IDBI drops reform-based finance plan
By Praveen Chandran | 18 Mar 2002
1
Mumbai:
The Industrial Development Bank of India (IDBI), which
has a large presence in power projects, has dropped its
plans to adopt a reform-based financing pattern for independent
power projects.
Instead,
it is planning to continue with its traditional three-tier payment
security mechanism escrow cover, letter of credit and state
guarantee for financing new power projects. Indias leading
financial institutions, including IDBI, were pursuing a
reform-based approach in the power sector financing, as the
concept was projected as an economically feasible mode for
financing power projects.
Under the reform-based financing, state governments, state electricity boards and other lenders to the projects have to enter into a memorandum of agreement. The state and its SEB also have to undertake obligations to achieve reform milestones in a time-bound manner as prescribed by the lenders.
Also, the lenders will enjoy a charge over the revenues of SEBs along with the banks that provide capital. Moreover, the escrow cover will have to be made available to the lenders 31 days before the commercial operation of the project. But the IDBI board recently decided that the security mechanism has to be ensured before financing any new project and, under the given circumstances, IDBI feels escrow is the most viable security mechanism.
"The payment risks continues to be the most important impediment to financing power projects, as the financial health of the SEBs is deteriorating day by day. Besides, problems of lack of tariff rationalisation, high transmission and distribution losses are the other major hurdles in the Indian power sector," says a top IDBI source.
The Industrial Development Financial Corporation was the first financial institution that implemented the reform-based financing in the Karnataka state for the Karnataka Power Trading Corporation two years ago. The outcome of this new experiment is yet to be known.
Following this, the Andhra Pradesh government had introduced this concept for financing around six projects with an installed capacity of over 2,500mw last year. But an FI source say the process did not go any further from the preliminary levels.
Aptransco, a party to the agreement, had failed to provide escrow cover to two projects even after their successful commissioning. These projects together generate over 550mw (300mw from the Kondappally project and 250mw from the Spectrum project). Andhra then promised to evolve a business plan for the transmission companies by February 2002. But, so far, no headway had been made, the source say.
Instead,
it is planning to continue with its traditional three-tier payment
security mechanism escrow cover, letter of credit and state
guarantee for financing new power projects. Indias leading
financial institutions, including IDBI, were pursuing a
reform-based approach in the power sector financing, as the
concept was projected as an economically feasible mode for
financing power projects.Under the reform-based financing, state governments, state electricity boards and other lenders to the projects have to enter into a memorandum of agreement. The state and its SEB also have to undertake obligations to achieve reform milestones in a time-bound manner as prescribed by the lenders.
Also, the lenders will enjoy a charge over the revenues of SEBs along with the banks that provide capital. Moreover, the escrow cover will have to be made available to the lenders 31 days before the commercial operation of the project. But the IDBI board recently decided that the security mechanism has to be ensured before financing any new project and, under the given circumstances, IDBI feels escrow is the most viable security mechanism.
"The payment risks continues to be the most important impediment to financing power projects, as the financial health of the SEBs is deteriorating day by day. Besides, problems of lack of tariff rationalisation, high transmission and distribution losses are the other major hurdles in the Indian power sector," says a top IDBI source.
The Industrial Development Financial Corporation was the first financial institution that implemented the reform-based financing in the Karnataka state for the Karnataka Power Trading Corporation two years ago. The outcome of this new experiment is yet to be known.
Following this, the Andhra Pradesh government had introduced this concept for financing around six projects with an installed capacity of over 2,500mw last year. But an FI source say the process did not go any further from the preliminary levels.
Aptransco, a party to the agreement, had failed to provide escrow cover to two projects even after their successful commissioning. These projects together generate over 550mw (300mw from the Kondappally project and 250mw from the Spectrum project). Andhra then promised to evolve a business plan for the transmission companies by February 2002. But, so far, no headway had been made, the source say.
