The escrow arrangement was meant to ensure payment by MSEB and would have made financing of the project both easy and cheap. A board official said that there was no such provision for the Patalganga project in the initial proposal.

MSEB also does not have sufficient escrow-able capacity as it has already made a commitment to the 2,184mw Dabhol power project and 1,082MW Bhadravati power plant. Of this, the payments for DPC's phase I (740 mw) should be made immediately with commercial production scheduled to begin shortly.

The demand of the power company is in line with the prevailing trend. Concerned about the board's financial state, all the independent power producers are insisting on escrow to ensure payment from SEBs.

This is also acommon demand from investors. Apart from providing comforts to lenders, payment guarantee is also important to raise cheaper finance, experts say. As an alternative, RIL has asked for distribution rights in some parts. This arrangement will cause technical difficulties for MSEB. Power distribution in Mumbai has been divided among the Tata Electric Companies and BSES while the rest of Maharashtra is supplied power by MSEB itself.

Though the board has been considering privatising distribution for over a year, in the present structure it will not be in a position to grant distribution to a private company. One option is allowing RIL to supply power to a cluster of industrial clients, sources say. This should be easy as some group companies are located in the same district. The matter, however, is pending with the state government.

The project has also faced problems in obtaining techno-economic clearance from the Central Electricity Authority (CEA). The approval received last year requires renegotiation ofthe power purchase agreement. According to the CEA, the project cost was high and needed to be renegotiated.

RIL has argued that the project was awarded to it on merit through competitive bids. Even these issues have to be sorted out through Government intervention. The matter was discussed in the cabinet meeting last month but could not be resolved.

The liquid fuel-based project was planned over four years ago and two years have passed since the PPA was signed by MSEB, the state government and the company. The plant has already been promissed supply of naphtha by the state from the quantity allocated to Maharashtra by the Centre.