The first three-tiers comprise the line of credit of banks and institutions, followed by escrow cover and state government guarantee. The concept of a fourth-tier of guarantee has come up as the first three-tiers are unable to offer sufficient comfort level to lenders. The proposed fourth level of credit enhancement could be in the form of a guarantee from Infrastructure Development Finance Company (IDFC) or a multilateral agency to cover a portion of receivables from SEBs, sources said.

This will reduce the guarantee burden on the first three-tiers. The plan for a fourth-tier is part of the alternate arrangements that IDFC is exploring to break the stalemate caused by exhaustion of escrow cover facility by many SEBs.

Lenders are unwilling to finance power projects without an escrow cover,which guarantees revenue payments to power producers from lucrative user groups.

Another option being looked into is the introduction of sale-and-lease-back arrangement with SEBs. This will help lighten the highly-geared balance sheets of SEBs.

These options are, however, being considered as temporary relief till the SEBs restructure themselves. In states like Madhya Pradesh, Maharashtra and Tamil Nadu, the capacity of SEBs to give escrow cover facility has exhausted, with many more power projects clamouring for the same to arrive at financial closure. "Ultimately, there is no other option for SEBs than to restructure. Any additional credit enhancement mechanism like a fourth-tier guarantee can only stretch the credit capacity of SEBs," said an institutional source.

The restructuring of SEBs is delayed owing to the lack of political will at the state level. This is despite the general acceptance of the principles of restructuring such as political non-interference, greater private sector participation,unbundling and tariff rationalisation.

Financial closure of several power projects has come to a standstill as lenders are not satisfied with the ability of SEBs to guarantee payment for the power purchased from producers. As on March 31, 1997, there were almost 136,211 MW worth of new plant proposals. The number of projects, with PPAs signed, total 24,795 MW. According to the Central Electricity Authority (CEA), the actual capacity to be added in the next five years will amount to 55,752 MW. Many of these proposals are not likely to materialise and the final tally on the projects that will really take-off depends on the credit standing of the SEBs.

INSIGHT

A meaningless move

Everybody is aware that SEBs will have to be made commercially viable but unfortunately no step has been taken in this regard. Temporary measures such as providing another tier of guarantees will not serve any purpose. The beauty of the sector is that hardly any domestic independent power producer (IPP) has beengiven counter guarantee by the centre and then the projects are funded by domestic institutions. Of the three major IPPs that have come up, Essar Power is an IPP without even a state guarantee. And yet foreign-promoted projects are still waiting for counter guarantee.