The company asked for the facility as the centre-offered counter-guarantee to fast-track power projects does not cover the risk on rupee debt and payment by the electricity board for buying power.

The coal-based power project is being set up by Central India Power Company, a joint venture between Ispat Group, Electricity de France and GEC Alsthom of the UK. The power purchase agreement (PPA) for the project was signed last year.

The escrow provision was, however, not provided for in the PPA as payment of electricity was secured by the letter of credit and in case of default, the state government guarantee could be evoked. Similarly, if the state defaults, the sovereign guarantee had to make the payments.

However, under the new counter-guarantee normsannounced by the power ministry last May, the scope has been reduced. The cabinet said that the counter-guarantee will be limited to payment of outstanding foreign debt which also would be granted only on termination of the contract.

"The counter-guarantee will be available only in case of adverse events which would lead to termination of the contract," said the ministry. The centre will also not be liable to pay annual energy charges to the independent power producer (IPP) as was provided by the earlier scheme.

The diluted guarantee also thwart tax benefits to IPPs on bonus generation.On Monday, the centre issued the detailed draft of the counter-guarantee structure to the company.

It has, however, withdrawn the condition of a special certificate from the state government, state electricity board and advocate general as asked earlier. It refused to make further changes in the guidelines.

As the revised conditions were not acceptable to domestic and overseas lenders, the company had asked for anescrow account to reduce the risk factor and make the project bankable, sources said. Though the board has agreed to provide escrow facility, it is negotiating the quantum, sources added.

This will be the second power project in the state to have the provision of escrow account. Maharashtra has already promised the same facility to the Dabhol Power Company (DPC) for phase II of its 1444mw power project. However, a final decision on granting these escrows is still to come.

Phase I of the DPC, which was earlier granted a counter-guarantee, does not have an escrow-account provision but in this case the entire payment and debt has been secured by guarantees from the state and centre. In this case, the counter-guarantee was not related to the termination of the project.