The vehicle will then buy the entire receivables of the state-run firms andissue bonds against this amount. The servicing of the bonds will be ensuredby diverting the 15 per cent central plan assistance (CPA) of the stateflowing to the undertakings to the vehicle. Discussions on floating aspecial-purpose vehicle took place at a meeting between officials in thepower ministry along with senior officials of the state-run firms. Officialssaid the move followed strong opposition from the state-run firms' heads onentering the bonds market directly, as desired earlier by the centre. Duringthe meeting, it was deliberated that under this structure, the vehicle wouldneed a guarantee regarding the repayment of principal and interest.

Officials said that since the principal would be adjusted against the planallocation, that would carry a guarantee of the central government.

Moreover, as the interest is to be paid by the SEB, this too needs to beguaranteed by the centre, to make this a workable proposal. This proposal ofthe power ministry will soon go the ministry of finance for its consent,sources said. Officials added that ICICI-Sec and SBI Caps, appointed by thepower ministry to work out the modalities related with this, have alsosuggested the concept of creating a SPV. It may be noted here that, I-Secwhile working out its model for a SPV has made the calculations on the basisof a figure of Rs 100 crores. As per the model, if the central governmentwas to commit 15 per cent of the CPA, assumed at Rs 100 crore, for the nextseven years, the total amount that is available is Rs 700 crore. This amountis paid to the CPSUs over the seven year period. Under the SPV option, I-Sechas assumed that a PSU, say for instance Power Grid, sells its entirereceivables of Rs 700 crore to this SPV. The CPA of Rs 100 crore over thenext seven years is paid by the centre to the SPV. Further, I-Sec haspointed out that since the SEB's should have paid the receivable today, theyare now paying it over seven years through the CPA, they will directly paythe interest on the outstanding amount.

"Power Grid will sell Rs 700 crore of receivables in its books to an SPV. Ineach of the next seven years, Rs 100 crore, which comes from the planallocation, is used to repay part of the principal (receivable). Theinterest on this is paid directly by the concerned SEBs. Assuming that theSPV is funded at 13 per cent, the surcharge payable by the SEBs would be Rs364 crore as against Rs 504 crore, at the document rate of 18 per cent. Thisway the SEB's are able to save Rs 140 crore over a seven year period",explained officials. Under this structure, I-Sec has said that guarantee isrequired by the SPV for repayment of the principle and the interest. As theprincipal will be adjusted against the plan allocation, it will carry thecentre's guarantee. Even the interest which is to be paid by the SEBs, needsto be guaranteed. This issue, sources said, will be soon be discussed withthe finance ministry. Another option before the government, as per I-Sec isto use the plan allocation towards guaranteeing both the principal and theinterest. This , however, would limit the amount that can be securitised.