What goes into the escrow accounts are the receivables of SEBs. But claims on the receivables are not confined to the new power producers. The State Bank of India (SBI) and the Power Finance Corporation (PFC), among others, have the first charge on the receivablesof the SEBs, for they finance the operation of the SEBs besides providing them investment capital. Funds can flow to the independent power producers (that is, into the dedicated accounts) only after settling their prior claims. The government of Madhya Pradesh, and doubtless of other states, want SBI and PFC to waive the first charge held by them in lieu of new state government guarantees. This demand has been turned down despite pressure from the central government.

There are two questions here. Are the states dedicating only the revenue from new electricity sales or general SEB revenues to the escrow accounts? (The second possibility is unlikely, but you never can tell.) If independent power producers insist on the first charge, surely SBI and PFC are within their rights to demand it and protect what they have secured. State government guarantees are worth precious little, judging by the Reserve Bank's latest direction to the commercial banks to assign a fairly heavy risk to such guaranteed advances andto provide for them out of profits. There is no way the financial intermediaries - nor the independent power producers - can trade the first charge for guarantees. The first charge pool must be enlarged and deepened to accommodate both. New investment in power will not be feasible unless the states curb transmission losses, raise the efficiency of SEB working and, above all, take political courage to raise power tariffs, do away with free power, and make sure that all power consumption is paid for. Lapses on all these counts are at the heart of the first charge problem.