd, the lead financial arranger for the promoters, the Mangalore Power Company (MPC), which is setting up a 1,000 mw thermal-based project in the west coast, is now looking at an alternative model. It had earlier ruled out funds for the project unless the state electricity board provides an escrow cover.

ICICI is the lead financial arranger for the rupee component of the debt which works out to around $200 million. The entire debt component is worth around $750 million. US Exim Bank and Export credit agencies (ECAs) have been given the mandate to fund the dollar component of the debt.

The equity component which is worth around $360 million is being funded by the both CLP Power International Ltd and Tata Electric Company (TEC). The Tatas have picked up 30 per cent of the equity in the project after Cogentrix walked out of the project citing delay in implementation as reason for its exit.

The Deepak Parekh committee has in its report to the state government indicated that KPTC does not have any escrowable capacity. The report which was presented to the state government recently will be debated by the state cabinet before finalising the issue of escrow cover for various IPPs and the state-owned Karnataka Power Corporation Ltd.

The MPC official said KPTCL has enough escrow capacity but it was unable to get its dues from various state and private sector agencies. He also clarified that it was not correct to assume that the MoU signed with the US Exim Bank does not incorporate the condition on escrow cover from the SEB. He said the MoU was signed because MPC had a counter-guarantee which makes it mandatory for an escrow from the SEB.

Documents related to the project also reveal that the Karnataka government had in a written agreement accepted to grant escrow cover to the project.

Back Drop

* EPC contract of the project was awarded to Black & Veatch in 1996

* The main promoter of the project, Cogentrix, withdrew from the project citing delay in implementation as the reason

* Karnatka later decided not to give escrow for any of the projects

* The entire debt component of the project is around $750 million

* ICICI is the lead financial arranger for the rupee component of the debt which is $200 million

* US Exim Bank and Export credit agencies (ECAs) have been give the mandate to fund the dollar component of the debt

* The equity component which is worth around $360 million is being funded by the both CLP Power International Ltd and Tata Electric Company (TEC)

* The Tatas have picked up 30% of the equity in the project after Cogentrix left the project