Andhra and IDBI agree non-escrow solution for IPPs

Vol 5, PW 13 (15 Aug 01) People & Policy

Continued refusal by Indian states to agree an effective Payment Security Mechanism (or escrow) is stalling several high-profile power projects, most notably the 1,850-MW power and LNG project at Ennore.

But this month Andhra Pradesh published what it thinks is a "landmark" solution to finance power projects without escrow - a move applauded by the Industrial Development Bank of India, the power ministry in Delhi and states like Madhya Pradesh and Punjab. On 10th August Andhra authorities signed a four-way Memorandum of Agreement with the Transmission Corporation of Andhra Pradesh (APTRANSCO), state-owned Power Finance Corporation and IDBI at a function in Delhi before power secretary P.

K Basu. It promises local power sector reforms on the condition that financial institutions stop insisting on escrow ahead of financial closure, and satisfy themselves with escrow cover just 30 days ahead of commercial operation.

"Under the agreement the financial institutions will undertake financing of IPPs without insisting on escrow at the time of financial closure," reads a power ministry statement. "It has been agreed by the financial institutions to ensure financial closure of six Independent Power Projects with a total capacity of up to 2,239-MW on the basis of alternative security mechanism linked to achievement of reform milestones." Important to note is that IDBI, when signing the MoA, was representing Indian financial institutions, not foreign ones.

Will bankers in New York, Paris and London view the MoA in similar glowing terms