VPL, which is attempting to implement the 1,050 mw project in North Chennai, has been denied escrow cover by TNEB and refused entry into 200 acres of land taken on long lease for locating the power project.

TNEB and VPL have been locked in a bitter battle over the escrow issue and capital cost of the project. TNEB wanted VPL to reduce capital cost by Rs 243 crore after the latter had sought the increase as interest during construction (IDC) on the capital cost of Rs 4,423.80 crore.

After months of wrangling, VPL agreed to drop Rs 243 crore it was seeking as IDC and absorb it. This, according to a source close to VPL, was done by reducing the construction period by two months resulting in savings of around Rs 70-80 crore in IDC. The balance of around Rs 160 crore it is said is to be absorbed by EPC (engineering, procurement and construction) contractor.

VPL, thus, agreed to stick to original capital cost as approved by the techno economic clearance (TEC) of the Central Electricity Authority (CEA) and as demanded by TNEB.

Sources said VPL has fully tied-up all equity and loans and TNEB is refusing to approve the firm financial package (FFP) on flimsy grounds. It is pointed out that VPL has complied fully with all stipulations of TNEB in terms of project cost and other conditions. But TNEB has not cleared the FFP and not signed the shared facilities agreement between TNEB and VPL for coal imports. Also TNEB has not activated the escrow account in favour of VPL.

VPL is unhappy with TNEB for not giving its stamp of approval for revised FFP and forwarding it to CEA for final approval. The company, it is said, has charged TNEB and the Tamil Nadu government of breaching PPA as well as escrow agreements. Sources said unless TNEB meets three conditions - clearing FFP, signing shared facilities agreement and activating the escrow account - the power project will be stuck at a time when power requirements of Tamil Nadu is increasing at a rapid rate.

Sources say that VPL is committed to the project and, once FFP is cleared, can achieve financial closure within one month and power project can take off and be commissioned within three years. But if issues are not resolved within a reasonable period of time, sources say, VPL may be forced to go to court as a last resort and get an injunction preventing its escrow being given to someone else, or allow the project to be given to others and may even demand compensation from TNEB for expenses incurred and lost opportunity cost.