While the Ispat-promoted power company argues that investment in the project should not be linked with its core business of steel making (the group has a hot rolled plant in Maharashtra), the institutions think otherwise and say the Mittals should focus solely on steel.

The FIs which have lent large sums to various groups setting up steel plants are reluctant to invest more in their other projects unless there is a turnaround in the steel business first. However, the Ispat group asserts that its power project has been evaluated by two other partners after a detailed feasibility study.

The Bhadravati plant is being developed by the Central India Power Company (Cipco), jointly promoted by the Mumbai-based Ispat group, Alstom (formally GEC Alsthom) an Anglo Frenchcompany and Electricite de France. The EPC contract has been awarded to Alstom while operation and maintenance will be carried out by EDF.

Payment for the purchase of electricity for the entire output has been committed by the Maharashtra State Electricity Board and guaranteed by the state. The Centre has extended a counter guarantee to this plan which is one of the eight fast track power projects in the country.

The company has already signed a 20-year power purchase agreement (PPA) with the MSEB which is binding on the buyer and developer of the project. Apart from this, the three promoters have also given an understanding that in case anyone has difficulty in contributing the required equity, the other two will pitch in.

The project has also been appraised by the FIs, led by the IDBI, which have okayed a debt of over Rs 1,500 crore. Of this, IDBI will contribute Rs 500 crore, Power Finance Corporation Rs 350 crore, LIC, GIC and UTI Rs 300 crore, State Bank of India Rs 200 crore while Canara Bank,Punjab National Bank and ABN Amro will jointly lend around Rs 300 crore.

The Rs 6,000 crore project is based on a 7:3 debt, equity ratio. The foreign debt of around $900 million has been underwritten by the HSBC, Westminster and the Bank Paribar. This has been guaranteed by ECGD of the UK and Coface of France, the export credit agencies.

The detailed appraisal was done by IDBI and the investment was approved last October. For the rupee component, interest was fixed at 3.5 per cent over the prime lending rate while it was 6.2 per cent for the dollar debt.

Construction of the plant was scheduled in January but this will now depend on the verdict of the FIs on steel projects. The Mittals have received another extension for financial closure to July. However, a further delay will only increase project cost which is already up to Rs 6,000 crore from the original level of Rs 4,500 crore.

Development of the power plant is linked with the Central India Coal Company (Cisco) which will cater to the coalrequirements. A delay in implementation will also affect commissioning of the coal company.

In a related development, power minister PR Kumaramangalam told the Rajya Sabha on Wednesday that the government had identified eight projects for extending counter guarantee. Of these, Jegurdupadu combined cycle gas turbine in Andhra Pradesh, and Dabhol (phase 1) in Maharashtra had already been issued counter guarantee. One company had withdrawn its papers while the IB valley power project in Orissa which was issued counter guarantee had started re-negotiation with the state government. Fresh techno-economic clearance of CEA was necessary because of revised project parameters.

The Jegurdupadu and Godavari CCGT projects in Andhra Pradesh had been fully commissioned while the first phase of Dabhol CCGT had been commissioned three months ago but was yet to start commercial production. The construction work at Neyveli project construction was also under progress.

He said the government had approved the extension ofcounter guarantee for the 1040 mw Visakhapatnam thermal project in Andhra Pradesh and 1082 mw Bhadravathi thermal power project in Maharashtra and Neyveli thermal project in Tamil Nadu.