Chennai, June 1: The Tamil Nadu government is willing to provide back-up guarantees to investors for a mega liquefied natural gas (LNG)-cum-power project.

Tamil Nadu Industrial Development Corporation (Tidco), which is setting up the project, is floating a global tender on June 15, sources say.

The back-up guarantees will be in the form of an escrow account securing investors' interest and other supporting comfort clauses in addition to the `take of pay' clause involving Tamil Nadu Electricity Board (TNEB). The board will give a commitment to lift the entire 2000mw that is to be generated by using LNG.

The board will be required to give a guarantee to buy the power generated, involving an outgo of Rs 3,600 crore. Since TNEB currently earns a revenue of Rs 5,000 crore excluding a government subsidy of another Rs 500 crore for subsidised agricultural power, investors are looking to ensure that the board has the ability to pay such a huge sum.

The state government is giving the assurance to pay the successful investor Rs 3,600 crore per annum, if TNEB, for some reason, is unable to settle the bill. However, TNEB is projected to net a revenue of Rs 11,000 crore by 2003 when the LNG-power project is slated to be operational. Realising that the LNG project is one of the most complex projects ever attempted in the state, the Tamil Nadu government is also providing some comfort clauses to producers, besides the escrow account guarantee and underwriting full offtake by TNEB. These include, besides general guarantees for meeting any shortfall in TNEB payments, facilitating guarantees promising no delay in decision-making and getting all necessary approvals expeditiously.

Another feature of the project provides for plant availability factor, which is fixed at 85 per cent for natural gas. Tender documents will take this into account and stipulated conditions will cover for what is termed as `back down agreement' for deemed generation of power.

The agreement will provide for compensation to the producer on fixed costs, if TNEB is not able to absorb power and not use the full power generated.

The state government is aware that the financial viability is crucial for the entire project to take off. Unless the government provides enough guarantees, international lenders will be hesitant to lend to investors seeking funds for the project.

Much will also depend upon TNEB's ability to make proper evacuation arrangements and for smoothening out distribution arrangements for the 2000 mw of power that will be generated. It is reckoned that TNEB will have to go in for additional investment of around Rs 400-450 crore to streamline the distribution arrangements by installing new capacitors, sub-stations, safety and maintenance etc.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.