The model agreement envisages a restructuring of the state-owned power industry and the removal of all hurdles to facilitate investment in the power sector. "We studied all problems that the power industry faces currently before preparing the model agreement for the state's power sector," said IDFC chairman Deepak Parekh. In a bid to broad-base acceptance for the model agreement, a team of IDFC officials headed by Mr Parekh is meeting World Bank president James D Wolfensohn in Bangalore on Wednesday to discuss the agreement with him.

IDFC has already appraised the ministry of power, financial institutions (FIs) and banks of the implications of the model agreement in order to secure their cooperation for funding power projects. The model agreement will be applied, for the first time, for funding the Raichur Unit VII thermal power plant.

The highlights of the multi-party agreement are - 1 )The identification and demarcation of distribution zones is a condition precedent to the first disbursement.

2 ) The timelines for privatisation have been defined.

a) The distribution areas of KPTCL will be worked out by December 2000 and steps will be taken to separate assets and operationalise distribution companies by June 2001. The privatisation of distribution companies will be completed by December 2001. Further, the structure of the electricity industry in the state will be finalised by March 2001. Although the lending cannot be strictly classified as conditional lending, it is a first step towards a minimum commitment from the GoK, KPTCL and KPCL towards the privatisation of the state's power sector.

3) Financial discipline by the government of Karnataka (GoK)a) The total support to be extended by GoK during the privatisation process has been split into two parts, ie upto March 31, 2001 (past dues) and from April 2001 onwards (current dues).

4) Support upto March 31, 2001

a) Support upto March 31, 2001 would be based on the 'Financial Restructuring Plan' (FRP) prepared by privatisation consultants and finalised in consultation with a steering committee which would subsequently approved by the GoK. IDFC will be a part of the steering committee and will have a say in the approval of the `Financial Restructuring Plan'.

b) The FRP would involve the restructuring of KPTCL's balance sheet through various measures including write-offs, adjustments between various government entities, waivers of receivables, disinvestment options, etc. The FRP would quantify the financial impact of such adjustments on the GoK.

5) Support from April, 2001

a) The GoK shall pay the amount of support (from 1st April 2001) to KPTCL or its successor transmission and distribution companies. This support would be provided monthly in advance from June 2001 as per the budgeted annual statement of accounts.

6) The creation of a dedicated 'Power Sector Reform Fund'

All proceeds received by the GoK from a divestment of KPTCL, KPCL and VVNL would be deposited in a dedicated `Power Sector Fund'. The monies available in the fund would be utilised to meet GoK obligations in the power sector.

All parties recognise that any breach on the part of the parties to fulfil their obligations shall be construed as an event of default under the loan agreement.