Without escrow, domestic FIs won't fund projects and promoters will have problems raising equity. The reason is: lenders must be satisfied with the escrow cover's quality. There is no point in giving escrow if it consists of receivables from agricultural/residential clients as both are heavily subsidised. The state's decision to break-up SEB into three separate entities can't be an excuse for this move. It will not be easy to attract IPPs in the absence of escrow even if state government guarantee is extended to cover the dues, as almost always both will be required. Escrow makes lenders comfortable as receivables of high-tension clients are pooled in it.

It is hard to understand the Andhra Pradesh government's logic for one more reason. Any IPP that is set up earlier will cover the cream of receivables. Thisputs units with larger gestation period -- any coal-based unit -- at a disadvantage because a 500 MW coal-based unit will take four years from zero date. By that time, the state would have reached its limit for providing guarantee and no quality escrow facility will be available. The state government's proposal will work only if it allows captive power units that will serve the industry located within a close cluster like GIPCL's gas-fired unit. The proposed move will not help the state government as industry will be forced to switch over to captive generation through DG sets, or, as Madras Cements has done, through small gas-based units, if fuel is available. The simple solution is to provide escrow but with strict penalty for cost and time escalation.