New Delhi, June 1: The union finance ministry fears that central counter-guarantees to fast-track power projects will lead to a downgrading of the country's credit rating.

The ministry has estimated that the annual counter-guarantee liability will work out to around Rs 10,000 crore. Rating agencies are expected to treat this amount as contingent liability and this will infuence the country's overall rating. This argument was reportedly advanced by finance secretary Montek Singh Ahluwalia to the principal secretary to the prime minister Satish Chandran last week while seeking an alternative approach to the counter-guarantee cover approved by the cabinet for the 1,000mw Bhadravati power project promoted by Pramod Mittal in Maharashtra.

The ministry seems to see a real possibility of defaults by state electricity boards (SEBs) and of the counter-guarantees being invoked. The centre will then have to cough up unpaid power dues to private promoters. "The fiscal implications are enormous, and rating agencies are unlikely to take kindly to this overhang," a finance ministry official said.The ministry is refusing to put into operation counter-guarantees to Cogentrix as it does not have a power evacuation system, and there is some apprehension that the responsibility of paying penalties will shift from the state to the centre. It fears that the burden for paying the power bills for the 1,000mw Hinduja project will fall squarely on the central exchequer because of the indifferent health of the Andhra State Electricity Board.

It may not be in a position to pay for an extra exposure of Rs 2,000 crore every year. As for the Tamil Nadu and Orissa electricity boards (where the ST-CMS and the AES projects are coming up), the latter is on the verge of a major restructuring programme while the former, apparently, may find it difficult to meet statutory return-on-assets norms in the years ahead.

The projects (including the Enron and Mittal-promoted projects in Maharashtra) add up to roughly 5000mw of power, and the yearly electricity bill will come to Rs 10,000 crore at the average price of Rs 2 per kwh. It is true that the counter-guarantee exposure is limited to the sum of the central plan assistance and share of central taxes to a particular state. Any devolvement on the union government is to be deducted from the corpus channelled to the states. But the finance ministry is pragmatic enough to know that it will be politically infeasible to completely stop these fund inflows to states even if the entire counter-guarantee amount devolves on the centre. "Ultimately, it will be the centre which will be left holding the baby," the source said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.