MUMBAI, March 3: International power financing in India is all set to enter the "project finance" stage. Haldia Cogen, a captive naphtha-based power facility being set up at Haldia in West Bengal as part of the Haldia Petrochemicals project, is all set to be the first ever power project in India to be financed by international lenders without any financial guarantees, letters of credit, or escrow accounts.This will be a landmark financing deal, according to power industry sources, because the Indian private power plan has gone through a painful graduation period through two phases of power finance: first, where the central government itself was compelled to provide counter-guarantees, and second, when various layers of alternative security, involving elaborate arrangements of letters of credit, escrow accounts and state government performance and payment guarantees had to be arranged.
It is believed that the structured finance deal for the 117 mega watt power project at Haldia, for which theengineering-procurement-construction contract has been given to Larsen & Toubro on a Build-Own-Operate basis, will require an estimated external commercial borrowing component of around $300 million dollars.
According to senior industry sources, the ECB deal is expected to be closed out within the next two months.
The project has received such favourable international review because it is based on naphtha fuel, which is being produced at a cracker at the adjoining Haldia Petrochemcals Ltd complex. Therefore, Haldia Cogen, the company which will own the plant, will not be exposed to international fluctuations in naphtha prices.
For Indian power industry this is a landmark transaction. For the first time, the project breaks beyond the restraints of multiple layers of alternative security arrangements.
The layered security arrangement commonly used by independent power producers to design bankable power purchase agreements with state electricity boards which have credit problems comprise threealternatives.
The first of these involve letters of credit to take care of short-term payment problems.
The second layer is to create an escrow account where receivables from power consumers would flow in, and from where funds would be directed to the IPP rather than the SEB. And finally, to take care of even bigger problems, state government performance and payment guarantees have also been mooted. Two other forms of alternative security have also been designed. These are, first, access to central devolution of funds to states, but this has not been possible to implement because it would require legislative amendments. The other form of security has been mooted as sale of power to a non-SEB buyer, such as the public sector National Thermal Power Corporation or the PowerGrid Corp. However, the projected success of the Haldia deal seems to indicate that international lenders may finally have accepted Indian deals purely on the basis of the quality of the project on offer.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
