July 13: The Rs 400-crore power project of Modi Mireless Blackstone Limited (MMBL) may face undue delays and cost escalations with the UP State Electricity Board (UPSEB) insisting on re-negotiating a host of major clauses.

These clauses were earlier agreed upon by the Principal Secretary, Energy, UP, in an agreement signed with the private power producers in the state.

Company sources told The Financial Express that an agreement was signed on March 27, relating to various issues like cost escalations on account of fuel linkages, deemed generation, operating and manufacturing cost and foreign exchange in the presence of former UPSEB chairman.

But the newly appointed chairman, G S Sohal wants to have afresh negotiations on these issues.

The company officials of MMBL stated that with the UPSEB backing out on these clauses, the signing of the Power Purchase Agreement (PPA) between MMBL and the UPSEB for its 100MW power project will be delayed and the company will be unable to achieve financial closure.

Further, the cost escalations on account of the recent announcement of the government that the private producers will have to bear the infrastructure costs for importing liquid fuels, works out to be a minimum of Rs 150 crore for the project of MMBL thereby putting the cost to over Rs 550 crore.

The company has also written to the power ministry to modify this policy, as per which, the private producers will have to pay an upfront payment of Rs 16 lakh, per MW of power generated, to the national oil companies, said company officials.

UPSEB officials stated that the state electricity board is not in the position to bear the cost escalations on account of fuel linkages and other parameters, as the cost escalation cannot be passed on to the customers. As per the UPSEB officials, the terms and conditions agreed earlier in the `so called agreement' has not been approved by the cabinet, hence UPSEB is not bound to follow it. "Moreover, why should we agree to clauses which will make our operations unviable?", questioned UPSEB officials.

Whereas, the company will be unable to attain financial closure till the PPA is signed, it has initiated talks with a host of foreign infrastructure financing companies for equity participation in its 100MW project.

According to sources, the company is currently negotiating with four foreign firms, of which two are USA-based and the other two are from Malaysia and Singapore. Out of these four, MMBL will enter into an equity arrangement with two companies, either separately or in the form of a consortium.

These foreign companies, apart from investing in this project with the Modi's, will also arrange loans for this Rs 400 crore project.

The debt equity ratio for the project will be 70:30 and the promoters will flush in an equity if Rs 114 crore. The entire debt requirement for these project will be met from overseas, said sources.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.