In an exclusive interview to The Financial Express here, PowerGen India Private Ltd general manager Gerry Grove-White said senior executives of the Birla group had recently met top officials of the Kalyan Singh government after conducting a fresh review of the Rosa project, following the lifting of the ban imposed by the Industrial Development Bank of India (IDBI) on financing of projects in UP late last year. The ban was imposed by financial institutions (FIs) in 1996 in view of the virtual bankruptcy of the state government's coffers.

After conducting a review of the project, the promoters found that the project would be unviable unless the government fulfiled the three pre-conditions. Foremost among them is the demand for restoring the norms for power-purchase agreements (PPAs) which were in force in June 1998.

Rosa Power had signed the PPA for the project with the UP government in September 1998. Grove-White said that not only was the PPA signed before the new norms came into force but more importantly, the returns in the PPA "were unacceptable to us as they are lower than those in less risky states.

Considering that UP is possibly the riskiest state to set up projects, we should at least be sure that our investments are adequately protected."The second pre-condition is that the government should enter into and sign a valid and legally binding escrow agreement. At present, there is a difference of opinion between the government and the consultants over the assessment of the escrow account. While SBI Caps has assessed that the escrow account can be granted for only 1,500mw, the government feels the escrow account of the state should be for around 2,000mw, and this should suffice for current major projects, including Rosa, Srinagar and Vishnuprayag.

The third pre-condition is the Uttar Pradesh State Electricity Board's (UPSEB's) cooperation on due diligence on various distribution circles.According to Grove-White, the government has conveyed its willingness to fulfil the pre-conditions laid down by Rosa Power verbally to Birla executives. However, nothing official from the government has reached the company so far. "If we do not hear from the government in the days to come, we will be forced to abandon the project because we cannot go ahead with it in its present form," Grove-White said.

"The minute the government fulfils the conditions laid down by us, we will revalidate the EPC to the satisfaction of the lenders," he said.

Rosa Power had approached the FIs for a Rs 775-crore loan to part-finance the project in September 1997. Of the remaining, Rs 928 crore would be raised through a foreign exchange component, Rs 197 crore by the AV Birla group, while PowerGen would pump in Rs 190 crore as promoters' equity.

On their part, the FIs, led by IDBI, had asked the government to make a presentation on the financial health of the ailing UPSEB and the steps the state proposed to take towards restructuring and tariff rationalisation.

Failure of the government to convince the FIs on either front at that time had stalled the project, with the FIs refusing to grant a loan for the project, and Rosa Power was unable to achieve financial closure by the first quarter of this year as scheduled. Subsequently, however, the government has initiated steps to reform the power sector, and restructure and privatise the ailing UPSEB, resulting in the FIs recently agreeing to finance the project.