This follows the recent decision of the finance and power ministries to withdraw the counter-guarantee cover for monthly payments by the state electricity boards (SEBs) along with new norms like income-tax on bonus generation and tariff heat rate under the revised counter-guarantee terms for the fast-track power projects.

The promoters of this project have strongly objected to this, as withdrawal of the counter-guarantee cover for the monthly payments would require major restructuring of the payment-security arrangements, thereby considerably delaying the financing of the project.

Perturbed by these directives, the promoters have approached the prime minister Atal Bihari Vajpayee and Karnataka chief minister JH Patel apprising them of the implications that thenew counter-guarantee norms will have on the economics of the project.

In letters written to both of them, managing director of Mangalore Power Company (MPC) Ron Somers has said that the decision of the government to revise the counter-guarantee norms is a reversal of an earlier union cabinet decision, which had approved counter-guarantee for this project.

Mangalore Power has also communicated in its letter that the general parameters for issue of counter guarantees circulated by the finance ministry two years ago as well as the draft counter-guarantee furnished to them by the government in May 1997 clearly states that counter-guarantees would provide security to their equity investments through coverage of monthly energy payments by the SEBs.

According to the promoters, this protection has been suddenly withdrawn under the new counter-guarantee norms, "resulting in significant adverse implications to the project by making it economically unviable".

Moreover, the revised terms proposed to be mademandatory regarding the income-tax on bonus generation and tariff heat rate would also erode project economics. These revisions, the promoters say, is in gross violation of the `two-part tariff' notification, which had originally enticed the sponsors to invest in the country.

"Mangalore Power has fully complied with the government of India power policy and signed the PPA in November last year. Furthermore, based on government approvals, the company has spend over $20 million on project development and now the power and finance ministries seek to unilaterally abrogate the previous decisions when this project is entering the final stages of its development", says the company letter to the prime minister.

The promoters feel that the recent decision of the government is unjustified, considering that the cabinet had approved the PPA and the counter-guarantee terms for this project in a meeting held on October 10, 1996.

According to the promoters, it was approved in this meeting that counter- guarantees wouldbe extended to Mangalore Power to cover payments of capacity and energy charges and in the event of termination of the PPA.

The cabinet, in this meeting, also approved the tariff heat rate (negotiated with the Karnataka electricity board at 2449 kilo calories per kilo watt hour against 2500 kilo calories per kilo watt hour normative prescribed in the two-part tariff notification) and income-tax on bonus generation (to be allowed as a pass through). The new counter-guarantee norms, however, disapprove of these conditions.