Top sources in KSEB told The Financial Express that the board has signed an agreement with BSES Kerala for providing escrow cover to its 165mw, Rs 452-crore naphtha fired combined cycle power plant coming up in Kochi. He said the tripartite agreement was signed between the Kerala State Electricity Board, the State Bank of Travancore, its bankers and BSES Kerala on July 10.

However, he said the board has only finalised the agreement schedule and not earmarked the regions to be dedicated for the escrow cover. Under the escrow arrangement the state government has to dedicate the receivables from the consumers of a certain region towards a project. "This would be finalised once the board formulates the structure of escrow cover to beprovided to the IPPs," he added.

With the escrow agreement in place, BSES Kerala has tied up all the three rungs of guarantee for its power unit. The other two security rungs were direct payment and letter of credit (LOC).

As a norm state governments provides escrow cover to IPPs to mitigate the risks perceived by the promoter for the sale of power to the state electricity board. Revenue from the dedicated regions will go into the escrow account once the letter of credit opened by the state electricity board failed to meet the requirements of the promoter.

The government could also maintain the escrow account to a certain level depending on the "comfort level" sought by the IPP. Usually it may vary from one month to two months, the source said. Considering the revenue requirement of BSES Kerala the "comfort level" may be pegged at one month of receivables from four districts of the state, he said.

BSES Kerala is a joint venture power company promoted by the Mumbai power major BSES and the KeralaState Industrial Development Corporation (KSIDC). The Rs 452-crore project is structured on a debt equity ratio of 2:1. BSES, the original promoter of the venture holds 60 per cent of equity while KSIDC has 20 per cent stake in the venture.

The remaining 20 per cent is earmarked for the financial institutions and public. BSES has already pumped in over Rs 120 crore as a part of its equity while the Kerala State Industrial Development Corporation has released Rs 7.5 crore towards equity contribution in the venture recently. The independent power producer has also lined up funds from a Canara Bank-led consortium for financing the entire debt component of Rs 315 crore recently, Rs 155 crore rupee loan and the remaining in hard currency denominated loan subject to statutory clearances. The other members of the consortium were Punjab National Bank and the Indian Overseas Bank.

According to the current agreement the consortium of banks would release the first tranche of Rs 116 crore, which would take care ofthe fund requirements for the two 43MW units of the open cycle project soon. The Rs 200-crore second tranche of the loan would take care of the third 43MW plant in the open cycle as well as the combined cycle plant.