"We have made it clear that SEBs cannot allot escrow cover to any number of projects. Due to their bad financials, most SEBs have the ability to provide escrow cover only to four or five projects," said an official of a financial institution involved with negotiations with SEBs. Early last year, institutions had decided to fund only projects with an escrow cover guarantee.

"The problem of limited escrow capacity has come to prominence only in the states of Madhya Pradesh and Tamil Nadu at present because of the large number of projects there having reached the final stage of attaining financial closure. Soon the problem will arise in other states too. All the states are working on proposals for capacities much above their SEB's limitedability to support," the official said.

Financial institutions have asked some SEBs like that of Madhya Pradesh to identify the projects that will be alloted escrow cover within the limit. The institutions have sanctioned funds to five projects -- accounting for all of that state's escrow capacity -- earlier based on their assurance on escrow cover. Negotiations are currently on to put one more project, probably the George Soros-promoted 500 mw Pench Power Company, into the list.

This would mean that all the other projects in the state will have to be stalled. "Even if the SEB is restructured and privatised, it will take nothing less than two years to improve the state's escrow capacity. To that extent there will be delay in achieving financial closure without the support of an escrow facility," sources said.

The projects in Madhya Pradesh that are threatened immediately are the 171 mw liquid fuel based project by Madhya Bharat Energy Corporation promoted by Marubeni Corporation, GVK's 118 mw Ratlamproject, Essar Power's 342 mw Bhander Power Ltd, Shapoorji Pallonji's 120 mw Pitambur project, the 574 mw Bhilai Power Company promoted by a consortium including L&T and SAIL, Mukund's India Thermal Power at Korba West and the Raigad-based 550 mw project of Jindal Power, apart from Soros' Pench project.

All these projects have got techno-economic clearance from CEA and is in the final process of achieving financial closure. There are seven more major projects in Madhya Pradesh that have signed MoUs with the state electricity board for power purchases, but are at various stages of obtaining the many clearances required.

In most states the number of power projects that have managed to pass through the final hurdle of the CEA's techno economic clearance far exceeds the SEB's escrow capacity. In all, there are about 175 projects exceeding capacities of above 30,000 mw, which have signed power purchase agreements with their respective SEBs.