MSEB has made it clear that it would not be possible to pick up the stake as it was already facing problems in purchasing 30 per cent share capital in the Dabhol power project. The state electricity board was in the process of raising Rs 780 crore through bonds. Meanwhile, the Ispat group has managed to scale down the capital cost of the project from Rs 4,631 crore to Rs 4,555.8 crore. Thus, the effective cost per MW stands reduced to Rs 4.21 crore from Rs 4.28 crore.

MSEB and Ispat group will equally share the 1.2 per cent guarantee fee to be paid to the centre on the additional Rs 1,849-crore foreign loan. Of the total Rs 22.19crore guarantee fee, MSEB and Ispat will have to pay Rs 11.09 crore each per year.

However, in actual terms MSEB feels that it would not have to pay guarantee fee of Rs 11.09 crore per annum as the additional foreign loan will be for the first year and following repayment the foreign loan amount will reduce every year. This will also reduce the burden of guarante fee on the company to be paid every year.

Mantralaya sources told The Financial Express that these issues have been incorporated in the amended power purchase agreement between MSEB and Ispat group prepared in the wake of BJP-led government's decision to clear counter guarantee for this project. The state cabinet has cleared these proposals made by the energy department. The centre has assured to complete necessary formalities on counter-guarantee by the end of this month to enable the financial closure of the project by October this year.

MSEB had signed a memorandum of understanding with Ispat on June 18, 1993 and the state government hadaccorded its approval on February 22, 1996. A power purchase agreement was signed between the lawyers of MSEB and Ispat group in July 1996. The same was approved by the state government and was forwarded with recommendations to the centre for issuance of counter-guarantee.

The centre had agreed to give counter guarantee only after the Maharashtra government's assurance to take necessary steps in the formation of state tariff regulatory commission and complete necessary formalities related to the state government guarantee for the Bhadravati project.

The centre had asked the government to negotiate with the Ispat group on following issues : a) not allowing income tax on incentive to be pass through in tariff if the power generation crosses 68.5 per cent plant-load factor; b) 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; and c) review of equipment project costand invite global tenders.

Though Ispat group which, initially, was reluctant to accept the first two conditions, ultimately decided to give in. On the review of EPC and inviting global tender for the selection of EPC contract, however, the group declined to accept it saying that it will lead to a "statutory crisis."

Insight

A good deal for state

A good deal for state It is obvious that the state has got a much better deal than in Enron which has come through the MoU route, and the two-part tariff is, therefore, not applicable to Enron. The tariff for the Bhadrawati project will be lower as income tax has not been included for calculating tariff for generation above 68.5 per cent. If the reduction in capital cost results in a lower equity, it will be even better for investors as returns to the IPP are linked to equity.