MPC -- Cogentrix walks out, CLP to pursue

MPC -- Cogentrix walks out, CLP to pursue
ENS ECONOMIC BUREAU

BANGALORE, JAN 22: Finally, multinational Cogentrix has walked out of the controversial 1000 mw power project proposed to be set up near Nandikoor in Mangalore. However, the China Light and Power (CLP) International, which is a partner in the Mangalore Power Corporation (MPC) has come forward to pursue the project.

This is the second time a joint venture partner is pulling out from the project. First, when Cogentrix promoted the project after signing a memorandum of understanding with the Karnataka government in 1992, it had multinational General Electric as its partner. However, in 1995, GE pulled out following a direction from the state government to go in for international bidding for engineering, procurement and construction contract as also for imported coal in a bid to make the project more transparent.

Cogentrix then opted for CLP International, a subsidiary of the China Light and Power of Hongkong as its joint venture partner. After a breakfast meeting with CLP representatives Chief Minister S M Krishna said that the CLP was willing to accept all ``our'' conditions including examining the power tariff. He said that the CLP would identify an Indian partner within a fortnight. CLP representatives have been told that from the state government side there would be a qualitative change in the format of the project due to the Centre's shift in stand.

CLP International's Business Development Director Tom Watters said there would be no change in the project location. In fact, many things will remain unchanged except for some minor amendments in the power purchase agreement, he said.

Watters said the CLP intended to take the lead in the project with the MPC. The project will take off by September 2000 if the Central Government gave the counter-guarantee in four months. The financial closure will be completed in six months, he said.

Justifying the capital cost of the project, Watters maintained that it was the lowest among similar ventures approved by the Electricity Authority.On the MoU signed by the MPC with the US EXIM Bank for export finance, he said it would depend on government's decision. Better opportunities for investments and the deregulation of the energy sector in the United States were the main causes for the Cogentrix withdrawing from the project, Watters claimed.

Krishna said that officials from the Power Ministry and the Karnataka Power Transmission Corporation (KPTC) would appear before the Expert Committee headed by Deepak Parekh on January 28 to discuss the modalities of the project.

Bogged down by court wrangles relating to environmental concerns and corruption charges the partners announced their intention to pull out in December blaming delay in government approvals and litigation as reasons for ceasing operations. However, days after the decision was announced the Supreme Court cleared the company of corruption charges and the Union Government agreed to provide a counter-guarantee. Cogentrix, however, on December 15 announced that any revival would be possible only if the Centre gave the state the draft counter guarantee.

Tariffs may be reduced: After the Supreme Court decision, India's federal government approved a financial guarantee for the project but Karnataka said an expert panel would examine MPC's demand for escrow cover.

The escrow cover, estimated at Rs 4.5 billion ($103.5 million), would guarantee payments from the electricity board for power purchased from MPC. Private power project developers in India insist on financial guarantees and escrow covers to reduce risk of non-payment from financially-weak state electricity boards. Karnataka Chief Minister Krishna had also said MPC may need to reduce the cost of power it would be charging the consumers.Watters said on Saturday CLP had agreed to accept "minor amendments" to a power purchase agreement it signed with the state electricity board in 1997 and will also look at areas where it can bring down the cost of its power.

The CLP director saw the Mangalore project attracting finance soon. "If we can get certain things cleared very quickly... we think we can finance this project within six months," he said. "We could then have the power plant up in operation within three-and-a-half to four years." S M Krishna said CLP officials during the meeting had told him they would be identifying their Indian partner in the next 15-20 days, but the Hong Kong firm did not give details. "That has not been decided," Watters said when asked what the new ownership ratio between CLP and the Indian partner would be.