Bankers want SEBs to create the "inaccessible bottom" out of a certain percentage of their receivables that cannot be accessed by anybody. This percentage of receivables will be used to cover the working capital borrowings from banks.

Banks currently charge a cover of 100 per cent on their working capital loans to SEBs. The "bottom" will also be used by SEBs to pay their statutory dues like payments to National Thermal Power Corporation (NTPC), the government and salaries of employees. Banks are in the process of working out the modalities and the exact percentage of receivables to be used to create the "bottom".

Commercial banks that have been advancing working capital loans to SEBs have also opposed the concept of escrow, where independent power producers (IPPs) get first charge on thereceivables of the power board. For instance, in Madhya Pradesh, escrow is the only form of guarantee that the IPPs have, thus putting the bankers at risk.

The Power Finance Corporation (PFC) has already written to SEBs which have unlimited escrow cover, indicating that they cannot give escrow guarantee to IPPs without its approval. The states that have entered into an unlimited escrow cover with PFC include Tamil Nadu, Andhra Pradesh, Orissa, Maharashtra and West Bengal. Tamil Nadu, Andhra Pradesh and Maharashtra alone have projects totalling 12,200mw.

Under the escrow agreements with these states, the SEBs have given an unlimited first charge escrow on their receivables whereby they must ensure a steady cash flow for the existing as well as future loans. Under such an agreement, PFC can meet its cash requirements from different revenue streams of the SEB, including subsidy payments.

Since both PFC and SBI have refused to drop their first charge on the receivables, the state governments are now in aposition where they cannot extend escrow cover to IPPs. In the absence of an escrow cover from SEBs, financial institutions are not ready to fund projects as there would be no guarantee of a minimal cash flow.

The central government had, in October, said that it would come out with a comprehensive energy policy to stimulate private and foreign investments in the power sector. All states will also have to set up state electricity regulatory commissions (SERCs) in another two years.

The centre's new energy policy will cover all areas of improvement in management practices of state electricity boards, improvement of physical parameters and according high priority to hydel and mega-thermal power projects.

Most states have already started restructuring their SEBs and the SERCs are expected to be in place by the year 2000. Two states have already set up SERCs, while another eight will set them up by March, 1999.