Another contentious issue of the Maharashtra Electricity Regulatory Commission's (MERC) directive to drastically cut power purchase from DPC is believed to have also figured during the meeting. Dr Patil was accompanied by Maharashtra State Electricity Board (MSEB) chairman Yashwant Bhave while the DPC team was led by its vice-president Mukesh Tyagi. This was the first meeting after MSEB had gone in appeal against the MERC's order slashing a tariff hike and putting restriction on power purchase during current fiscal.

Top sources told The Financial Express that MSEB justified the power purchase from DPC and the state-run National Thermal Power Corporation as there will be an 8 per cent to 9 per cent increase in the peak demand in 2000-01.

It will have to go for heavy load shedding of 800 mw to 1,500 mw on a regular basis or on some crisis days. MSEB brushed aside criticism levelled by certain customer organisations and experts about the optimisation of hydro generation to dispense off Dabhol generation. According to the MSEB, it will have no place in future.

DPC power started coming into the MSEB grid since May 13, 1999, and thereafter its plant load factor (PLF) has increased from 67.47 per cent to 71.77 per cent in 1999-00 (increase of 2,354 million units thermal generation).

The discussion also revolved around MSEB rejecting DPC's plea for opening a limited escrow account for the monthly payments until phase-II is commissioned, "to make the lenders comfortable". MSEB has already pointed out that such an arrangement was not be necessary as the lenders are in no way in the picture now and adequate payment mechanism exists by way of LC payment in case of default. MSEB has opined that the proposed escrow mechanism would not result in specific gain to the DPC.

DPC, it is learnt to have expressed serious doubts over MSEB's ability to make other payments due under the revised power purchase agreement and thus has pressed for a payment plan for this purpose. However, MSEB has said no to such plan. MSEB's payments to DPC has been delayed by almost a month since January this year. MSEB has yet to make a payment of Rs 90.99 crore to DPC. It must be mentioned here that MSEB has already extended an escrow cover to phase-I (740 mw) while the existing escrow for phase-II was split in the ratio of 10:19 for phase-I and phase-II.

MSEB's decision to defer its decision to pick up 30 per cent equity in the second phase also came up during the meeting. Infact, MSEB is believed to have told DPC to allow such a deferment in view of the "ongoing precarious financial condition." MSEB's suggestion towards a drastic cut in the cost of phase-II (1,444 mw) is also believed to have figured during the discussion.

DPC, in its response has told MSEB that it has requested the financial institutions to reduce their interest rates at the earliest. DPC has made some headway on this front and would be able to report progress shortly.

As per the power purchase agreement between MSEB and DPC, the total fixed cost for the tariff purpose for phase I and II is $2,501.2 million. As against the phase I cost of $919 million, phase II of the project will require an investment of $1,581 million comprising $494 million for the setting up of regassification plant.

However, the actual cost incurred by DPC during the installation of phase-I was $1,200 million while it would be $1,868 million for phase-II. MSEB has been asking DPC to bring down the interest rates from the original 21.4 per cent to around 16 per cent.

DPC had borrowed nearly Rs 360 crore from a consortium consisting of IDBI, ICICI, IFCI as well as various nationalised banks. During the second phase, it has already tied up loans of Rs 1,432 crore from the similar consortium and SBI and Canara Bank. DPC has been receiving loans from the international financial institutions at a rate of 9 per cent.