While both the SEBs are currently deliberating over the nature of the escrow accounts which will be made available to the IPPs in the state, sources indicated that both the boards will plumb for a mechanism which will demarcate certain collection areas to IPPs.

Officials indicated that the mechanism of a `waterfall escrow' will be adopted neither by Andhra Pradesh nor Tamil Nadu. A waterfall escrow does not create separate bank accounts for different companies but allows companies to dip into a common pool on a first-come-first-served basis.

An area-wise or a circle wise escrow mechanism is expected to provide a greater level of confidence to the bankers to the projects, hence the ministry of power is of the view that the waterfallmechanism should not be adopted. The very objective of providing an escrow mechanism is to make the projects bankable hence there is no rationale for complicating the escrow mechanism unnecessarily, government sources said.

Both the boards are also concerned about not getting caught in litigation over the assignment of escrow capacities like witnessed in Madhya Pradesh. This problem has begun to hover on the radar screens of both APSEB and TNEB because the escrowable capacity is lower in both the states than the aggregate capacity of the ``serious'' projects in the two states.

Sources indicated that the only way of assigning escrow limits to IPPs in the state would be on the basis of tariff. ``While tariff might not appear to be a good yardstick from the developers point of view the SEB does not have a better yardstick to make a selection,'' a senior ministry official said.

With regard to Andhra Pradesh sources clarified that no mechanism has been decided for choosing projects on the basis of readyequity or debt available with the developer. There is no question of demanding 60 per cent equity upfront along with 10 per cent debt before financial closure, sources said.

The concerned SEB will only sign the financial closure when the developer is in a position to guarantee the complete fund requirement for the project which is broken up in 70 per cent debt and 30 per cent equity.

And the project's bankers will not offer the 70 per cent debt till the project has the necessary escrow limit. For example a 600 mw project will not be able to sign its financial closure with the SEB till the offtaker provides it with an escrow limit of 600 mw. It is a deal that is competed when both parties make their comittments together, it cannot be done in a fractured piecemeal manner, sources said. It is a different matter if the developer wants to go ahead without an escrow and is able to convince his bankers as certain developers have been able to do in Andhra Pradesh and Gujarat.