"It has been agreed that, as under Dabhol escrow agreement, a trigger event would occur where, MSEB or a collection bank breaches an escrow document and, in the case of a material breach, the breach is not cured within 30 days or, in the case of any other breach, 90 days," the draft escrow agreement for the 1,082 mw Bhadravati thermal power project said.

According to the draft agreement, MSEB would pay and indemnify Cipco against all taxes and duties payable in connection with the escrow arrangements and their enforcement. Cipco would bear such stamp duty and as under the Dabhol power escrow agreement, Cipco would bear 75 per cent of all fees and charges of the escrow bank while the balance 25 per cent by MSEB. Such fees and charges would be debited by the escrow bank from an MSEB account and Cipco would reimburse MSEB its 75 per cent share.

According to the draft escrow agreement, escrow cover would be provided during the construction period for all amounts payable on termination of the power purchase agreement (PPA). The escrow protection, including protection in respect of the full amount of the relevant buy-out price, would apply during the construction period and the operating period in respect of all termination events other than Cipco default. In the case of the latter, it would apply where following such default, "MSEB exercises its option to purchase the power station."

A minimum coverage of 1.15 times monthly tariff at 87 per cent plant load factor (PLF) has been agreed. If 96 per cent of the minimum coverage amount is not credited to the escrow account in any month or in any consecutive three months period,(the monthly average credited to the account is less than the average minimum coverage amount), MSEB would be obliged to top up dedicated circles with new circles within 60 days.

Cipco has accepted that MSEB has no obligation to add circles during the construction period in the event the test of escrow arrangement demonstrates that the revenues flowing through the account are less than the minimum coverage amount. This is on the basis that the strong distribution circles are attached to the escrow account so that revenues from the circles, during the construction period would be adequate to provide comfort to Cipco lenders.

Sources from MSEB and Cipco told The Financial Express that they had already held two rounds of talks for the thorough scrutiny of the draft escrow agreement. This exercise is expected to be complete in a fortnight and thereafter MSEB and Cipco would formally sign the agreement on this. The state government has already given its in-principle clearance for such an arrangement.

Cipco would be entitled, if necessary, to reactivate the escrow account during the construction period and in both the construction period and the operating period, to stop further drawings by MSEB out of the escrow account, upon service of a preliminary termination notice under PPA. Thereafter, all escrow revenues would be retained in the escrow account for application in settlement of the buy-out price.

Cipco would be obliged to continue generation upon and subject to the terms of the PPA during the suspension period (normally 180 days) following the service of the preliminary termination notice so long as MSEB issues and maintains a fully revolving direct pay letter of credit covering at least the current months' tariff. In addition, the amount in default does not exceed 90 days tariff.

At the end of the suspension period, the PPA may be terminated unless the reason for termination has been removed. "If MSEB is obliged to acquire the power station, then during the period within which MSEB is required to make payment of the buy-out price, Cipco will be obliged to use reasonable endeavours to continue generation so long as all security (including the state government and centre's guarantee) remain effective," the draft escrow agreement said.

The obligation to continue generation would cease once the buy-out price falls due. In the event of any delay in the payment of the buy-out price MSEB and Cipco would discuss whether or not generation could continue on mutually acceptable pending payment by MSEB of the amount due to the lenders.