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Santanu Saikia
NEW DELHI, May 10: Contrary to popular belief, the finance ministry has not given any letter of comfort to cover default by the railways in ferrying 4.8 million tonnes of coal annually for the controversial 1040 MW power project at Vizag (Andhra Pradesh), promoted by the Hindujas at a cost of $ 1.2 billion.
What is more, penalties to be paid by Mahanadi Coalfields Ltd (MCL), in case of non-supply of coal, will only cover the debt repayments of the Vizag project and not the return on equity.
Countering criticism, for the first time, of the fuel-supply deal struck by the railways and MCL with the Hindujas, a top finance ministry official told The Financial Express that the ministry only agreed to help the railways to meet liquidated damages, if the need arises.
Contrary to what is being reported, the railways had refused to meet the promoter's demand for consequential damages that may arise from its failure to supply coal to the Vizag project. This would have meant aligning penalties to the plant loadfactor and debt repayment schedules of the project.
Instead, the railways had agreed to pay four times the freight charges as liquidated damages for not keeping up with delivery schedules. Coal is to be hauled from MCL's fields in Talcher to Vizag, a distance of 600 km. The freight charge works out to around Rs 800 per tonne of coal.
The finance ministry's role will be limited to "enabling" railways to meet the obligations, if any. The "enabling" clause cannot be construed to be a letter of comfort, as is being alleged in certain quarters, the North Block official said. What is more, the railways had been provided a crucial escape clause : the transporter will not pay liquidated damages in case it cannot keep up with delivery schedules because of natural disasters. The Andhra Pradesh coast is cyclone-prone.
The Hinduja-MCL deal allows for coverage of the fixed cost component of the project by the public sector coal supplier. The equity component, however, was left out.
MCL would, therefore, be savinga payment stream of 16 per cent on the risk capital, in case the damages clause is evoked by the promoters. The project will work on a debt-equity ratio of 72 to 28. Lenders of the project wanted the finance ministry to guarantee payment of damages by MCL as well.
Apparently, the balance sheet of MCL is not strong enough to take the onus of repaying the debts that would be incurred by the Vizag project.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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