An industry source said ST-CMS, which has tied up for liginite supplies of 1.5 million tonnes to 1.8 million tonnes per annum with Neyveli Lignite Corporation, is expected to put in place the financial closure for the project by the last quarter of this year (1998).

The company is expected to sign the loan agreements with Bank of America, ANZ Grindlays and Industrial Credit and Investment Company of India (ICICI) which have agreed to provide 30 per cent debt component by August. However, till now the kind of impact that the sanctions against the country will have on the ST-CMS project is not known.

The company is awaiting the draft of the counter-guarantee from GoI in a day or twoso as to know how much foreign debt and how much domestic debt it has to source before it can assess the impact of sanctions.

"The appetite for foreign debt will decide how much banks are willing to lend," the source said, pointing out that the quantum of foreign debt sought will ultimately decide the tenure of loans and the kind of interest rates offered.

However ST-CMS, it is reckoned, will have to reckon with escalated import duty costs of about Rs 100 crore against previously estimated costs of around Rs 85 crore in view of the steep decline in the rupee's exchangevalue.

The good news, though, is that the equity component of 30 per cent amounting to $100 million shared by both CMS Energy which holds 50 per cent and ST Holdings Inc of US and ABB Energy Ventures BV will be pumped in and the project will not suffer on account of equity funding, it is said.

Foreign-based power producers, however, are seriously worried about the micro-management of the power sector seeking to review the issuesconcerning the sector inevitably leading to delays and thus adding to overall costs of operation for the government.

The source said the central government must decide on what they want to control -- capital costs or tariff. They cannot hope to control both and yet get the kind of advantage in costs and cheapest power generation.

No independent power producer will invest in the power sector unless the rate of return is made attractive.

IPP sources argue that it still takes over 200 clearances to put up a power project and this entails enormous delays. Besides the IPP has to shuttle between the state government and its agencies for various clearances and the central government including the ministry of environment and forests, the finance ministry and the Reserve Bank of India.

In the matter of getting clearance for land, as many as 30 different clearances are needed.

IPPs feel that an internal rate of return close to 16 per cent is difficult to meet especially if the project is based on coal orlignite which will have a longer gestation period of 3.5 to four years whereas if the project is based on combined cycle commissioning can be done in two years.

In the US the IRR is easily 13 per cent but in India if the attendant risks and delays are factored in, the IRR may not offer enough incentive to invest.