The move follows IDBI and TNSEB's decision to resolve their dispute on the number of power projects that can be financed in the state by referring the matter to a third party.

The dispute centered around contesting claims by the two parties about the electricity board's escrow capacity. While TNSEB claimed an escrow capacity of up to 4,000mw, financial institutions, led by IDBI, found that the board's cash flows were only sufficient to provide escrow cover for 2,000mw of new power-generating capacity.

The financial closure of all major power projects in the state hinges on the outcome of this dispute. If TNSEB's escrow capacity is found to be 2,000mw, which is very likely, majority of the pending power projects will be unable to take off.

This is because institutions had decided not toextend finance to power projects without securing escrow cover from their respective state electricity boards. Following this, the boards issued escrow cover to all new projects indiscriminately, which the institutions are now finding it beyond the ability of SEBs' financial strength to support.

At present, TNSEB has over 2,350mw worth power projects at various stages of take-off. In addition, there are 11 short-gestation power projects promoted by the Tamil Nadu Industrial Development Corporation, of which five have managed to get fuel linkages.

The move to refer the dispute to a third party is along the lines that financial institutions had adopted in a similar case involving the Madhya Pradesh State Electricity Board (MPSEB). At the instance of Madhya Pradesh, institutions asked Crisil to prepare a report on the board's escrow capacity.

Crisil's report gave different escrow capacities under changing scenarios, depending upon the extent of reform in the SEB. But it more or less tallied with the escrowcapacity originally claimed by the institutions. In this case, institutions had stated an escrow capacity of 2,500mw, while the MPSEB claimed a capacity of over 4,000mw. Finally, based on the Crisil report, MPSEB's escrow capacity was fixed at 2,500mw, with some reduction made to the escrow requirement of hydro-power projects.

According to bankers and analysts, assessment of escrow capacity of a state electricity board is subjective, nonetheless, a necessary evil. The variables that go into the calculation of escrow capacity of a SEB extend from the expected revenue generation in future, the increase in consumption pattern, economic growth in a particular state and, most importantly, the process of reform of electricity boards. Since no one is in a position is predict on these accurately, escrow-capacity assessment also varies, said a credit-rating agency source.