IPPs threaten legal action in Tamil Nadu

Vol 3, PW 17 (15 Sep 99) Midstream & Downstream

The government of Tamil Nadu could soon find itself in a messy court battle over a decision to renege on guarantees of escrow cover to Independent Power Producers (IPP).

The immediate threat comes from Hyderabad-based IPP Sujana Steels which won two Short Gestation liquid fuel projects of 100-MW each floated by the Tamil Nadu Industrial Development Corporation (TIDCO). A sizable stake in both projects was subsequently sold to Tractebel of Belgium, whose India office is located in Bangalore.

Sources close to Sujana tell this report the company is seriously contemplating legal action against TIDCO for breaking a promise in the tender documents that escrow cover will be given. Sujana has spent about Rs20 ($4.6m) in development costs on the project and is demanding that Tamil Nadu either refund the money or grants escrow.

If neither is forthcoming, the prospect of a lengthy court battle looms large. A similar problem is being experienced by the Siemens-led Dakshin Bharat Energy Consortium for its LNG and power plant programme at Ennore.

A source tells this report the government of Tamil Nadu is telling Dakshin Bharat it cant grant escrow cover out of the sales tax revenues (as originally proposed). Such a move requires an amendment to the Indian constitution.

"They (Tamil authorities) have woken up to the fact that it is not easy to amend the constitution for such a minor issue", a correspondent reports. TIDCO has now asked Dakshin Bharat to finance the project without escrow but Dakshin is refusing.

It is believed the consortium is now threatening to pull out unless it is granted escrow cover.