It may be recalled that basically, the government guarantee is to provide additional security to the IPPs against any payment default by the SEBs.

New proposals entail that if any amount is paid by the government on behalf of the SEBs, transmission companies, distributors and bulk consumers, through the Power Trading Corporation (PTC) debt or in terms of its guarantee of payment of outstanding foreign debt (in case of termination), this will be debited to the states' account with the RBI, till the entire Central dues on account of the default of the SEBs are recovered. And, the RBI will not make any other payments on behalf of the states till such dues are recovered.

Moreover, only those states will get power from the IPPs, who agree that any amount due to the Centre may be adjusted against their Central plan assistance (CPA), their share in Central taxes, or other loans and grants from the central government.

Significantly, according to senior power ministry officials, it has also been decided that the maximum monthly liability of the Centre would be fixed at a pre-determined level, which would be based on the likely generation capacity and energy payments, including the transmission charges with an annual escalation not exceeding 5 per cent, which would be constituting the guarantee limit. Moreover, the guarantee would be denominated in rupee terms, the officials added.

Power ministry officials said a final view on these provisions along with the payment security mechanism (PSM), worked out by the power ministry for purchases of power from the PTC, was likely to emerge at a meeting with the finance ministry officials today. And if the finance ministry cleared it, the proposal would go to the Cabinet for the final approval.

It may be noted that the strategic management group under the PMO had recently given its go-ahead to the power ministry proposal to issue Central guarantees under the PSM for mega power projects.

The provision of Central guarantee for payment of outstanding debt is a contingency measure to assure the IPPs that their investment is protected. However, in the absence of sufficient escrowable capacity to cover power purchases from the IPPs, it is essential to provide additional security to ensure that the day-to-day payment for power purchases is met so that chances of default are minimised.

Therefore, the PTC's charge on the revenues of the SEBs backed by the payment through the Centrally backed debt have been provided to safeguard the interest of the IPPs against any default on purchase. Moreover, according to the sources, this would also make the invocation of the Central guarantee only a remote possibility.

The PSM for power purchases from the PTC has four security layers - namely, letter of credit; the PTC's charge on revenues of the SEBs, distributors or bulk consumers; payment through the Centrally-guaranteed debt (subject to a maximum of six months billing) to be issued by the PTC to meet liquidity requirements and a Central guarantee of payment through the PTC of repayment of outstanding foreign debt of the project in case of termination.