According to industry sources, the Chinese have started offloading large capacity plants with investment working out to just a little over Rs 3 crore per megawatt compared to the Rs 4 crore-odd for IPP projects under implementation currently.

The agreement for the first of these was struck with APGENCO some weeks back for the 2x210 mw phase of the Raylaseema Thermal Power Station at an investment of Rs 1,250 crore.

So much so, even some American power companies too are now said to be willing to match the pricing and conditions for new contracts in AP and other states.

US power major Foster Wheeler is understood to have already made a similar proposal to the government of AP while some private IPPs, which have not finalised their EPC contractors, are said to be making a beeline for the Chinese.

Low cost of the projects apart, what has added to the woes of the IPPs in the midst of negotiations, particularly in AP, are the terms and conditions the Chinese are willing to agree. This has strengthened the hands of the power utilities while bargaining on providing escrow accounts for private projects.

In fact, the APGENCO has set the benchmark for other SEBs to follow by finalising the agreement for Rayalseem II on a unique build transfer (BT), mode with deferred payments over 12 years which does not place any undue financial burden on the public utility.

What is more, 85 per cent of the project cost is to be met entirely through suppliers credit, while the remaining 15 per cent too is being raised by the Chinese company from the domestic market. The final cost comes to just around Rs 3.57 per mw including interest cost with the repayment cost working out to just 70 paise per unit compared to Rs 1.70 for other projects in the state, industry analysts say. Though falling international prices of power equipment has been an year-long phenomenon, this is perhaps the first time that such a deal has been struck for any power project in the country, they maintain.

This has placed IPPs in AP in a piquant position with the government utilities using the new project as a bargaining point for pushing down the escrow demands by private players.

While the IPPs are demanding that the escrow accounts be opened by the Aptransco from the date of the financial closure, the public utility has been bargaining for such a facility only from the date of the commencement of delivery of power. The contention is that IPPs, forced by their foreign financiers, are trying to load the construction and other risks onto the escrow. The government is citing the Chinese case to the IPPs stating only a revolving LC of Rs 18 crore is being opened for RTPS Phase II and even if an escrow facility were to be provided it would be just one third of that sought by the private projects.

In addition, the tough penalty clauses in the agreement with Zhiejiang are being cited to counter arguments by IPPs and some equipment vendors. For instance, while the Chinese contractor has agreed to pay liquidated damages of 0.7 per cent of the value, up to a maximum of 7 per cent of the project cost, for delay of every week or part thereof in either the synchronisation or commencement of commercial operations. At the same time, the contract value for the computation of liquidated damages for the first unit is to be taken as 60 per cent of the total project cost.