The second issue which has raised a lot of debate is the setting up of the proposed Power Trading Company (PTC), an integral part of the mega power policy. Even the multilateral funding agencies like the World Bank and the Asian Development Bank (ADB) have questioned the viability of this trading company.

Let's take a closer look at both these issues. It is largely felt among the existing IPP developers that the concessions being extended for the mega power projects will distort the progress made by the IPPs over the last few years. Even the promoters of the private sector projects, who have already started commercial operation, have expressed fears that their units may turn unviable, with the mega projects sellingcheaper power to the state electricity boards (SEBs).

The fear seems to be genuine. Whereas on one hand there are power projects which are selling power or are negotiating power at rates close to 7 cents per kilowatt hour, on the other hand there are the mega power projects which have reportedly agreed to deliver power at rates as cheap as 3.5 cents per Kwh. Of course, given a choice, the SEBs will prefer to buy power from the mega projects compared to other projects.

The financial institutions, which were earlier committed on financing these projects, have changed their focus and are now looking at financing the mega projects. FIs, with their limited funding capacities, would like to route their funds to the projects where a stronger payment security cover would be offered.

However, union power minister PR Kumaramangalam does not seem to agree with this. According to him, the mega project developers have promised to deliver power at extremely cheap rates, compared to the tariff from the existing andforthcoming power projects, and therefore they deserve the benefits extended to them including the duty-free import of capital goods. The minister has politely but firmly denied any such duty concessions for the existing IPPs.

The second issue is related with the setting up of PTC which will be set with equity participation from PowerGrid Corporation, NTPC, Power Finance Corporation and other FIs. Doubts have been expressed over the viability of this body along with the security cover being worked out for the smooth functioning of this trading body.

The fact that PTC will sell power to the SEBs, the sole buyers of power, makes this an alarming proposition, considering the deteriorating health of the electricity boards in the country. The World Bank, in a communique to the power ministry, has warned that PTC being an intermediary between the electricity boards and the power producers, would take upon itself the high credit risk posed by the financially fragile SEBs.

Even the IFIs have cautioned thegovernment that in the existing power sector scenario, power trading is not a feasible concept. As per the securitisation package being worked out by the government, the security of the PTC would be provided by means of a Letter of Credit (LoC) and recourse to the state's share of central plan allocation (CPA) and other devolutions.

Whereas the security arrangements between PTC and SEBs have been spelt out in the policy, the back-to-back arrangement between the power producer and PTC will be the key issue for financing such projects. The security arrangement between PTC and SEBs is being viewed by the financiers in terms of SEBs financial capability of honouring such arrangements.