With a number of independent power producers (IPPs) in Tamil Nadu seeking the escrow account facility and the Tamil Nadu Electricity Board (TNEB) being unable to oblige all of them, the state government has come up with this alternative method to enhance the bankability of power projects. This measure was first contemplated as a comfort provision for the power plant that would come up as part of the integrated LNG project coming up at Petrochemical Park outside Chennai.

Financial institutions have refused to accept that TNEB has the ability to provide escrow account for projects up to a total capacity of 4,000 mw. The electricity board, believing its escrowable capacity to be that much, has committed itself to several projects. Institutions, however,believe that TNEB's escrowability is only 2,000 mw.

This means that only a handful of the power projects being processed can be given this facility. Among those who stand a better chance of getting this facility are Videocon (1,000 mw), Pillaiperumalnallur (300 mw), GMR Vasavi (200 mw) and Tri Sakthi (525 mw). These projects are already at a relatively advanced stage.

The state government's new policy is expected to come in handy to some IPPs like the Balaji group (100 mw), SIV Industries (100 mw) and Spic (525 mw), who may want the escrow facility at a later stage.

Credit rating agency Icra has been assigned the task of working out the actual escrowable capacity of TNEB, in order to solve the dispute with the Industrial Development Bank of India. This move follows the decision of both parties to resolve their differences over the number of power projects that can be financed in the state.

The financial closure of all major power projects in the state hinges on settling the dispute on the escrowcapacity of TNEB. If the actual escrow capacity of TNEB is found to be in the region of 2000 mw, which is very likely, a majority of the pending power projects will be unable to take off.

This is because FIs had decided not to extend finance to power projects without them securing escrow cover from their respective state electricity boards. Following this, SEBs issued escrow cover to all the new projects indiscriminately which the FIs are now finding it beyond their financial strength to support.

At present, TNEB has over 2,350mw capacity worth power projects at various final stages of take-off. In addition to this are the 11 short gestation power projects promoted by the Tamil Nadu Industrial Development Corporation, out of which five have managed to get fuel linkages despite numerous odds.