Top government sources say the power ministry, while giving a conditional counter-guarantee for the project, has said that the income tax would not pass through on the incentive and the state heat rate would be taken on an actual basis while determining the tariff.

The ministry has also said that the state government would amend the power purchase agreement (PPA) by changing provisions relating to incentives income tax and benefits accruing to promoters from efficiency gains.

The promoters have referred the ministry's decision to their lenders. Cipco, a company formed by the steel major Ispat Group in association with the General Electric Company Plc, UK, and Electricite De France, has sought opinion from the France-based Cofac and ECGT and underwriters HSBC Banking Corporation, West Merchant Bankand Bank Pariba.

According to the ministry, at present tariff is fixed pass through based on the heat rate of 2,500 kilo calories per unit. In the changed circumstances, however, the heat rate would not cross 2,000 kilo calories, and it would be a realistic pass through, and cannot be passed through in the tariff.

Moreover, the ministry feels that not permitting additional profits to be derived by the developer on account of the actual operational performance being better than the normative level fixed for the purpose of tariff fixation.

The ministry, however, feels that the operation and management cost for evaluation purpose would be 3 per cent of the asset cost. However, in actual terms, it does not exceed 2 per cent and, hence, the argument why 3 per cent should be included in the profit.

Moreover, the centre's decision on counter-guarantee only for the event of termination and limited to inter-account of foreign debt has also been referred by the state government to the Ispat Group through aletter dated May 29, 1998. The Ispat Group has yet to respond to it.

The union defence ministry, which has conducted recent blasts to find out the impact on the ordinance factory in the vicinity of the project site, is yet to release its findings. Power minister R Kumaramangalam, during his recent visit to Mumbai, said that in the event of negative results, the alternate coal fields would be alloted to the Ispat Group.

The state government brought to the notice of the centre that the counter- guarantee was conditional on the setting up of a regulatory commission, or its having taken effective steps to do so was irrelevant, as the government had taken an initiative on this front. On the approval of the equity structure of the captive mine by the coal ministry and the issue of sale of coal by the captive coal-mining company to the Maharashtra State Electricity Board (MSEB), action needs to be taken by the ministry itself, government sources added.

According to them, the centre's decision on finalisationof the location of the captive mine was still awaited.

MSEB signed a memorandum of understanding with the Ispat Group on June 18, 1993, and the state government accorded its in-principle approval on October 17, 1994, and instructed MSEB to start negotiations on the PPA. The state government also requested the centre for a counter-guarantee for the project, and on November 25, 1995, it agreed to extend the guarantee in principle for the project. The techno-economic clearance was granted by the Central Electricity Authority on December 29, 1994. The state government has accorded its approval to the Ispat Group's proposal through a letter dated February 22, 1996.