Highly-placed sources in the state government here told The Financial Express that at a recent meeting of the consortium of 14 banks providing working capital requirements to the GEB held at Vadodara, the banks had agreed to the request of the promoters of the two projects that they be provided escrow accounts for the projects. The banks have also agreed to relinquish their charge on the escrow accounts of the two projects.

It may be mentioned that despite signing of power purchase agreements (PPAs) for these projects which have been identified as fast-track projects, there was an ongoing face-off between the financial institutions and the GEB over the issue of escrow account. While the wary FIs have made escrow account a pre-disbursement condition, the GEB has been taking refuge in the argument that the PPAs signed with independent power producers (IPPs) themselves have an inherent 3-tier security provision. This includes the LCs (Letters of Credit) signed between the state electricity board with the IPP, the escrow cover and finally, the government guarantee which forms an integral part of a PPA.

Interestingly, despite the slew of PPAs which the GEB has signed with IPPs for power projects in the state, no LC has been issued thus far by the GEB. However, recently, following the GERC award which is supposed to bolster the financial position of the electricity board considerably, the GEB board has decided to issue LCs to power projects in the state. But here too, prioritisation will be done keeping in mind the returns which would flow to the state exchequer, and in view of this, a decision has been taken to first award an LC to PowerGen for its 655 MW Pagathuan project. The company, which is in the process of finalising the sale of the project as part of its larger plan to pull out of the country, is believed to have agreed to pay the Gujarat Power Corporation Limited a lucrative Rs 33 per share for its 12 per cent equity in the Pagathuan project in return for an LC from GEB for the project.

Despite this, the working capital management banks of the state electricity board have agreed to provide escrow account for two of the four fast-track projects in the state. The other two fast-track power projects in Gujarat include the Gujrat Mineral Development Corporation's (GMDC) 250 MW power project at Akrimota and the Gujarat State Electricity Corporation's (GSEC) 100 MW Dhuran project.

Sources close to the deal struck between the consortium of banks and the IPPs said that GSPC had agreed to provide alternate security in the form of corporate guarantee equivalent to one quarter dues on a revolving basis, till the time that it took to have the escrow account in place. In view of this, the banks led by UCO Bank have agreed to provide formal permission for the escrow account by end-November itself. "A draft agreement along with justification has been drawn up by UCO Bank and is being circulated among the individual banks of the consortium to obtain sanctions from their head offices," revealed a soucrce closely involved in the process. Following this, a tripartite agreement will be signed between the GEB, the IPP and the lender banks.

Interestingly, Reliance is being provided escrow account, though it has not yet achieved financial closure, three years after signing a PPA with the GEB in 1997, while GSPC has already commenced work on its power project without achieving financial closure with the help of non-recourse based financing. It is believed that Reliance's power project has been granted this facility to ensure that it achieves early financial closure and commences work on the project. Pet coke has been piling up ever since the commencement of the Reliance project, which, according to government sources, is difficult to store. In fact, Reliance has even been selling pet coke in the open market. "The availability of raw material makes it all that much more imperative that work on the power project which will use this refinery residue should also commence as soon as possible," said a state government official. It may be mentioned that while GSPC has chosen ABB as its EPC contractor, Reliance has selected Faster Wheeler as its EPCcontractor.